Q2 2014

PDF Version

This publication by the Small Business Branch provides current information about the venture capital industry in Canada. The series will track trends in investment activity, report on topical research and look at key technology clusters where investment is taking place.


Introduction

This issue covers venture capital (VC) investment and fundraising activity in Canada during the second quarter of 2014.

VC activity overview

Investment and fundraising

Quarterly VC investment grows but fundraising drops

Canadian VC investment in Q2 2014 grew relative to investment in Q1 of the same year, rising to $505 million; an increase of 31 percent from $385 million in Q1. Relative to total investment in Q2 2013, investment in this quarter also experienced a year-over-year increase of 11 percent from $455 million (Figure 1).

Figure 1: VC Investment by quarter, 2012 to 2014

Figure 1: VC Investment by quarter, 2012 to 2014
Source: Thomson Reuters Canada 2014.
Description of Figure 1
Figure 1: VC Investment by quarter, 2012 to 2014
Quarter 2012 2013 2014
($ millions)
Q1 269 369 385
Q2 489 455 505
Q3 373 581
Q4 376 542
Total 1,507 1,947 890

Although total VC investment in Q2 jumped by 31 percent relative to Q1 of 2014, the number of deals only increased 4 percent; from 125 deals in Q1 to 130 deals in Q2. Most of the Q2 VC deals occurred in the provinces of Ontario or Quebec, the majority of which were concentrated in the information technology sector.

While year-over-year VC investment increased from $455 million in Q2 2013 to 505 million in Q2 2014, VC fundraising dropped significantly over this time period; falling from $392 million in Q2 of the previous year to $112 million in Q2 2014 (Table 1). This is also a sizeable drop relative to a very strong Q1 of this year, where fundraising reached $531 million.

Table 1: VC investment and fundraising, Q2 2013 and Q2 2014
Q2 2013 Q2 2014 Percent Change
($ millions)
Source: Thomson Reuters Canada 2014.
Investment 455 505 11.0
Fundraising 392 112 −71.4

Deal size

Deal size rises in Q2 2014

Average deal size in Q2 2014 rose to $3.9 million per deal, up from $3.1 million per deal in Q1 2014. Notable deals, which took place during the quarter included financings of: Newfoundland-based Verafin; Toronto-based Wattpad and SHOP.CA Network; and Vancouver-based Visier.

A total of 130 deals closed in Q2 2014, up slightly from 111 deals in the same quarter the previous year. Overall, the distribution of growth during this quarter was spread among all of the categories, with all seeing increases in the number of deals relative to Q2 2013. The $5 million and over category experienced the most growth, increasing 33 percent from 21 deals in Q2 2013 to 28 in Q2 2014 (Figure 2).

Figure 2: Distribution of VC investment by deal size, Q2 2013 and Q2 2014

Figure 2: Distribution of VC investment by deal size, Q2 2013 and Q2 2014
Source: Thomson Reuters Canada 2014.
Description of Figure 2
Figure 2: Distribution of VC investment by deal size, Q2 2013 and Q2 2014
Deal size Q2 2013 Q2 2014
(# of deals)
Unknown 10 12
Under $1M 41 47
$1M to 4.9 39 43
$5M and over 21 28

Stage of development

Investment at expansion stage grows

VC investment at the later stage of development captured almost half of all VC investment in Q2 2014, with a total of 48 percent. Although it represented the largest amount of investment among all stages of development, later stage investments also dropped 12 percent relative to the same quarter in the previous year. Investments in the expansion stage experienced a 76 percent growth in investment relative to Q2 2013. Seed and early stage investments also experienced growth during the second quarter, climbing by 21 percent relative to the same quarter last year (Figure 3).

Figure 3: VC investment by stage of development, Q2 2013 and Q2 2014

Figure 3: VC investment by stage of development, Q2 2013 and Q2 2014
Source: Thomson Reuters Canada 2014.
Description of Figure 3
Figure 3: VC investment by stage of development, Q2 2013 and Q2 2014
Stage of development Q2 2013 Q2 2014
($ millions)
Seed and early stage 104 126
Expansion 79 139
Later stage 272 240

New versus follow-on investments

Follow-on investments grew in Q2 2014

The total number of deals completed in Q2 2014 was 130, 42 of which were new investments with a total value of $90 million, and 88 were follow-on investments with a total value of $415 million. Of the new investments, 26 were in the seed and early stage category with a value of $32 million.

In the follow-on category, Q2 2014 had the highest number of follow-on investments in the last four quarters, growing from the low of 60 investments in Q2 2013 to 88 in Q2 2014. Almost half of all follow-on investments in Q2 2014 were at the later stage with 40 deals at a value of $220 million (Table 2).

