Q3 2022 VC & PE Canadian Market Overview
Venture Capital Key Findings
VC Activity Slows but Remains Above Historical Averages
CAD $896M of venture capital dollars were invested across 144 deals in the third quarter, bringing the year-to-date (YTD) total to $7.2B invested across 520 deals as VC investment continues to normalize to pre-pandemic levels. While there was a quarter-over-quarter (QoQ) decline in investment value and deal count, investment in Q32022 is comparable to the same quarter in 2020 and with a higher deal count.
“Canada’s VC activity is mirroring global trends, particularly that of the United States, in both deal count and in a similar drop in investment size, as investors continue to monitor market conditions and founders hold off on fundraising,” said Kim Furlong, Chief Executive Officer, CVCA. “Q3 shows two positive trends, first an uninterrupted growth at the seed stage and second, a higher than historical average allocation to cleantech.”
Investment into early and seed-stage companies demonstrate the most resilience this quarter, comprising 45% and 43% of all transactions respectively. There was CAD $152M invested at the seed stage across 62 deals, bringing the YTD total to CAD $630M, nearly double 2020 levels and on pace to match 2021’s record by year end.
The information, communications, and technology (ICT) sector continued to lead for investment, accounting for over half of all VC deals YTD, with CAD $4.5B invested across 271 deals. The life sciences vertical closed 16% of all deals so far this year at 82, accounting for 12% of all deal value. Investment into cleantech surpassed 2020 levels with CAD $459M invested across 36 deals. Institutional and government net-zero targets are driving investments in the cleantech space.
Private Equity Key Findings
PE Investors Cutting More but Smaller Cheques Amid Continued Economic Uncertainty
CAD $2.4B was invested into 199 deals in the third quarter of 2022, bringing the year-to-date (YTD) total to CAD $6.5B across 622 deals.
PE deal count is up by 9% YTD from the same period last year, already surpassing 2021’s total annual deal count while 86% of all disclosed PE transactions were under CAD $25M. There is an absence of larger PE deals so far this year which has led to the marked decline in overall PE deal value with only one $500M+ deal closing earlier this year. The largest disclosed deal this year was the private placement of common shares by Caisse de dépôt et placement du Québec & the Canada Pension Plan Investment Board into Quebec-based WSP Global for CAD $460M.
“Investors are gravitating toward smaller deals and add-ons given challenging macroeconomic pressures,” said Kim Furlong, Chief Executive Officer, CVCA. “PE investors are taking a cautious approach, prioritizing deals that require less valuation adjustments amid market conditions. We’re seeing the same trendlines with the market performance in the U.S.”
Exit activity through mergers and acquisitions (M&A) is outpacing the 5‑year average in number of transactions by 19% while trailing behind in total value by 48%. Meanwhile, there have been no initial public offerings (IPOs) so far in 2022 as companies continue to stay private given increased public market volatility.
Historical information provided by CVCA is subject to change. Every effort has been made to provide information that is current and accurate. Nevertheless, inadvertent errors in information may occur. The information contained through CVCA quarterly market reporting and CVCA Intelligence has been made available by public sources and third parties, subject to continuous change without notice, and therefore, is not warranted as to its merchantability, completeness, accuracy, or up-to-datedness. Any reference to specific investments or investors is for appropriate acknowledgment and does not constitute sponsorship or endorsement.