Q1 2021 highest on record for Canadian venture capital with $2.7 billion invested

The first quarter of 2021 was a history-making one for Canadian venture capital with the highest-ever recorded amount invested at $2.7 billion.

Private equity activity in the country was also at its highest levels with 177 deals, though the quarter saw a notable dip in the amount invested, according to the Canadian Venture Capital and Private Equity Association’s (CVCA) latest report.

“This rise of growth is contributing to the current IPO rage which is expected to continue throughout 2021.”

The CVCA reports the numbers from the quarter were driven by 16 later-stage, mega-deals (deals surpassing $50 million), which accounted for 67 percent of total dollars invested. In addition to the sizeable deals, the first part of 2020 was also buoyed by the amount of capital flowing into Canadian companies, the number of startups that went public, a pick up in merger and acquisition activity, and notable valuations.

“Q1 2021 was the strongest quarter on record with CAD $2.7B invested which was propelled by late-stage deals with an increase in investments in Canada’s best-performing companies,” said CVCA CEO Kim Furlong, in the report. “VCs are willing to stay the course across all stages of the startup life cycle. This rise of growth is contributing to the current IPO rage which is expected to continue throughout 2021. It’s an exciting time for Canada’s innovation sector and a testament to the role VCs play in our economy.”

The $2.7 billion was invested across 178 deals during the first three months of this year. It is a noticeable increase from previous years, with the first quarter of 2020 (which did not reflect the impact of COVID-19) seeing $831 million invested in 117 deals and Q1 2019 recording $897 million in 116 deals. All numbers are in CAD.

The numbers from this recent quarter also surpass Canadian venture capital’s previous recording-breaking quarter in Q3 2019, when investment surpassed $2 billion for the first time.

As the CVCA reports, eight of the top mega-deals in the quarter surpassed $100 million, including Vancouver-based startup Fraction Technologies, which pulled in $289 million in a mix of equity and debt financing; Hopper‘s $213 million deal; Top Hat‘s $130 million USD investment from Georgian; Clearco‘s $125 million equity financing; and Snapcommerce‘s $107 million round.

There were also a total of eleven venture-backed exits in Q1 2021 amounting to $4.8 billion in total value. According to CVCA data, the exits in the quarter represent 30 percent of the total exits and almost 50 percent of the total exit value in all of 2020. The largest exit in the quarter was St. John’s-based Verafin. Others include Dialogue Health Technologies’ IPO, Moka’s $64 million sale to Mogo, as well as Element AI‘s acquisition by ServiceNow of $230 USD million.

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Private equity also played an important part in the later-stage growth of companies, according to the CVCA reports. “I cannot think of a time when private equity investment— both minority and buyout — were more important,” wrote Furlong.

“For the first time, we’re seeing more ICT companies receive PE dollars than any other sector,” she added. “We have been waiting for this evolution in PE as Canada’s innovation sector continues to grow and mature. The exit environment is also hot, and the current IPO activity is expected to continue throughout 2021.”

While the quarter was a record for the amount of PE deals, dollars invested ($2.6 billion) was down and marked the third-lowest level of Q1 dollars invested based on CVCA records. Some notable PE deals in the quarter include Benevity and Paystone investments as well as PayBright’s acquisition by Affirm.

The increase in later-stage capital has been a mounting trend over the last year as the pandemic led to many VCs doubling down on their existing portfolio and tech companies finding pathways to success amid an increasingly remote world. In all of 2020, late-stage investments accounted for the most VC activity, whereas 2019 was driven by investments in early-stage companies. With the trend continuing in Q1 2021, the CVCA called the growth in later stage VC investment a signal that more Canadian companies may be preparing for IPO.

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While the quarter was mainly driven by later-stage deals, early-stage investment also saw a boost. Compared to the same time last year, early stages (Series A and B) saw a 115 percent increase in investment amount, pulling in $899 million across 75 deals. Seed stage investment surpassed $149 million spanning 71 deals.

Speaking with Furlong earlier this year, she highlighted the importance of continuing to support early-stage investment as the Canadian tech ecosystem develops. “We can’t say this enough, [investors] can’t only fund late-stage and growth and not fuel [their] pipeline and make sure like the early stage is getting enough money,” she said.

The Information, Communications & Technology (ICT) sector continued to lead the way with 54 percent of total dollars. By region, Ontario remains at the top of the activity chart with $1.2 billion. Collectively, the most active provinces were Ontario, British Columbia and Quebec, accounting for nearly 90 percent of the investment in this quarter. BC saw 23 percent of all dollars while Quebec received 20 percent.

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BDC Capital was the most active venture firm in the quarter with $435 million invested across 32 deals. This was followed by Inovia Capital with $576 million in 15 deals, Panache Ventures’ 10 deals with $329 million invested and Globe Founders Capital with $358 million across four deals. Real ventures also remained active with 11 deals and $124 million invested.

In terms of venture debt, the first quarter of 2021 saw a total of $214 million invested across 14 deals, which accounts for 57 percent of all the venture debt investment value in all of last year, and 22 percent of last year’s total deal count.

Other highlights from the quarter included the Government of Canada’s commitment to renew the Venture Capital Catalyst Initiative (VCCI). Furlong called the first two versions of the federal programs, the Venture Capital Action Plan (VCAP) and VCCI “instrumental in the results we are seeing in Q1 today.”

“While Canada’s fundraising environment is still emerging, the third program positions us to capitalize on the solid foundation that VCAP and VCCI have established for
our innovation economy,” she said.

Image source Unsplash

Meagan Simpson

Meagan Simpson

Meagan is the Associate Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.