The Canadian Venture Capital & Private Equity Association (CVCA) released its Canadian market overviews for H1 2022, which are based on data voluntarily submitted by a selection of venture capital and private equity firms. You can access the overviews for venture capital and for private equity. Our key takeaways were as follows:
Venture Capital (VC) Canadian Market Overview
Second quarter of 2022 saw $1.65 billion invested across 182 deals, with a total of $6.2 billion invested across 371 deals in the first half. The numbers are finally in! After concluding an outstanding year for VC activity, total investment value has returned to pre-pandemic levels last seen in 2019. The breakdown of those VC investments is as follows:
- $4 billion invested in total across 25 mega-deals, with $3.3 billion invested across 17 mega-deals in Q1 and $799M invested across seven mega-deals in Q2, each of those transactions being valued over $50 million, representing nearly 67% of all dollars invested in H1.
- The top three provinces for VC continue to prosper, with Quebec ($1.7 billion), Ontario ($3 billion) and British Columbia ($807 million) having exceeded their 2020 annual investment levels and on pace to surpass their pre-pandemic levels on an annualized basis.
- The Information, Communications, and Technology (ICT) sector accounted for 67% of total VC investments, with $4.1 billion invested and spread over 205 deals. Life Sciences saw a 29% increase in deal count, with a total of $622 million invested across 51 deals and a 51% dip in dollars invested quarter-over-quarter.
- More than 33% of all disclosed deals were made between $1-5 million, with 81% of those deals being valued below $20 million.
- Seed stage investments deals led H1 investment activity, accounting for 8% of all investment value and 49% of total deal count. Early-stage investments accounted for more than one-third of all transactions in H1, representing 16 deals totaling $2.5 billion.
- Capital from Ontario continues to lead in VC activity with 123 deals completed in Toronto, totaling an investment value of $2.8 billion.
- The most active firms in terms of the number of financing rounds were BDC Capital and Thin Air Labs, while the most active firms in terms of amount invested were BDC Capital and Inovia Capital Inc.
VC-exit activity experienced a significant decline from the previous year, with only 16 exits totaling $206 million and no IPOs. The public market slowdown, an increase in interest rates, and rising inflation have tightened investments while VC investors continue to observe the global economic uncertainties, waiting for the opportune moment to go public or exit.
Private Equity (PE) Canadian Market Overview
Total H1 investment was $4.96 billion, spread over 420 deals. As we enter the second half of the year, PE has begun to slow down compared to the previous year and has returned to its pre-pandemic levels. The breakdown of those PE investments is as follows:
- Quebec continues to lead the race with the highest amount of dollars invested by the province and accounted for 57% of the total deal flow, with $2.7 billion invested across 238 deals. Additionally, 64 deals were completed in Montreal and reached a total value of $957 million. Ontario came in second and accounted for nearly 24% of the total deal flow, with $1.4 billion invested across 100 deals. Toronto saw 61 deals completed, amounting to a total value of $509 million.
- A total of $618 million was invested across 51 buyout and add-on investment deals, accounting for a 19% increase in the total deal count when comparing Q2'22 to Q1'22.
- PE minority investments saw a total amount of $2.7 billion dollars invested across 117 deals, representing 54% of all PE dollars invested in H1 and almost 33% of all PE activity. Accordingly, 56% of PE minority investments occurred in Quebec ($1.3 billion) and 22% occurred in Ontario ($898 million).
- The Industrial and Manufacturing sector led the investment activity with 101 deals, representing a total investment value of $1.4 billion and accounting for 27% of the total dollars invested. Although the ICT sector was leading the total amount of dollars invested in Q1, it fell to second place with $1 billion invested across 77 deals in H1.
- The most active PE investors in terms of investment value were Fondaction, with $829 million invested across 16 deals, and Novacap, with over $628 million invested across 8 deals. BDC Capital was the most active with $271 million invested and completed 82 deals in H1.
PE exits are on track to be another year with a record number, with the current amount of exits already surpassing those of 2020 and 2019. H1 saw 73 exits primarily achieved by a secondary buyout transaction, representing 10 deals totaling $2.2 billion. There were no PE IPOs reported in this quarter.
Although the topic of the year thus far has been an approaching recession, there was a significant increase of 93% in dollars invested quarter-over-quarter from Q1 with 87% of all disclosed PE deals valued under $25 million. This large increase suggests that small and medium enterprises are receiving the needed capital to continue their role as the primary engine of job creation, which is essential during times of economic distress.
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