Canada’s venture market isn’t immune from the global market downturn, but unlike the U.S. — where everything seems increasingly bleak — there are quite a few bright spots in Canada’s ecosystem this year.
Data from the Canadian Venture Capital and Private Equity Association (CVCA) found that C$7.2 billion ($5.28 billion) was invested across 520 deals in the country through the third quarter of this year. This compares to C$15 billion deployed through 786 deals in 2021 (more on Canada’s last year here). Through Q3, the Canadian market had already surpassed its 2020 numbers. It’s also worth noting that, unlike in the U.S., the fourth quarter is not the slowest investment period each year in Canada.
A lot of recent Canadian venture investment has been concentrated in the early stages. So far this year, 88% of the known venture deals in Canada were seed or early stage, compared to 67% in the U.S., according to PitchBook.
CVCA’s manager of research and product, David Kornacki, said that despite the investment totals being lower than last year, there have been a lot of signs this year that the Canadian venture market is growing closer to maturity. For one, he thinks the proliferation of seed deals will create a good pipeline of later-stage opportunities in the region in a few years, something Canada has struggled with.
“Our previous seed and early-stage investments weren’t at the level that they are now,” he said. “We don’t have those later-stage deals but we will be seeing a lot more down the line. There is a strong series A, B, C pipeline now, which is something I didn’t see when I first joined CVCA in 2017.”
He added that the growing startup scene and funding opportunities will help keep talent and companies headquartered in Canada because they’ll view it as a stable market to build in.
Kornacki said that where money is coming from and where it is headed so far this year are also positive indicators for the market’s growth. He added that they are starting to see upward movement in the number of funds.
“Right now, it is record-high level of funds active in the market,” Kornacki said. “Record levels of deal activity. We will be seeing really high levels of investments that we haven’t seen before. A lot of players in the market are looking to capitalize on smaller companies, and that’s a good sign.”
While this is probably true in the U.S. this year, having a record level of funds actively investing carries a very different weight in Canada because it is still a more emerging startup market. For Kornacki, this shows that the market is setting itself up to keep growing.
Venture funding is increasingly spread out across Canada. While capital has continued to concentrate in the country’s top three cities (Toronto, Montreal, Vancouver), emerging hubs including Calgary, Kitchener and Halifax have grown this year despite a more challenging market. This is in stark contrast to the U.S. this year, where a lot of investors have retreated to companies on the coasts, specifically in the Bay Area and New York.
“Especially in my last five years, we didn’t really see that much activity across the board [outside the hubs], other than a few deals trickling in,” he said. “Canadian startups are really bullish on starting different platforms across Canada and being funded in these different areas, too.”
The Canadian market also continues to increase its investment in promising sectors. So far this year, clean tech investing volume in the nation has surpassed 2020’s totals, and agribusiness is on track to match or surpass 2021’s funding record. It’s neat to see that the momentum for these sectors remains, given their potential importance as the world heats up due to climate change.
There are a lot of reasons to be excited about the Canadian market. Sure, it’s affected by the current market conditions, but it still appears to be headed in many of the right directions. The same can’t really be said about the pace of venture deal-making here in the U.S.