Table 2: Number of companies that received new versus follow-on investments, Q2 2013 to Q2 2014
Total Investment Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Source: Thomson Reuters Canada 2014.
New Seed and early stage 34 42 33 26 26
Expansion 4 7 6 9 6
Later stage 13 11 18 11 10
All 51 60 57 46 42
Follow-on Seed and early stage 19 18 19 19 30
Expansion 18 17 16 15 18
Later stage 23 29 35 45 40
Other 0 0 1 0 0
All 60 64 71 79 88
Total 111 124 128 125 130

Type of investor

Institutional/Corporate investments experience significant decline

For the second straight quarter, investments by Institutional/Corporate funds decreased significantly relative to the previous year. In Q1 2014, year-over-year investments in this category decreased by 84 percent, and now in Q2 2014, investments have dropped by 52 percent relative to Q2 2013.

A total of $248 million was invested by the category of "Other" investors, rising by 78 percent from $140 million in Q2 2013 (Figure 4). This follows a trend from Q1 2014 where the "Other" category rose to $195 million, an increase of 37 percent compared to Q1 2013. The "Other" category consists of investors who do not wish to disclose their identities; therefore it is difficult to determine exactly to what factors these increases could be attributed.

Figure 4: Distribution of VC investment by type of investor, Q2 2013 and Q2 2014

Figure 4: Distribution of VC investment by type of investor, Q2 2013 and Q2 2014
Note * of Figure 4: Institutional/Corporate refers to direct investments by banks, financial institutions, endowments, foundations, pension funds and corporate venture funds.
Source: Thomson Reuters Canada 2014.
Description of Figure 4
Figure 4: Distribution of VC investment by type of investor, Q2 2013 and Q2 2014
Type of investor Q2 2013 Q2 2014
($ millions)
LSVCC/Retail Funds 19 11
Private Independent Funds 188 199
Institutional/Corporate Note * referrer of Figure 4 61 29
Government 48 18
Other 140 248

Source of funds

The distribution of VC investments by fund location for the known sources in Canada or Outside Canada is almost equal, with Canadian investments in Q2 2014 reaching $199 million and Outside Canada $197 million (Figure 5). These figures are almost unchanged relative to Q2 in the previous year, where the totals were $205 million and $204 million for "Canada" and "Outside Canada" locations. The number of investments made from "Unknown" origins rose significantly in this quarter, jumping from $47 million in Q2 2013 to $109 million in Q2 2014. Due to the significant number of investments in the Unknown category, it is difficult to draw conclusions regarding trends for the distribution of VC investment by fund location.

Figure 5: Distribution of VC investment by fund location, Q2 2013 and Q2 2014

Figure 5: Distribution of VC investment by fund location, Q2 2013 and Q2 2014
Source: Thomson Reuters Canada 2014.
Description of Figure 5
Figure 5: Distribution of VC investment by fund location, Q2 2013 and Q2 2014
Fund location $ millions
Q2 2013 Q2 2014
Canada 205 199
Outside Canada 204 197
Unknown 47 109

Regional distribution

VC investment grew significantly in Ontario, dropped in Quebec

Ontario attracted the largest amount of VC total investment among the provinces in Q2 2014. Investment in Ontario rose significantly compared to the year before, with an increase of 86 percent, from $122 million in Q2 2013 to $227 million in Q2 2014 (Figure 6). This can be credited to large investments made during this quarter into Ontario companies, such as Toronto-based Wattpad, a consumer internet company which received $46 million in Series C funding in April, and SHOP.CA Network, which received a private placement financing of $31 million in June.

Figure 6: Regional distribution of VC investment in Canada, Q2 2013 and Q2 2014

Figure 6: Regional distribution of VC investment in Canada, Q2 2013 and Q2 2014
Source: Thomson Reuters Canada 2014.
Description of Figure 6
Figure 6: Regional distribution of VC investment in Canada, Q2 2013 and Q2 2014
Province Q2 2013 Q2 2014
($ millions)
British Columbia 86 80
Alberta 31 39
Saskatchewan 0 2
Manitoba 2 0
Ontario 122 227
Quebec 208 94
New Brunswick 3 1
Nova Scotia 4 3
Prince Edward Island 0 0
Newfoundland and Labrador 0 60
Territories 0 0

The increase in investment in Ontario was contrasted by a decline in investments by Quebec of 55 percent, dropping from $208 million in VC investments in Q2 2013 to $94 million in Q2 2014. However, despite the overall decline in investment relative to Q2 2013, the total number of companies that received VC investment in this province only dropped slightly over the time period, from 47 deals in Q2 2013 to 44 in Q2 2014 (Table 3). Also, despite these declines, the province still attracted the second largest amount of VC investment in the country.

Table 3: Number of companies receiving VC by province, Q2 2013 and Q2 2014
Province Q2 2013 Q2 2014 Percent Change
Source: Thomson Reuters Canada 2014.
British Columbia 13 18 39
Alberta 9 12 33
Saskatchewan 0 1 n/a
Manitoba 1 0 n/a
Ontario 36 46 28
Quebec 47 44 −6
New Brunswick 3 5 67
Nova Scotia 2 3 50
Prince Edward Island 0 0 n/a
Newfoundland & Labrador 0 1 n/a
Territories 0 0 n/a

The province of British Columbia had the third highest level of VC investment, with $80 million in Q2 2014, a slight year-over-year dip from Q2 2013 investment levels of $86 million. One notable deal, which took place in the province during the quarter, was a $15 million investment into Vancouver-based Visier.

