Canadian Venture Capital Investment Reaches All-Time High of $14.2 Billion in 2021

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Canadian venture capital investment reached an incredible level last year, increasing by 215% compared to 2020.

Venture capital investments in 2021 reached $14.2 billion, following a trend of record years for venture capital investments that have exploded in all years past.

According to the new report from the Canadian Venture Capital and Private Equity Association (CVCA), it’s not just the dollar amounts that have gone up. Canada also saw more deals closed at all stages of funding, from start-up to growth capital.

In 2021, the $14.2 billion (all figures in CAD) was invested in 751 deals, compared to $4.5 billion in 513 deals the previous year (note: numbers may differ from prior reports based on updated HVAC data). Venture capital debt also rose 31%, to $493 million from 95 deals.

CVCA CEO Kim Furlong expressed enthusiasm for the results, noting that they indicate a healthy investment ecosystem. However, Canada still lags behind the United States, and Furlong says there is still work to be done to bring the country’s venture capital market to par.

Growth at all levels

Furlong noted that big deals, like Wealthsimple, helped Canada hit $14.2 billion, but specifically pointed to the amount of activity from start to finish as a sign of a healthy ecosystem.

“We saw a 165% spike in early stages and seed [deals], which is so important because if you want to keep adding that growth activity, you have to seed the garden,” she said. “We need to continue to have a pool of potential companies that will continue to grow. So that signals an extremely healthy ecosystem that you’ve seen a fairly equal level of activity across all three segments.

Furlong’s statements come after continued concern that seed-stage investments in Canada are being left behind. In the results of the third quarter of 2021, the amount of start-up investments in Canada did not increase proportionally to the rest of the stages. Furlong commented at the time, “We just need to focus more on the seed stage.”

This latest report shows that the seed stage saw the highest number of deals closed last year, with 321 seed deals, 292 early-stage, 91 late-stage and 25 growth capital. The seed phase also saw the largest increase (105% year-over-year) in the number of transactions.

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Furlong attributes the company’s growth to foreign investment, the maturing of the tech ecosystem over the past decade, and corporate buy-in.

Over the past year, the CVCA has seen a growing number of foreign venture capital firms investing in Canadian companies. Furlong noted that as tech ecosystems outside of Silicon Valley have matured, more capital is flowing into ecosystems outside of Silicon Valley, including Canada.

“It was a Silicon Valley game and it isn’t anymore,” she said. “Every country, from Israel to Singapore; I have meetings with counterparts all over the world, from Hong Kong to Brazil to South Africa, and everyone has a VC [and] PE [private equity] portion of capital invested…we are all seeing an increase.

While U.S. investors still dominated the list of the most active foreign venture capital firms in Canada, the CVCA report says German firm Global Founders Capital closed the most deals for a company. with $577 million invested in 13 deals.

The active VC market in Canada has also been boosted by the growth of the technology sector, with around 60% of all venture capital deals in the sector over the past year. The information, communications and technology (ICT) sector attracted more than $9 billion out of a total of $14.2 billion.

The maturation of the tech industry over the past decade is reflected in the number of large and subsequent deals completed and public market exits.

Last year saw the highest number of megadeals (over $50 million) ever. These offerings include Wealthsimple, Trulioo, Dapper Labs, and ApplyBoard. The most significant exits disclosed include the sale of Verafin to Nasdaq (closed in early 2021); the IPOs of Coveo, Dialogue and Q4 Inc.; and the sale of Redlen to Canon.

Releases represented a 92% increase in number of releases, but a 15% decrease in total value. 2021 set a record for the most number of initial public offerings (IPOs) at eight, but with a value of $2.9 billion, this represents a 68% drop from the total value of IPOs from last year.

“Trends in 2021 indicate that there are more venture capital-backed companies going public at lower valuations, a trend that could continue into 2022,” the report said.

Furlong also pointed to increased corporate membership as another reason for the exceptional increase in venture capital investments. The CVCA cited Deloitte Ventures, Emmertech and Spin Master Ventures as such examples. Last year, companies like Thomson Reuters also unveiled a US$100 million corporate venture capital fund.

CVCA data on the PE space also shows a strong year for these types of investments. Although not as record high as VC, the private equity market has returned to levels comparable to pre-pandemic levels and the 5-year average, with $18 billion invested in 799 deals. This represents the highest number of deals on record, and the year also saw the highest number of exits and IPOs ever recorded with 88 exits in total (six of which were IPOs). One of the most significant transactions was the acquisition of Paybright by Affirm.

While the record year for venture capital investment is notable, Furlong says Canada still has “significant room for growth.”
“We are.. not even five percent of the United States [venture] Marlet; we represent about 4.5% of the US market,” she said. “So our ambition must not only be to celebrate this year, which has been a fabulous year and I am going to celebrate it, but I am also taking a step back from our trajectory and the work that remains to be done.”

Canada’s record of $14.2 billion falls in the shadow of the United States’ record year of US$329.9 billion, double the previous year. Furlong argues that Canadian investments should be one tenth of the US market given our relative size.

“The year I arrived [to CVCA] …we brought in $3.7 billion, and at my second board meeting I said to the board, “we should have the ambition to be one tenth of the US market because we are a tenth in everything else. And at the time, the United States was at $130 billion,” the CVCA CEO said. “We hit that target this year, but then you look at the United States and they’re at $329 billion. So now our ambition should be to be a $30 billion market.

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