Canada is set to finish off 2021 with a new record for venture capital deals, according to Silicon Valley Bank’s State of the Markets report for the fourth quarter of 2021.
Silicon Valley Bank’s quarterly State of the Markets report analyzes the state of venture capital and investing in several international tech markets, including Canada. The report’s Canadian data is sourced from private market data company PitchBook, the Association of University Technology Managers, and Silicon Valley Bank’s own internal data and analysis.
“Canada has a steady track record of quality companies, and founders actively court US investors — and their deeper pockets.”
Silicon Valley Bank’s report tracked venture growth rounds by size, specifically those greater than $10 million, greater than $25 million, and greater than $50 million. According to its data, Canadian companies have already smashed records across all three deal sizes this year. With one quarter still to go, the report said Canada’s innovation economy is “thriving” and has joined the global conversation.
In the $10 million-and-up category, Silicon Valley Bank tracked 174 deals for this year up to Q3 2021, eclipsing Canada’s last record of 135 deals in 2019. For deals greater than $25 million, the venture firm has tracked 92 deals, which beats out the 2019 record of 69. In the $50 million-and-up category, Silicon Valley Bank has tracked 61 deals total, surpassing the previous record of 29 deals by over 70 percent.
However, 2021 has not completely wrapped yet. Based on the run rate of investment for 2021, Silicon Valley Bank estimates Canadian companies could clinch an additional 44 deals greater than $10 million, an additional 23 deals greater than $25 million, and an additional 15 deals over $50 million in the fourth quarter of this year.
Silicon Valley Bank’s results are consistent with other data pointing to the explosive growth of Canada’s venture capital market. A November report from the Canadian Venture Capital and Private Equity Association (CVCA) found that even by the end of Q3 2021, VC investment in Canada had hit an annual high, with $11.8 billion spread across 568 deals.
Silicon Valley Bank’s report notes several factors have been responsible for the record year in Canadian venture capital. The first is Canada’s growing attractiveness to foreign investors, particularly investors in the United States. The report said five years ago, US investors were eyeing Canada because it was then considered a “less competitive” market.
“This is not so much the case today,” the report said. “Canada has a steady track record of quality companies, and founders actively court US investors — and their deeper pockets.”
According to L-SPARK’s latest State of SaaS report, the growth of Canadian investors was outpaced by the growth of US investors this year, and some of the largest deals closed in 2021 had significant backing from US investors.
SoftBank, which operates the largest venture fund worldwide, invested in Clearco’s $268 million July round of funding. Al Gore’s Generation Investment Management also led AlayaCare’s $225 million Series D funding round, one of the largest closed in the Montréal region this year. Silicon Valley-based TCV led Trulioo’s $476 million Series D funding round, propelling the Vancouver-based firm to unicorn status.
Silicon Valley Bank said the push for more US investor participation can be attributed to a valuation premium Canadian companies experience when a US investor backs a funding round. The report noted that the COVID-19 pandemic has also furthered foreign investment in the country by dissolving the geographic barriers that previously kept Canadian startups insulated.
While US dollars continue to flow into Canada, one prevailing concern is talent flowing out of the country. Canada’s brain drain stands as one of the most prevalent challenges for tech firms, which are contending with the draw of tech hubs in the US.
But Silicon Valley Bank’s data said one element of Canada’s innovation economy is tempering this longstanding concern: universities. Silicon Valley Bank’s report notes that in 2020 alone, academic discoveries led to the creation of 104 startups in Canada, with more than 86 percent remaining in their institution’s home province.
What’s more, Canadian universities conducted more than 40 percent of the country’s research and development. The Universities of Toronto, Waterloo, and British Columbia were found to be some of the top post-secondary institutions for producing Canadian VC-backed companies.
Although US investors play an increasingly important role in the Canadian venture landscape, the most active investors continue to be Canadian. Real Ventures, Panache Ventures, the Business Development Bank of Canada (BDC), Golden Ventures, and MaRS were all ranked by Silicon Valley Bank as the five most active investors in Canada.
Canadian VC firms, including Rhino Ventures, White Star Capital, and Inovia Capital, have also managed to raise sizeable funds this year, signalling that Canadian VC investment could continue its upward trajectory in 2022.
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Image source Unsplash. Photo by Charles Deluvio.