New venture capital (VC) investment reached $2 billion in 2013, the highest level seen since 2007, according to a new report released by Canada’s Venture Capital & Private Equity Association (CVCA).
The report, produced in partnership with Thomson Reuters, indicated that overall investment levels increased significantly in 2013, up 31% from the $1.5 billion invested in 2012.
In addition, the number of deals increased by 2% to 452 deals completed during the year. This indicates an increase in average deal size from $3.3 million to $4.3 million.
Large deals closed during the year include a $165 million Series B financing round completed by Vancouver-based digital media company HootSuite, a $100 million Series C round completed by Ottawa-based digital media firm Shopify, as well as a $40 million round completed by Markham-based financial services technology provider Real Matters.
On a sectoral basis, the information technology sector continued to attract the highest levels of investment with $1.1 billion secured. This represents an impressive 54% of all investments, as well as a 19% growth year-over-year. Notably, e-commerce companies raised more funds within the sector than did software developers.
Other sectors which performed well during the year were cleantech and alternative energy, as well as biotech and life sciences.
On a regional basis, companies in Ontario, Quebec and BC continued to attract the highest levels of investment. Companies in each province secured $676.4 million, $589 million and $478 million, respectively. The largest increase, 41%, was seen in British Columbia.
“The investment results for 2013 pushed Ontario, Quebec and BC into the top 10 regions for VC ranking in North America,” said CVCA President and Lumira Capital Corp. Managing General Partner Peter van der Velden.
The CVCA indicated in its report that Canadian investments were slightly more skewed to early-stage and expansion financings than in previous years, while foreign investors continued to favour larger deals.
In Budget 2012, the Government of Canada indicated its intentions to stimulate increased VC investment in early-stage firms by announcing a $400 million Venture Capital Action Plan. The Northleaf Venture Catalyst Fund, the first VC fund of funds established under the plan, was subsequently launched in January 2014 with an initial closing of $217.5 million in commitments. The new Fund will invest primarily in Canada-focused early-stage and mid-stage VC funds, as well as directly in Canadian companies.
While venture capital investment levels increased in 2013, it remains important to note that fundraising activities dropped 24% to $1.3 billion. The drop can partially be attributed to a 51% decrease in activity from private independent funds.
“Long term sustainable capital still remains a big concern. If one nets out re-allocations and retail VC funds it is evident that that private sector venture capital funding is still materially below the level required for a sustainable ecosystem,” said Mr. van der Velden. “Continued performance by independent partnerships and the implementation of programs, such as the federal Venture Capital Action Plan, should help the sector to continue to build on the positive momentum and hopefully encourage more corporate and institutional investor commitments to top-tier Canadian venture capital partnerships.”