Canadian venture capital market has strongest first quarter on record


Venture capital activity in Canada hit an all-time record high in the first quarter, with US$3.5 billion in investment across 213 deals, up from US$3 billion (across 276 deals) in the year-earlier quarter, according to the latest KPMG Private Enterprise Venture Pulse Q1 2022 report.

Canadian start-ups in particular raised US$824.4 million in the first three months of the year — a period marked by global uncertainty due to the war in Ukraine, rising inflation and interest rates, continued supply chain pressures and the persistence of the COVID-19 pandemic. A majority of that total funding came from Toronto-based software firm, which raised US$650 million in a Series C round.

“While significant uncertainty during the quarter impacted the total number of deals, the amount of money being invested in the market is astronomical,” says Sunil Mistry, Partner, Private Enterprise and Technology, Media and Telecommunications, KPMG in Canada. “Canada’s VC ecosystem remains remarkably robust in the current environment, which is a strong indicator that Canada’s VC market has matured.

“We expect the VC market to remain stable over the next few quarters as the mountain of dry powder gets deployed. However, we could see some slowing by the end of the year if geopolitical and pandemic-related uncertainties persist.”

Similar to the global and U.S. VC landscape, Canada continues to attract significant VC investment in the technology space, which accounted for 105 of the 213 deals. The majority of deals were in artificial intelligence (AI) and machine learning (30 deals) valued at over US$1.2 billion*, followed closely by fintech (28), the report notes.

Top industry verticals by investments:
  • Artificial Intelligence /Machine learning – 30
  • Fintech – 28
  • Crypto/Blockchain – 17
  • Cleantech – 15
  • Life sciences – 10
  • Health tech – 9
  • AgTech – 7
  • Real Estate Tech – 7

Canada’s technology sector continues to draw significant attention from investors both within and outside the country,” says Dan Wilson, National Leader – Technology Sector, KPMG in Canada. “The pandemic has  accelerated digital innovation and use of technology across industry verticals with continued investment in AI, security tools, fintech, edtech and healthtech. We’ve seen a number of massive financing rounds in Q1 2022, and momentum building in cleantech. ”

Corporate Venture Capital and Exits take a hit

Corporate venture capital (CVC) investment dropped significantly in Q1’22, coming in at US$966 million, much lower than the previous three quarters, but still up from last year. There were 41 CVC deals in Q1’22, down from 56 deals in Q4’21 and 68 deals in Q1’21.

Following a record year for exits in 2021, first quarter exits saw a notable decline. There were only 27 exits worth US$77.5 million in Q1’22, a significant drop over the previous quarter (Q4’21 saw 34 exits worth US$3.4 billion) and last year’s Q1 (34 exits worth US$1.2 billion). Of the total exits in the first quarter, five were buyouts, two were IPOs, 16 were merger/acquisitions, and four were reverse mergers (two of which resulted in listings).

“It was very frothy market last year where many companies went public, but that’s dissipated as valuations have dropped. A lot of the companies that went public last year aren’t living up to expectations,” says Mr. Mistry.

“With inflation and interest rates going up, supply chain issues and geopolitical concerns could affect the IPO market.”

Globally, VC investment hit US$144.8 billion, higher than all but the four consecutive record-breaking quarters seen during 2021.

*Some deal values were undisclosed so this number could be much higher.

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