Key highlights for the year ended 2012 include $1.5 billion of new venture capital investment and $1.8 of new capital formation for domestic venture capital funds. These were among the findings of a statistical report released today by CVCA – Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters. Investment activity in Canada’s venture capital (VC) market in 2012 reached $1.5 billion which was invested via 395 rounds into companies in Canada’s innovation and emerging growth sectors. The level of investment activity in 2012 was virtually identical to the accelerated pace seen in 2011, which was at the time a 5 year high for investment activity.
This was in contrast to the US where VC investment activity declined 10% in 2012. Of the $1.5 billion invested, Canadian VC funds contributed $1.1 billion which reflected an increase of 7% compared to 2011. This growth in domestic activity was important in helping to offset a 22% decline in investments by foreign VC funds which none-the-less brought $380 million of investment to Canada. In terms of sectoral allocations in 2012 the information technology (IT) sector led with $719 million invested via 214 rounds, a 6% increase in financing activity year over year. Investments in the biotechnology, life sciences and medtech sectors was steady at $368 million invested via 76 rounds, while the clean technology sector lost some ground with $144 million invested in 33 rounds.
Year over year the largest gains were seen in non-technology sectors, with $224 million being invest via 135 rounds. On a regional basis Ontario led Canadian VC market activity in 2012, with $603 million of invested capital representing 41% of all disbursements. Despite a downturn in activity, Québec held on to second spot with a 28% market share and $409 million invested. The top five regions were rounded out by British Columbia which was flat year over year while activity in both Alberta and Atlantic Canada was reduced. One of the few disappointing data points for the year was the continuing gap in VC deal capitalization levels between Canada and the United States. The report found that Canadian innovative firms captured only 44% of the amount of venture capital invested in American innovative firms in 2012, a share that is unchanged from 2011 and 2010.
Commenting on the results, Peter van der Velden, President of the CVCA and Managing General Partner of Lumira Capital Corp. noted that “the investment results for 2012 are really encouraging and one of the things that isn’t immediately obvious from the data is that 6 Canadian deals; Desire2Learn, Engineered Power, Thrasos Innovation, D-Wave Systems, Lightspeed Retail Inc. and Securekey Technologies Inc. were among the top thirty largest venture capital deals done in North America. These companies highlight this country’s phenomenal potential as an innovation leader in the global economy and these investments illustrate the both the importance and rationale for a strong domestic Canadian venture capital ecosystem.”
Reporting on the fund formation side of the equation, 2012 was a truly outstanding year with 33 domestic VC funds receiving $1.8 billion in new commitments. This was the highest level of new capital formation in a decade (in 2002 the industry raised $2.5 billion in commitments),and was up 73% from 2011. Twenty three Private-independent funds accounted for 70% of total funds raised raise ($1.2 billion) which was more than triple the $368 million raised in 2011. Retail VC funds also obtained more new commitments in 2012, raising $414 million, which is up 3% from the year before. As in past years, the lion’s share of the retail fund-raising activity (77%) was located in Québec.
“During the past ten years, the domestic venture capital industry has been going through a significant transformation that has resulted in improved financial performance for best in class funds, deeper more experienced general partners, and the engagement of significant corporate and strategic investors into the Canadian market. As a result, after ten years of weak capital supply, it is rewarding to see Canada’s venture capital industry being given a significant boost in 2012. This boost is an extremely important first step in providing the providing the sustainable investment capital required to fund the world class entrepreneurs who are driving the next generation of high-growth Canadian companies,” said Mr. van der Velden. “While this was a year of strong positives across virtually all facets of the VC sector, long term sustainable capital still remains a concern and it is hoped that the speedy implementation of all facets of the recently-announced federal Venture Capital Action Plan will allow the sector to continue to build on the positive momentum and help leverage more corporate and institutional investor commitments to top-tier Canadian venture capital partnerships.”