Canadian venture capital (VC) investment rose sharply in Q3 2013, while Canadian buyout and related private equity (PE) deal-making showed continued moderate decline over the same period in 2012.
These were among the key findings from data released by CVCA – Canada's Venture Capital & Private Equity Association and research partner Thomson Reuters.
Investment activity in Canada's VC market rose sharply in terms of both deals and dollars in the third quarter of 2013. Disbursements by VC funds totalled CAD541m between July and September, up 48 per cent from the CAD366m invested at the same time in 2012. In the same period, the number of VC financing rounds involving innovation-based Canadian companies totalled 103, up 17 per cent year over year.
Higher levels of Canadian VC activity in Q3 2013 helped push dollars invested to a total of CAD1.4bn as of September 30th, which is 27 per cent greater than the CAD1.1bn invested during the first nine months of 2012. In fact, VC investments to year to date already nearly match the CAD1.5bn invested in the whole of 2012. The 322 VC financings completed in the first nine months of 2013, is comparable with deal-making of the year before which is indicative of the current trend in the Canadian market toward relatively larger deals. Financings of innovative companies averaged CAD5.3m in the third quarter, up from an average of CAD4.2 m one year ago, and from an average of CAD3.1m in Q3 2011.
It should however be noted that the average size of Canadian VC financing rounds in Q3 2013 was heavily influenced by several major transactions, including the USD165m Series B financing for Vancouver-based HootSuite Media, the largest VC deal ever for the Canadian market.
"This upswing in VC financing activity is very encouraging for entrepreneurial companies and for the Canadian economy as a whole and really exactly what we would have expected to have seen following the relatively successful new fund formation activity in 2012," says Peter van der Velden, president of the CVCA and managing general partner of Lumira Capital Corp. "This level of activity is particularly encouraging given the recently released data on the very positive impact of VC investment in terms of job creation, revenue growth and asset growth."
The increase in the average deal size over the first nine months of 2013 helped to narrow the gap of what innovative Canadian companies raise relative to their US peers to 58 per cent. This was an increase relative to the to the 47 per cent average overall last year.
American VC funds and other foreign investors have played an important role in capitalising some of the larger Canadian financings in the first nine months of 2013. To date, foreign VC funds have invested CAD564m which amounts to 40 per cent of all dollars invested. This level of activity is 86 per cent more than these investors accounted for in the domestic market at the same time last year but is again skewed by a couple of large deals.
In terms of sector activity, the HootSuite financing of Q3 2013 helped ensure that software and other information technology (IT) sectors led the way. As of 30 September, IT companies had absorbed 45 per cent of all investments. A number of major agribusiness and non-technology deals have contributed to greatly increased dollars going to traditional sectors in 2013. Year-to-date, traditional companies have garnered a total of CAD337m, or 24 per cent of total VC investment.
