The Canadian Venture Capital and Private Equity Association (CVCA) recently released its H1 2018 VC & PE Canadian Market Overview (the Report). The Report highlights major trends in Canadian private capital investment during the first half of 2018.
We encourage market participants to read the entire Report, but if you are short on time, here are our top 10 key takeaways from the Report:
- Venture capital investment continued to rise. C$1.7 billion was invested across 308 VC deals in the first half of 2018. This figure represents a 7% expansion in total VC investment over the first half of 2017, continuing a five-year upward trend in both size and volume.
- When it comes to venture capital, one size does not fit all. Although the average VC deal size in the first half of the year was C$6 million, there were seven “mega” deals that attracted more than C$50 million.
- Turns out you can be late to the venture capital party. Later stage companies received 54% of total VC dollars spent in the first half of the year, compared to 41% of total VC dollars spent during the same period last year.
- Private equity investment was driven by a small number of large transactions. C$14.5 billion was invested across 288 PE deals in the first half of 2018. This figure was driven by a small number of large deals – two “mega” deals in particular representing 69% of the total invested capital.
- Volume, but not value, of private equity exits slowed significantly. There were 41 PE exits in the first half of the year (representing C$10.5 billion), compared to 152 PE exits (representing C$11.3 billion) in 2017.
- Secondary buyouts by PE firms continued to rise. Although only half-way through the year, the amount of PE dollars spent on secondary buyouts has already exceeded to total for each of the last five years.
- Pace of IPO PE exits slows. The first half of 2018 saw only two IPO exits by PE firms, compared to five in 2017, one in 2016, six in 2015 and five in 2014.
- Ontario and Quebec businesses came out on top. Just over half of the C$1.7 billion of venture capital spent in the first half of the year was invested in Ontario (mainly, Toronto), with most of the remaining funds spent in Quebec (19%) and British Columbia (17%). The vast majority of the 288 PE deals were based in Quebec (61%), followed by Ontario (18%), Alberta (8%) and British Columbia (7%).
- Industry concentration continued. Canadian VC investors continued to be drawn primarily to the Information and Communication Technology sector, which captured 63% of all venture funds deployed in the first half of 2018. Industrial and Manufacturing companies dominated PE investments in the first half of 2018, attracting 64 investments (22%), with Information and Communication Technology attracting 45 investments (16%).
- Favourable market conditions going forward. Overall, the Report demonstrates that Canada remains a robust market for private investment in both early-stage and established firms. A high-growth, low interest rate environment, combined with an unprecedented amount of dry powder should continue to drive private capital transaction activity for the foreseeable future.