Record growth in Canada’s venture capital industry in 2021, with 10-year returns at 14%: BDC Capital study
Key findings:
- In 2021, 752 venture capital deals in Canada represented $14.7 billion invested; both figures shattering previous years’ records.
- Venture capital investment, as a percentage of Gross Domestic Product (GDP), nearly tripled in 2021—the highest of many leading OECD countries.
- Median exit values in Canada reached $89.4 million in 2021; a striking increase, more than doubling the previous high from 2019.
- Record number of Initial Public Offerings (IPOs) with 12 venture capital-backed Canadian companies going public in 2021, for a total value of $6.5 billion.
May 26, 2022, Montreal—BDC Capital today released its latest study on the Canadian venture capital industry, entitled ‘’Canada’s Venture Capital Landscape‘’. The findings show impressive growth across the board in 2021. By almost any metric, venture capital in Canada is breaking records.
The significant increase in both the number of deals and amount of dollars invested can be attributed to discerning investors seeking greater returns and turning to the venture capital asset class to obtain them. This includes greater venture capital investing, both inside and outside the country, by Canadian funds, as well as a jump in foreign venture capital dollars invested in Canadian companies. Megadeals are also playing an increasingly important role in the growth the industry has been enjoying, as new advances and shifting post-pandemic conditions provide greater opportunity for both the development and rapid adoption of certain innovations.
Globally, the returns themselves were at all-time highs when considering internal rate of return (IRR). By this metric, venture capital outperforms other asset classes over 1, 3, 5 and 10-year terms.
“From nearly tripling investment as a percentage of GDP to generating unprecedented 10-year returns, Canada’s venture capital landscape experienced very impressive growth at all stages” said Jérôme Nycz, Executive Vice President at BDC Capital. “While recognizing the current turbulence, we believe that the industry is in a position of strength to navigate through evident headwinds and continue to grow.”
Central to the growth in the Canadian ecosystem is a rising number of larger General Partners (GPs) to manage the investments. Established fund managers (those with 4 funds or more) now represent 21% of active GPs, compared to just 5% in 2017. This larger pool of managers with multiple funds is a sign of the ongoing maturation of the ecosystem and allows these funds to renew their support of portfolio companies into the later stages by reinvesting in them more often. These reinvestments are driven by rising exit valuations, and, by extension, allow more Canadian start-ups and intellectual property to remain Canadian. The study also finds that although investments across all stages have enjoyed strong momentum, seed and early-stage investing has steadily declined on a relative basis.
Information and Communication Technology (ICT) remains the sector of choice for Canadian GPs, with $9.5 billion in investments for the year, representing 64% of total transaction value. While all sectors experienced significant growth between 2016 and 2022, healthcare and Energy/Cleantech (ECT) both continue to lag ICT’s rise in Canada. Returns from ICT and healthcare verticals remain impressive, with each sector offering a gross IRR of 35%+ over a 5-year horizon and 25%+ over 10 years.
About BDC Capital
BDC Capital is the investment arm of BDC, the bank for Canadian entrepreneurs. With over $3 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, supporting Canadian entrepreneurs who have the ambition to stand out on the world stage. Visit bdc.ca/capital.
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