Remarkably, Newfoundland and Labrador was ranked fourth among the provinces for total VC investment, however that ranking was due to a single $60-million investment in May by American-based Spectrum Equity into the St. John's-based software development company, Verafin.

Sector distribution

Investments in information technology grows, clean technology declines

Investments in Q2 2014 were overwhelmingly concentrated in the information technology sector. Compared to the quarter in the previous year, investments in the information technology sector grew from $176 million to $325 million, an increase of 84 percent (Figure 7). This was due to major investments in information technology during the quarter, including the Verafin, Wattpad, SHOP.CA Network and the Visier deals.

Figure 7: VC investment by industry sector, Q2 2013 and Q2 2014

Figure 7: VC investment by industry sector, Q2 2013 and Q2 2014
Note * of Figure 7: Clean Technology refers to companies that are developing clean technologies and that are not already included in the industry sectors of Life Sciences or Information Technologies.
Note ** of Figure 7: Traditional refers to companies that are not included in the other sectors.
Source: Thomson Reuters Canada 2014.
Description of Figure 7
Figure 7: VC investment by industry sector, Q2 2013 and Q2 2014
Industry sector Q2 2013 Q2 2014
($ millions)
Information Technologies 176 325
Life Sciences 69 62
Clean Technology Note * referrer of Figure 7 148 37
Traditional Note ** referrer of Figure 7 63 81

Clean technology experienced the most notable decline of all the sectors during Q2 2014, with investments dropping 75 percent from $148 million in Q2 2013 to $37 million in Q2 2014. Although this is a drop from the previous year, it was a gain relative to Q1 2014, where the clean technology sector only accounted for $5 million of total VC investment.

Government activities

Business Development Bank of Canada activities

During Q2 2014, the Business Development Bank of Canada (BDC) made VC commitments totalling $23.7 million into 25 companies (Table 4). These financings were leveraged by an additional $44.3 million from co-investors for total investments of $68 million. Additionally, the BDC invested a total of $19 million into private independent funds, an investment supplemented by co-investors for a total of $34 million.Footnote 1

Table 4: VC activities of the Business Development Bank of Canada, Q2 2014
BDC Co-investors Total Number of deals
($ millions)
Source: Business Development Bank of Canada 2014.
Seed/start-up 3.1 4.1 7.2 14
Development 11.5 28.2 39.7 5
Later stage 9.1 12.0 21.1 6
Total 23.7 44.3 68.0 25

Other government activities

In its annual Budget released in June, the Government of Quebec announced its participation in a new venture capital fund in partnership with the private sector and the federal government. The fund will have a total capitalization of $375 million. The province also announced an additional $25-million investment in the Anges Quebec capital fund, bringing the total to $100 million.

Notes

This publication is part of a series prepared by the Small Business Branch. The branch analyses the financial marketplace and how trends in this market impact small businesses' access to financing.

To be added to the distribution list of online release of the Small Business Branch publications, please subscribe at the Subscribe to publications page.

For questions related to its content, please email: SBB-DGPE.

Copyright

To obtain a copy of this publication or an alternate format (Braille, large print, etc.), please fill out the Publication Request form at www.ic.gc.ca/Publication-Request or contact the:

Web Services Centre
Industry Canada
C.D. Howe Building
235 Queen Street
Ottawa, ON K1A 0H5
Canada

Telephone (toll-free in Canada): 1-800-328-6189
Telephone (Ottawa): 613-954-5031
TTY (for hearing-impaired): 1-866-694-8389
Business hours: 8:30 a.m. to 5:00 p.m. (Eastern Time)
Email: ic.info-info.ic@canada.ca

Permission to Reproduce

Except as otherwise specifically noted, the information in this publication may be reproduced, in part or in whole and by any means, without charge or further permission from Industry Canada, provided that due diligence is exercised in ensuring the accuracy of the information reproduced; that Industry Canada is identified as the source institution; and that the reproduction is not represented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of, Industry Canada.

For permission to reproduce the information in this publication for commercial purposes, please fill out the Application for Crown Copyright Clearance at www.ic.gc.ca/copyright-request or contact the Web Services Centre (see contact information above).

© Her Majesty the Queen in Right of Canada,
as represented by the Minister of Industry, 2014
ISSN 1911-9267

Aussi offert en français sous le titre Le Moniteur du capital de risque — Deuxième trimestre de 2014.

  • Email
  • Rate
  • RSS
  • Share
Help us improve
Back to "Help us improve" section.
  
Back to "What's the problem?" section.
Got it, thanks!
Um, you didn't enter anything.
Date modified: