What's Hot And What's Not In Canadian Venture Capital Funding - Corporate and Company Law - Worldwide (2024)

The Canadian Venture Capital Association (CVCA) released itsannual look at the state of venture capital (VC) funding in Canadain their 2023 Market Overview. The report provides adeep analysis of the country's market and insights on thelatest VC trends and strategic shifts.

So now that the numbers are in, what's hot and what'snot in Canadian VC funding? Where is the money coming from andwhere is it going? And what should companies and investors bethinking about as they look ahead?

Geography

In 2023, $6.9 billion dollars was invested into Canadiancompanies across 660 deals. Ontario led the provinces for venturecapital investments representing 48 percent of all dollars investedinto Canada in 2023 with $3.3 billion across 275 deals. Themajority of investments were into Toronto-based companies,accumulating $2.1 billion across 196 deals.

Canada has a sizeable stream of foreign venture capitalinvestments. In 2023, United States-based investors led foreigninvestment activity, participating in 32 percent of all deals.United States involvement in Canada remains significantly above thepre-pandemic level of 24 percent seen in 2020, demonstrating asustained and strong interest from American investors.

As can be seen below, the United States, Europe and Asia bringin sizeable venture capital funding.

The United States brought in the most foreign venture fundingwith $2.071 billion across 70 deals. Additionally, not included asa venture capital firm, U.S.-based Nvidia Corporation participatedin two of the largest funding rounds in 2023, totaling $405million, which resulted in a total of $2.476 billion dollarsinvested by the United States into Canada as documented by theCVCA.

European investor engagement has remained steady at 8 percentsince 2021. Asian investments have shown a consistent upward trend,with record high participation of 5 percent in 2023.

Who are the Most Active Firms and Funds?

In addition to the considerable foreign funding, both privateand government funds in Canada provide substantial funding toemerging companies.

As depicted in the graph below, government funds lead theinvestments with $4.267 billion dollars across 205 deals, followedclosely by private firms and other methods of funding in Canadawith $3.44 billion across 286 deals.

Non-Dilutive Financing Asserts Itself

Non-dilutive financing emerged as a dominant avenue of fundingin Canada in 2023. Amidst high interest rates, SR&ED backedfinancing emerged as the main non-dilutive financing methodrepresenting 90 percent of all deals in 2023. Venture debtcomprised the remaining 10 percent. The year saw a total of 482deals in non-dilutive financing, demonstrating a strong preferencefor such funding options. There was $526 million invested across482 deals with $139 million invested in 163 deals in Ontario.

Pre-Seed to Early Stage Companies

Pre-seed to early stage companies accounted for 84 percent ofall investments in 2023.

Pre-seed investment activity had a record high year since 2019with 128 deals and a total of $135 million in investment. The seedstage was the most active in 2023 in terms of volume oftransactions of all deals and remained consistent as it matched therecord level hit in 2022 with a total of $834 million investedacross 244 deals. Quarter over quarter, deal value saw a 3 percentincrease and deal count rose by 8 percent. The average deal size inseed stage companies reached a record high of $3.42 million in2023. Early stage companies saw investments across 42 deals whichaccounted for 30 percent of all transactions and 38 percent oftotal deal value in Q4.

Sector Breakdown

Information, communications and technology (ICT) was the hottestsector by far in 2023, attracting nearly half of all deals and 58percent of total funding. The $4 billion in investment activity wasdown from just over $6.5 billion in 2022.

Internet software and services was the leading segment in ICTwith $2 billion invested on 193 deals. Non-internet/mobile softwaresaw $607 million of investment on 64 deals. Mobile andtelecommunications had a busier 2023 after two years of limiteddealmaking. eCommerce had its slowest year since 2019.

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In the life sciences sector, therapeutic drugs and biologicspunched above its weight with $413 million in 17 deals, for anaverage deal value of $24.3 million. Health and wellness continuedto register only a sliver of investment in life sciences and saw athird year of decline.

Cleantech had a record 75 deals in 2023, although overallinvestment was slightly down from the previous year. Advancedmaterials has grown its share of cleantech investment every yearsince 2019, the only segment in the sector to do so. The share ofinvestment in energy efficiency over the past three years is afraction of what it was from 2018-20.

Agribusiness once again had the lowest amount of investment andthe fewest deals by sector. Activity was slightly up from 2022.Advanced agriculture attracted the most funding with $83 million on16 deals.

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