Canadian venture capital investments ramp up in 2016

Venture financing in Canada declined by 14% year-over-year in the first half of 2017, according to a new report from PricewaterhouseCoopers LLP (PwC) and CB Insights.

The firms report that venture-backed investments declined to $885 million (all figures in U.S. dollars) in the first half this year from $1.03 billion in the first half last year. In addition, the number of deals declined even more sharply, dropping by 25% to 127 in the first six months of 2017 from 170 in the corresponding period in 2016.

Financing activity was down in the second quarter (Q2) as well, marking the second consecutive quarterly drop. The report indicates that there was $400 million in venture financing in Q2, spread across 58 deals. In the same quarter last year, there were also 58 deals, but the overall value was much higher, at $600 million. Most of the quarterly decline came from a pullback in the healthcare and mobile telecom sectors, PwC says.

By comparison, there were 2,439 venture deals in Q2 on a global basis, up from 2,400 in the first quarter, quarterly funding activity surged to $42.9 billion in Q2 from $28 billion in Q1.

“This wasn’t a great quarter for Canada’s venture ecosystem especially when viewed against the global and U.S. funding and deal trends our data reveals,” says Anand Sanwal, co-founder and CEO of CB Insights, in a statement. “There are, however, some positive signals including the resilience in seed-stage deal activity and the continued presence of corporate and corporate venture capital investors.”

Indeed, the firms report that seed-stage deals accounted for 45% of the deal activity in Canada in the second half, up from below 40% in the two previous quarters. Furthermore, the report notes that 26% of the deals in Q2 included at least one corporate, or corporate venture capital, investor.

Investors based in Canada accounted for at least 50% of the active investors in Canadian companies in the seed stage, early stage and expansion stage, the report says, with U.S.-based investors making up the other largest chunk (representing at least one-third of the investors at each of these stages).

For later-stage deals, U.S. investors led the way, accounting for 58% of all investors. Investors in Europe and Asia provide the balance of the funding for Canadian firms, ranging from 3% for late-stage deals to 9% of early-stage deals.

Montreal-based BDC was the most active investor in Q2, followed by Toronto’s 500 Startups and Real Ventures, also of Montreal.

One bright spot so far this year is the artificial intelligence (AI) sector, which saw record investment activity in the first half. AI-focused companies closed 12 deals so far this year, raising $162 million, which represents, “the highest amount of funding in Canada in the past five years,” according to the report.

“The increase of corporate investments in AI is shaping Canada as a leader in this sector,” says Chris Dulny, national technology industry leader with PwC Canada, in a statement. “Canadian companies are attracting larger investments from top VCs who are increasingly focused on our homegrown tech talent and innovation. The funding landscape which includes corporate and government funding makes Canada a top destination for international investors who are keen to see tech reach its full potential.”

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