The Big Read

Thirteen of Canada’s top tech investors on what to expect from venture in 2019


Canadian tech investors have high hopes for 2019. Despite global economic uncertainty and growing competition from the U.S. and the U.K., prominent industry players are planning a series of significant new investments in Canada’s burgeoning tech sector.

The Logic spoke with 13 leading venture funds and angel investors about what they’ll be looking for when making investments in the coming year. The consensus: the first half of 2019 will see many venture capitalists (VC) raising large funds that will mainly focus on later-stage companies. This focus on bigger deals will create a gap in seed-stage funding—and the investors that fill it will come from unexpected places.

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Multiple investors said Canada’s maturing tech ecosystem and the entry of foreign funds with lots of capital to deploy will generate large rounds for scaling companies.

“If you have a very large fund in the U.S., they’re interested in writing larger cheques, and in order for them to do that, [the fund] has to be investing in a larger company,” said Matthew Leibowitz, partner at Plaza Ventures. “We’re just now starting to see the scale, which is exciting for everyone involved in Canada.”

Leibowitz said U.S. private-equity firms like KKR and Frontier Capital are now eyeing the Canadian ecosystem, following on Silicon Valley Bank’s expansion north.

Startups will fundraise at higher valuations in the short term, thanks to a surge of new funds in the first half of the year, said Sergio Escobar, CEO of angel fund BCF Ventures. In August 2018, Georgian Partners closed a US$550-million round, the largest-ever independent VC raise in Canada. In December 2018, The Logic reported that the CPPIB, Canada’s largest pension plan, intended to invest up to $1 billion in venture-capital funds.

“The trend of new capitalized funds desperate to allocate their resources will continue during the first half of the year,” said Escobar. “Many startups will opportunistically take advantage of the situation by fundraising at high valuations as investors compete between themselves.”

Many investors feel the steady increase in valuations is a significant problem. “What we’ve seen over the last 12 months or so is that valuations in companies have been creeping up higher and higher, which makes our jobs as VCs difficult and puts tremendous pressure on companies and entrepreneurs to live up to those valuations,” said Karim Gillani, general partner at Luge Capital, a Toronto-based fintech-focused fund.

Some funds are already reducing their expected number of investments due to high valuations.

While Panache Ventures aims for 30 investments a year, managing partner Mike Cegelski said it could make as few as 20 this year. “We’re cognizant about valuations, so we’re being careful,” he said. “Companies that are overvalued, we’re not investing in, which might bring down a bit of our investment strategy.”

Corporate investors are also driving the move upmarket. Their participation in funding rounds has steadily increased to 41 per cent of deals in the fourth quarter of 2018, compared to 26 per cent the fourth quarter of 2017, according to data on Canadian venture-capital investment released by PwC on Thursday.

Lauren Robinson, general partner and COO at Highline Beta—which connects startups with corporate investors to create new ventures together—said partnerships are an increasingly common way for corporations to make early-stage plays.

“Corporates are very skilled at doing large-scale deals, but not necessarily investing at the pre-seed or seed stage,” said Robinson. “There’s a bigger appetite for meaningful participation and partnerships with startups.”

There were several big deals last year. At least six companies raised $100 million or more in a single round, including travel technology startup Hopper, AI company Coveo and enterprise software firm Assent Compliance. Toronto-based Vena Solutions, which makes financial planning software, became the first in 2019, getting $115 million from two U.S. private-equity firms in January.

But overall, big raises for more mature companies remain the exception. Later-stage investments accounted for three per cent of deals in the fourth quarter of 2018, according to PwC. That’s down from nine per cent in the fourth quarter of the previous year.

Many investors expressed concerns of a global economic slowdown due to U.S.-China trade tensions and volatility from events like Brexit. But they said startups with strong metrics would secure funding, anyway. “I expect the large amount of capital raised by Canadian and U.S. venture funds in 2018—$890 million and [over US$55.5 billion], respectively—to result in continued strong investment in Canadian companies this year, regardless of the macro-economic climate,” said Damien Steel, managing partner and head of ventures at OMERS Ventures, referring to figures based on Pitchbook data.

Talking Point

After The Logic spoke with 13 leading venture funds and angel investors, the consensus is clear: the first half of 2019 will see many VCs raising large funds that will mainly focus on later-stage companies. The resulting gap in seed-stage funding is prompting competition from non-traditional investors—including those from the banking and oil and gas sectors, that are trying to get in early on undervalued companies.


