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A More Resilient and Maturing Canadian VC Industry Amid the Downturn and Descent from 2021 Peaks: New Study

Slowdown in Capital Deployment, Calls for Sustainable Growth Rates and Focus on Profitability as Canadian Investors Hold an Estimated $13.2 Billion in Dry Powder

Key highlights include:

  1. Number of VC deals in 2022 down 12%, total amount invested declined 34% and average deal size pulled back 24%
  2. After a spike in 2021, VC as a percent of GDP decreased by 28%, with a ratio remaining in line with the median of OECD countries
  3. Canada’s 10-year VC Internal Rate of Returns (IRR) stands at 14.9%, a marginal increase from 2021, continuing to close the gap with U.S. performance
  4. Median exit values down by 56% from 2021, mirroring public market declines and reverting to historical averages

Montreal – May 31, 2023 / BDC’s investment arm, BDC Capital, today releases the 2023 edition of Canada’s Venture Capital (VC) Landscape report. Its findings show a significant slowdown of activities last year, indicating the end of an overheated VC market which saw most metrics at record-breaking levels in 2021. The report is pointing to a renewed focus on start-up profitability, operational efficiency, and a return to more sustainable growth.

Affected by unfavorable macroeconomic conditions, Canada’s VC development is mirroring similar trends that have emerged across global VC markets. This includes declines in dollars invested, number of deals and average deal size. Valuations, returns and exit values all shrank as well, and VC backed IPO activity in Canada is at zero.

“In the next cycle of venture investing in Canada, resiliency and prudent management of capital will play a key role” said Jérôme Nycz, Executive Vice President at BDC Capital. “Our industry has progressed significantly over the past decade, including through diversification, a growing number of established GPs and increased interest from foreign investors in the asset class. This maturation has led to a stronger and more sophisticated VC ecosystem in Canada. While the current environment is challenging, we are confident in the ability of the industry to build on its foundation and continue to grow Canada’s innovation economy. BDC will be there for entrepreneurs nationwide through the ups and downs of the market.”

Despite challenges, venture capital in Canada remains robust, as does the innovation ecosystem it is supporting. Indeed 2022 was one of the best years ever for Canadian VC by dollars invested. Last year, for the first time since 2005, more than 50% of VC transactions originated from outside the country, marking an important milestone in Canadian VC as an international asset class. Furthermore, VC investments have grown annually at 22% since 2014, and top-quartile funds are still delivering returns north of 15%, even in the current environment. Canadian VC investors are equipped with an estimated $13.2 billion in dry powder to weather the downturn, a sign that funding remains accessible for promising startups.

The number of established General Partners (GPs) in Canada continues to rise, an indication of the industry’s evolution over time and of the confidence that there is significant opportunity in Canada. The number of corporate venture deals also increased last year.

Cleantech investment in Canada more than doubled in 2022. This type of growth in a slowing market underscores the huge potential for cleantech as both governments and industry step up to accelerate transition and meet greenhouse gas emission targets. Other sectors declined within Canada compared to last year, including the Information and Communications Technology (ICT) space, where 10-year gross IRRs dropped by 3 percentage points, and Healthcare which decreased 2 percentage points. Investment at the growth stage recorded the most significant declines in capital invested and deal count, while seed stage investment only saw a modest year-over-year decline.

As Canada’s most active VC investor, BDC Capital supports over 700 Canadian companies directly and indirectly, and 130 funds nationwide, while remaining committed to ensuring a healthy ecosystem. The annual VC landscape report provides the Canadian ecosystem with a deep examination on the situation of VC in Canada. BDC undertakes this report to equip market participants with a data-informed view of the sector’s dynamics driving more informed outcomes, and ultimately a more resilient economy. This year’s enhanced report provides exclusive and more detailed performance metrics, as well as a deeper analysis on historical and current market trends.

About BDC Capital

BDC Capital is the investment arm of BDC, Canada’s business development bank. With over $6 billion under management, BDC Capital serves as a strategic partner to the country’s most innovative firms. It offers businesses a full spectrum of capital, from seed investments to growth equity as well as ownership transition solutions, supporting Canadian entrepreneurs who have the ambition to stand out on the world stage. Visit bdc.ca/capital.


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