Canada's Venture Capital Market in 2013: VC Investments at $2 billion; Highest Since 2007
TORONTO, Feb. 27, 2014 /CNW/ - A key highlight for 2013 includes $2 billion of new venture capital investment up 31% invested in 2012, while fundraising dropped 24%. These were among the findings of a statistical report released today by CVCA- Canada's Venture Capital & Private Equity Association and research partner Thomson Reuters.
Investment activity in Canada's venture capital (VC) market increased significantly in 2013, especially in terms of dollars invested in innovative companies. Investments made by VC funds totaled $2.0 billion as of December 31st, 31% more than the $1.5 billion invested in 2012. In fact, investments in 2013 were at their highest level since the peak of the previous cycle in 2007.
During 2013 452 deals were completed, up 2% over the prior year, and in contrast to prior years investment was slightly more skewed to early-stage and expansion financings of Canadian innovative companies.
Canadian VC market activity was given a substantial boost in the final quarter of 2013, when a total of $547 million was invested in 113 financing rounds. Dollars invested between October and December was 40% more than the amount reported during the same fourth-quarter period in 2012.
Year-over-year growth in Canadian disbursements in 2013 was driven by a number of major financings, including those completed for Vancouver's HootSuite, one of the largest rounds of venture capital funding in Canadian history, Ottawa-based Shopify, Burlington-based Anaergia and Markham-based Real Matters. These and other transactions helped ratchet up Canadian company financing sizes to an average of $4.3 million for 2013 as a whole, which improves on the $3.3 million averaged the year before.
Commenting on the results, Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp. noted "The investment results for 2013 are really encouraging and pushed Ontario, Quebec and BC into the top 10 regions for VC ranking in North America. Investment activity this year highlights Canada's phenomenal potential as an innovation leader in the global economy and these investments illustrate the both the importance and rationale for a strong domestic Canadian venture capital ecosystem."
Larger domestic VC financings in 2013 had the effect of narrowing the competitive gap in deal capitalization between Canada and the United States. At the end of December, Canadian innovative companies garnered 54% of the dollars going to counterpart companies based in the United States, compared to the 46% that was averaged in 2012. It is however worth noting that the median investment size from Canadian investors just under a third of the median investment from non-Canadian firms suggesting that the foreign investors continue to focus their capital on the bigger deals.
Trends by Sector
Canada's VC market activity continued to be driven primarily in information technology (IT) sectors in 2013. As of December 31st, IT companies secured $1.1 billion invested in total, or 54% of all disbursements, and showed year-over-year growth of 19%. A major story in trends last year was the role played by internet-related deals, as these captured $497 million, compared to $217 million accounted for in 2012, helped by HootSuite and Shopify. Software took second spot in 2013, with $378 million invested.
Trends in Fundraising
The fundraising activity of Canadian VC firms which decreased in 2013 relative to the especially strong fundraising year that was recorded in 2012. New capital commitments to partnerships and other funds totaled nearly $1.3 billion last year, which is 24% less than the $1.8 billion that was committed the year before. The $1.3 was also skewed upward by certain evergreen funds re-allocating capital to dedicated pools which really do not reflect net new capital.
The number of domestic funds closing on new capital was also slightly fewer, with these totaling 27 this time around as compared to the 33 funds of 2012.
Much of the overall drop in Canadian VC fundraising activity was accounted for by private-independent funds, which brought $629 million into the market in 2013, down 51% year over year. In contrast, commitments to labour-sponsored and other retail VC funds, which totalled $488 million last year, actually reflected an 18% increase compared to their activity in 2012.
Commenting on 2013 fundraising, Mr. van der Velden said "Long term sustainable capital still remains a big concern. If one nets out re-allocations and retail VC funds it is evident that that private sector venture capital funding is still materially below the level required for a sustainable ecosystem. Continued performance by independent partnerships and the implementation of programs such as the federal Venture Capital Action Plan should help the sector to continue to build on the positive momentum and hopefully encourage more corporate and institutional investor commitments to top-tier Canadian venture capital partnerships."
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See related infographic: The Real Impact of Venture Capital on Canadian Businesses
The CVCA is the voice of Canada's venture capital and private equity industry. The CVCA's members manage the vast majority of private capital that is designated to grow Canadian businesses. The CVCA fosters professional development, networking, communication, research and education, and represents the venture capital and private equity industry in public policy matters. The CVCA was founded in 1974. www.cvca.ca
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