Venture capital investment in Canada took a major dip in the third quarter (Q3) of 2020, according to the Canadian Venture Capital and Private Equity Association (CVCA).
Investment in Q3 dropped by 63 percent year-over-year, with just $891 million across 126 deals (all dollar figures are in CAD). This is also 47 percent less than the total investments made in the second quarter (Q2) of 2020.
“The realities of COVID and the continued strength of valuations is apparent in the deal flow.”
CVCA CEO Kim Furlong attributed the decreased venture capital investment to the COVID-19 pandemic. “The realities of COVID and the continued strength of valuations is apparent in the deal flow,” she said, noting that Q3’s results are more aligned with the deal flow challenges created by the pandemic than those from Q2.
“The strength of Q2 was in many ways a combination of GPs further capitalizing their portfolio and the added capital injections of BDC and EDC matching programs,” said Furlong.
The second quarter of 2020, which was the first quarter that reflected the effect of the COVID-19 on the market, saw Canadian venture capital investment reach a record high – much to the surprise of industry leaders. In the quarter, $1.66 billion was invested across 145 deals, a 23 percent year-over-year increase and more than double the amount invested in the first quarter of 2020.
At the time, Furlong attributed the deal flow to stimulus and incentives from the federal government, as well as VC firms “doubling down” on investing in the “leading stars” in their portfolios.
Last quarter was also the second-biggest quarter for Canadian venture capital investment over the last number of years, only beat out by Q3 2019, which marked the highest dollar amount ever invested in Canadian companies ($2.48 billion).
A direct correlation can be made between Q3 2020 and Q3 2019, as both quarters saw 126 deals, though with notably different dollar amounts invested.
While Q3 2019 saw 12 mega deals, this latest quarter only saw three such deals reported: Vancouver-based Chinook Therapeutics’ $140 million pre-IPO round; Kitchener-based ApplyBoard’s $70 million Series C extension; and Calgary-based Attabotics’ $66 million Series C round.
Much like Q2 2020, the third quarter continued to see the largest amount of capital going towards later-stage deals. Later stage represented 45 percent of the total investment with $1.6 billion over 57 deals. Early-stage received 42 percent of investment, while eight percent went to the seed stage.
The data shows a noticeable change in early-stage venture capital investment in Canada, when compared to Q3 2019. Despite the large number of later stage mega-deals last year, early-stage companies still received the largest portion of investments, with later-stage pulling in just 23 percent.
This reflects trends that have been seen throughout 2020 where investors are looking to bolster their portfolio companies, with limited investment in new and earlier stage companies.
Investment by sector, region, private equity
Investment in the information, communication and technology sector remained strong, as did the regions that receive the most amount of capital. Ontario led the way, followed by Quebec and British Columbia.
An interesting juxtaposition to CVCA’s national report is the recent data from Hockeystick. Disclosure: BetaKit is a Hockeystick Tech Report media partner. In two reports published Wednesday, Hockeystick found that the Greater Toronto Area (GTA) and British Columbia (BC) had positive quarters for venture capital investments.
Following two disappointing quarters for venture funding of startups in the GTA, the region reached a yearly high. In BC, the tech ecosystem saw “robust venture capital deal activity” in Q3. Hockeystick’s report stated, “COVID-19 has not slowed down deal activity in the [BC] region, but its impact can be seen in the types of companies raising funds.”
Notably, Hockeystick’s data is sourced through exclusive partnerships with organizations like the CVCA and the National Angel Capital Organization, as well as data from startups using its platform and public data sources.
The CVCA also reported that private equity investment was down in Q3 2020, with $1.4 billion invested over 155 deals compared to $1.9 billion over 177 deals last year. The report stated that year-to-date private equity activity is tracking 25 percent below the four-year average in both dollars invested and deals.
Photo by Adeolu Eletu via Unsplash