Michele Romanow—a venture capitalist and co-founder of Clearbanc, a fintech startup that raised US$120 million across two rounds last year—took a similar view. “When the economy turns, VCs tend to pull back,” she said. “But there is a lot [of] new capital in U.S. funds, so the round sizes will likely increase,” she said.


Venture-capital firms are likely to continue raising large funds in the first half of 2019, driven in large part by the roll-out of the federal government’s Venture Capital Catalyst Initiative (VCCI), the investors said.

In June 2018, the government announced that five fund-of-funds would split $350 million as part of VCCI. The firms must raise $2.50 in private money for every public dollar, and have half their funds in place by March 31, 2019; three reached that goal in December.

“Fund sizes should be bigger because of the capital that is available, and perhaps there might be more funds starting up because of the opportunity some may see,” said Rob Barbara, partner at Build Ventures.

This week, Whitecap Venture Partners announced it had raised $110 million of its $125-million target, with money from Kensington Capital Partners, a VCCI recipient.

Several investors noted that, to qualify for VCCI funding, some funds moved their strategy upstream to the later stage.

Some investors also anticipated more overseas funds entering the market. While there hasn’t been much money invested in Canadian companies from Europe to date, “that’s going to start to change, especially from the U.K.,” said Sarah Marion, an associate at Montreal-based iNovia Capital.

Several British tech firms—like neural-engineering startup BIOS and analytics firm QuantumBlack—have recently opened offices in Montreal; Marion predicted investors will follow them into Canada. Artificial intelligence (AI) in particular is likely to attract foreign attention as Canada’s reputation in the space grows, she said.

According to PwC, Canadian AI companies raised $549 million in 2018, a 51 per cent increase over the previous year.

Investors will be increasingly focused on specific success indicators for AI companies, Marion said. “As we’ve started to see some exits and venture capitalists have seen some down rounds among those technologies …  [investors are] becoming a little more educated.”

Several of the more promising AI companies are moving past the research stage and are starting to commercialize products, said Christian Lassonde, founder and managing partner at the fintech-focused Impression Ventures. That’s making it a lot harder to raise money for those still focused on R&D.

Artificial-intelligence companies aren’t the only ones that will face more scrutiny. “Don’t overpay, especially in a downturn, and focus on companies that are solving real problems,” said Bruce Croxon, managing partner at Round 13 Capital, describing his strategy. He noted that exit values decline in economic downturns.

The growth of Canada’s tech ecosystem (a recent CBRE report found that Toronto alone created more tech jobs in 2017 than the San Francisco Bay Area, Seattle and Washington, D.C. combined) is creating space for investors to ask for clearer metrics demonstrating the success of a company, such as early traction and a strong technology.

“I think the days of very sloppy valuations with very little proof points or substance behind [them] are limited,” said Gillani.


The focus on later-stage investments could create a gap in seed and pre-seed funding, several investors noted. “I think we are forgetting to seed our future,” said Prashant Matta, partner at Panache Ventures. “A gap is opening up in pre-seed stage financing and angel funds, alongside a handful of venture firms, are playing an important role to address it.”

Those that do put their money in seed-stage firms could get better deals. “I do see great opportunities at the seed and seed-plus stages for investing in undervalued startups, due to lack of early-stage funding and the possibility of a recession,” said Escobar.

Sandi Gilbert, CEO of InterGen, said she’s noticed an uptick in “non-traditional investors” from the oil and gas, banking and transportation sectors contributing to the fund, which collects capital from high-net-worth families and corporations in Calgary to invest in local entrepreneurs.

The $50 million of the VCCI dedicated to alternative investment models is not “remotely” enough, said Gilbert, who is also the founder of SeedUps Canada, an equity crowdfunding platform, and chair of the National Angel Capital Organization. “If we continue to give money to the VCs that aren’t investing in early-stage companies, it’s not going to help,” she said. “If we want to help bring capital to early-stage, angel-style investing, then we need to be able to have a fund that’s focused on that area.”

The seed shortfall could also be filled by U.S. money. Canadians investors participated in 65 per cent of seed-stage deals in 2018, compared to 29 per cent for U.S. investors, per PwC.

But Isaac Souweine, partner at Real Ventures, said he’s noticed more U.S. investors getting into deals at the seed stage as they look for better pricing outside of strong tech ecosystems, like Silicon Valley. “When there’s too much supply in a market, it starts to get expensive for them and overly competitive,” he said, adding that the money will flow into other markets “where there are underappreciated opportunities.”