Canadian VC hits 15-year high in 2016 with $3.7 bln invested

BlueRock Therapeutics; Photo courtesy of Reuters/Mark Blinch

Venture capital investment in Canadian startups set an exceptionally strong pace in 2016, with a total of $3.7 billion invested in 571 financings, according to final data released by Thomson Reuters. Led by large-cap deals, including the US$225 million financing of BlueRock Therapeutics, dollars invested rose 36 percent from 2015 and reached a 15-year high. In contrast with dollar flows, the number of Canadian financing rounds in 2016 declined slightly (3 percent) year over year. Canadian venture capital fundraising also saw significant gains last year, with 26 funds raising $2.2 billion in total, representing an 81 percent increase over 2015 and a 13-year high.

A full PDF report on 2016 Canadian venture capital market activity by Thomson Reuters is available here.

REPORT SUMMARY (reproduced courtesy of  Thomson Reuters)

Canadian VC Market Trends

Venture capital investment in Canadian companies reached a fevered pace in 2016, setting new heights not seen since the heights of the dot com boom. A total of 459 Canadian companies closed 571 rounds of financing totalling $3.7 billion. This represented not only a fifteen-year high in dollars invested, but also a 36% increase over 2015, a year-over-year leap not seen since the year 2000, when VC investment more than doubled over 1999. While substantially more capital did flow to Canadian companies, it did not result in more companies being financed or deals being done. The number of venture capital rounds declined by 3% year-over-year, while the number of companies financed fell by 7%.

Growth was driven by large cap VC deals, with 14 companies raising rounds $50 million or greater in 2016, smashing the previous record of 12 such companies reaching that threshold in the year 2000. This abundance of large cap rounds pulled Canada’s average VC deal size up to $6.5 million this year from $4.6 million in 2015. However, Canada still ranked poorly compared to most other nations in terms of average round size, lagging far behind the USA at $16.7 million, the United Kingdom at $13.9 million, and Israel at $14.4 million.

Investment by Canadian funds in non-Canadian companies also had a strong showing in 2016, with just over $680 million invested in 92 deals. While this does represent a 54% increase in dollars invested from 2015, it was only this year that Canadian investment abroad returned to the more robust levels seen up to 2008. Highlights of Q3 dealmaking abroad included Ontario Teachers’ investment in Jasper Infotech, an India-based online shopping company; Intact Financial’s investment in MetroMile, a San Francisco-based pay-per-mile car insurance company; and Georgian Partner’s investment in Tealium, a San Diego-based provider of unified marketing solutions.

Canadian Fund Performance

While investment activity was on the rise in 2016, the performance of Canadian venture capital and growth equity funds had not reached the same heights. Data provided by Cambridge Associates shows Canadian venture capital & growth equity funds with vintage years of 2000 or greater returned a since inception IRR of only 2.9% as of September 30th this year, lagging far behind their US counterparts, public market equivalents, and only recently returning to positive territory.

Canadian VC Trends by Region

In a year when most US states saw their venture capital dealmaking decline from 2015 levels, Ontario and Québec stood out as two of the brightest spots in North America. With 225 deals valued at $1.8 billion, Ontario showed 48% growth over 2015, propelling the province into 4th place, behind only California, New York, and Massachusetts. The province of Québec, with 182 deals valued at $1.1 billion, still showed an impressive 26% growth year-over-year, earning a 9th place ranking.

Though Montreal had been leading Canadian cities as of the first nine months, Toronto pulled ahead with some substantial large-cap dealmaking in Q4, concluding the year with 158 deals valued at $1.2 billion. This represented a 52% increase from 2015 and pulled Toronto into 9th place among North American cities. With 133 deals valued at $909 million, Montreal placed 12th, the two Canadian cities being separated in the rankings by Seattle and Chicago.

Canadian VC Trends by Sector

The information technology sector continues to be the driving force behind Canadian venture capital investment, with $2.1 billion invested, or 56% of all market activity. Within that sector, Canadian software companies alone raised $1.2 billion, 4% more venture capital than was raised by all sectors combined just six years ago. Life sciences companies followed in second place with $1.1 billion, or 30% of market activity, while further investment was rounded out by other niche sectors including $172 million going to cleantech companies, and $168 million to consumer-related businesses.

Canada VC Fundraising Trends

Following on the heels of a lacklustre 2014 and 2015, Canadian venture capital fundraising set new heights in 2016. A total of 26 funds raised $2.2 billion, an 81% increase over 2015 and a thirteen year high. Such strong levels of VC fundraising suggest Canadian companies will find more funding options available to them in the years to come.

Photo courtesy of Reuters/Mark Blinch