Canadian Tech Venture Capital Funding Reaches 8-Quarter High
(Bloomberg) -- Venture-capital funding of Canadian technology startups reached an eight-quarter high, with artificial intelligence soaking up a growing share of the investments, according to an industry report.
Canadian VC-backed companies received $858 million of capital in 81 deals in the third quarter, more than double the prior period’s amount and pushing the total to $1.8 billion for the year, PwC Canada and tech-data firm CB Insights said Wednesday.
“With this momentum, we look forward to a strong close to the year,” Chris Dulny, national technology sector leader, PwC Canada said in the report. Artificial intelligence is having a record year, having received $191 million and fintech investment is on also on pace for a solid finish having received $200 million across 27 deals, the report said.
The Canadian technology sector has been gaining momentum. Facebook Inc. and Uber Technologies Inc. have invested in AI labs in the country and Prime Minister Justin Trudeau has provided hundreds of millions of dollars in VC money and support for artificial intelligence research. While there’s no shortage of research and startups in Canada, scaling up hasn’t been easy: Shopify Inc. is the only Canadian tech startup to complete a sizable IPO in the past two years and only a few companies have achieved unicorn status.
“It’s a hard business to raise money in Canada as a venture capitalist,” said Mike Woollatt, chief executive officer of the Canadian Venture Capital and Private Equity Association, as institutions aren’t as active in the sector as in the U.S. “Venture capital funds tend to be much smaller in Canada and as a result does that hurt our ability to scale or move quickly? Probably.”
Woollatt said that there are notable exceptions: OMERS Ventures, a unit of the Ontario Municipal Employees Retirement Systems Fund, has about C$800 million ($625 million) in assets under management.
“I get calls and emails from U.S. investors all the time saying ‘I’ve never invested in Toronto tech before, I’ve heard great things, I want to invest,’” Janet Bannister, partner at Real Ventures, said in a Bloomberg conference in Toronto on Wednesday.
Canada has a real shot at becoming a leader in artificial intelligence, which will become a “horizontal play” affecting every industry and company, she said. “Every single business needs to think about how to take data elsewhere and how to improve the business,” Bannister said.
Some of the biggest deals this quarter included Quebec’s LeddarTech Inc., which raised $101 million to develop laser-sensing technology, and cybersecurity firm eSentire Inc.’s $100 million investment from U.S. private equity firm Warburg Pincus, according to the report.
Canadian investors represented the majority of active investors at the seed stage of financing while U.S. investors represented a majority of later-stage deals, the report said.
“Getting U.S. investment is key -- it’s an important part of growth in many ways as they provide the connectivity to the Valley," Woollatt said in a phone interview. But it’s a “massive mistake” to rely solely on foreign investors to fund the Canadian ecosystem. “You take out a key part of the local ecosystem where you have venture-capital managers providing locally a great part of the connectivity, intelligence, and all that stuff that VC brings other than just the dollars.”
Across Canada, Ontario attracted the most financing. Toronto saw $279 million invested across 32 deals, while funding of Waterloo-based companies soared to $112 million this quarter from $11 million last quarter, driven by a large financing round. Vancouver and Montreal activity remained flat relative to the previous quarter.
"The BlackBerry hangover’s over," Woollatt said.
©2017 Bloomberg L.P.