Canada: A Look At The Venture Capital Landscape In Canada

PwC has recently released the 2017 MoneyTree Canada report  for Q3 2017 (the Report), which provides insight into the landscape for equity financings in emerging venture capital (VC) backed companies headquartered in Canada.  While it may come as no surprise that financing activity has increased in Q3 2017, the magnitude of the increase, especially for Artificial Intelligence (AI) based companies, stands out as the focal point of the Report.

Key findings

  • Financing activity continues to increase: Annual investment is on track for another USD $2B year invested across more than 300 deals – record numbers compared to 2012 to 2015.
  • Drop-off in seed stage deals / Increase in early and expansion stage deals: Seed stage deals reached an eight-quarter low for total deal share while early stage and expansion stage deals reached eight-quarter highs for total deal share in Q3 2017.
  • AI record breaking funding: Total funding and deal volume for Canadian AI companies have already reached annual record highs.

A closer look at investment activity

In Q3 2017, approximately USD $858M had been invested across 81 deals, representing an increase of approximately 110% and 21%, respectively, relative to Q2 2017 and 129% and 13%, respectively, relative to Q3 2016.

At the end of Q3 2017, approximately USD $1.8B had been invested across 228 deals and the Report rightfully emphasizes a strong close to the year is par for the course: indeed, if 2016 is a reliable indicator for quarterly and annual expectations, we can expect financing activity in Q4 2017 to reach record highs as total funding and deal volume hit an eight quarter high in Q4 2016.

Ontario remains the hot spot for deal activity in Canada with total funding and deal volume greater than the combined total for British Columbia, the Prairies, Quebec and Atlantic Canada. Within Ontario, the Toronto market accounted for nearly half of deal volume (46%) and total funding (44%) this quarter, followed by Montreal (22% and 23%, respectively), Vancouver (16% and 10%, respectively), Ottawa (9% and 5%, respectively) and the Waterloo region (7% and 18%, respectively).

Deal share by stage

In Q3 2017, seed stage deals accounted for only 32% of total deal share in 2017 – down 19% and 12% from Q2 2017 and Q3 2016, respectively.  Early stage and expansion stage deals, however, each experienced increased activity relative to Q2 2017 and Q3 2016 to account for a combined 48% of total deal share.  Indeed, expansion stage deals in particular appear to be on the rise: accounting for 21% of total deal share in Q3 2017 represents a climb to an eight-quarter high after averaging just 12.9% of total deal share over the previous 7 quarters.

Deal share by sectors

The sector that accounted for the highest activity, both in total funding and deal volume, was the internet sector.  In addition, and perhaps more importantly, it appears as though investors have their sights set on AI based companies as both total funding and deal volume involving such companies have hit record highs for the year: AI based companies have received USD $191M in financing across 22 deals. As discussed in a previous blog post, this is a strong indication that we are indeed in the midst of the AI gold rush.

The author would like to thank Peter Valente, Articling Student, for his assistance in preparing this legal update.


About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

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Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.

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