The first quarter of 2024 saw mixed results in terms of venture capital (VC) funding and a significant pickup in private equity (PE) activity, according to a new report.
Nearly $1.3 billion CAD in total VC financing was deployed into Canadian technology startups across 128 deals during Q1, per data collected by the Canadian Venture Capital and Private Equity Association (CVCA). Both declined relative to Q4 2023.
Caution, an emphasis on profitability, and a focus on life sciences, AI, and cleantech were also reflected in Q1 data.
In terms of total dollars invested, this represented an eight percent increase relative to the first quarter of 2023, fuelled by financings from artificial intelligence (AI) startups like Ideogram, Spellbook, and Borderless AI, healthtech companies including PocketHealth and Flosonics Medical, FinTech firm Helcim, and last-mile delivery provider UniUni.
Deal count-wise, however, 128 marked a 28 percent drop year-over-year and the lowest quarterly number since the beginning of the pandemic in Q3 2020, as the Canadian tech sector continues to contend with a tough market environment. The average deal also surged to $10 million in Q1, a 47 percent rise relative to the same period last year.
“This trend of fewer but larger deals suggests that investors, despite having capital, are exercising greater caution and prioritizing investments amid challenging macroeconomic conditions,” stated the CVCA report. In a statement, CVCA CEO Kim Furlong noted that in Q1, investors continued to focus on “supporting resilient companies with demonstrated financials.”
As Furlong predicted to BetaKit earlier this year, investor caution, an emphasis on profitability, and a focus on sectors like AI and cleantech were also reflected in the data CVCA gathered. So was a boom in life sciences investment. But funding for information and communication technology (ICT) companies saw a “significant downturn,” as ICT deal count stayed stable but investment value plummeted to lows last seen in Q3 2020 during the early days of COVID-19.
While early-stage VC funding remained strong during the first quarter of 2024, CVCA reported that Series A and Series B financing drove this activity, while the pre-seed and seed stage investment declined, with the former dropping back to 2020 levels. Later-stage investing also continued to fall, as Q1 saw the lowest deal count on record since 2017. For its part, venture debt financing remained stable.
RELATED: Canadian late-stage VC funding continued to slip in 2023
On a brighter note, Q1 saw 18 VC exits totalling $3.9 billion, a number that already accounts for 50 percent of the total exit value realized during all of 2023.
Between current market conditions and the federal government’s capital gains inclusion rate hike, challenges still lay ahead for Canada’s VC and tech sector. The CVCA believes the latter marks “a significant blow” to the industry and reiterated its opposition to this policy change.
Over on the Canadian PE front, Q1 saw a resurgence following the lows of last year, as 140 PE funding transactions worth a combined $4 billion took place, including large financings by Montréal travel technology firm Plusgrade and software consolidator Valsoft.
CVCA noted that this bounce-back was fuelled partly by the series of privatization deals that occurred, as public companies like Toronto-based investor-relations tech firm Q4 Inc. decided to return to private markets. Go-private transactions like this collectively accounted for nearly half of all exit value during Q1 2024.
RELATED: Report: Canadian corporate VC funding is dismal compared to the US
“This quarter, we’ve observed a strategic shift towards privatization,” said Furlong. “These transactions showcase [PE] as a reliable partner, providing both stability and growth in increasingly turbulent markets.”
Similar to what happened on the VC side, relative to Q4 2023, in the first quarter, total PE deal volume dropped by 17 percent and the average value of those transactions increased by 52 percent as PE firms invested larger amounts across fewer companies, CVCA reported.
Exit activity on the PE side of the equation also rebounded, as, per CVCA, 15 exits worth a combined $2.8 billion took place during the first quarter of 2024, including that of Hamilton-based precision oncology company Fusion Pharmaceuticals.
This surpassed the total exit value for all of 2023 and puts 2024 on track to beat 2021 and 2022. Furlong said these results signal “an optimistic outlook for the year ahead.”
