VC funding drops nearly two-thirds in third quarter, data shows

The life-sciences sector saw the second-most venture capital dollars year to date as of September 30, at 29 per cent, which CVCA CEO Kim Furlong said “is far above anything that we’ve ever seen.” Shutterstock

VANCOUVER — Venture capital and private equity funding declined in Canada in the third quarter, with nearly two-thirds fewer VC dollars invested than in the same time last year, according to data from the Canadian Venture Capital & Private Equity Association (CVCA). 

“Last year, Q3 was extremely high,” Kim Furlong, CEO of the CVCA, told The Logic in an interview. The third quarter of 2019 saw $2.4 billion in venture capital funding across 130 deals—higher than any other quarter in years by more than $1 billion. “So we’re comparing ‘spectacular’ to this year, which addresses some of the drops.”

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Talking Point

Venture capital and private equity funding fell in Canada in the most recent quarter, according to data from the Canadian Venture Capital & Private Equity Association. The third quarter, which ended September 30, saw $891 million invested across 126 venture capital deals. That’s a drop of 63 per cent compared to a “spectacular” third quarter last year, and a 47 per cent drop from a strong second quarter this year. CEO Kim Furlong remains optimistic about the fourth quarter, saying she’s hoping it’ll be “at least equivalent” to this one.

Venture capital invested $891 million across 126 deals in the third quarter, which ended September 30. That’s down 63 per cent year over year and 47 per cent from the second quarter, which saw $1.7 billion from 161 deals.

Regardless of the COVID-19 pandemic, which has changed venture capital activity, “it would have been difficult to get another $2.4-billion quarter, for sure,” said Furlong.

In the third quarter, investors and entrepreneurs adjusted to pitching and closing deals virtually. In some cases, that meant providing funding to people they’d never met outside a Zoom call, which was a big question mark earlier in the year, Furlong said. While relationship-building in that format is still happening, it may be less frequent and resulting in fewer deals.

Only three megadeals—those worth more than $50 million—closed in the quarter, bringing the average deal size down to $7 million and dragging the year-to-date deal size down to $8.5 million. Chinook Therapeutics, a Vancouver-based company that develops precision medicine for kidney diseases, saw a $140-million funding injection from a number of investors, including Versant Ventures and Northleaf Capital Partners. ApplyBoard, a Kitchener, Ont.-based platform to connect international students, recruiters and schools, raised $70 million, and Calgary’s Attabotics, which provides automated storage, retrieval and order fulfillment, raised $66 million in a Series C round led by the Ontario Teachers’ Pension Plan.

The second quarter recorded eight megadeals. It was strong in part due to matching programs from Export Development Canada and the Business Development Bank of Canada. 

It’s possible companies were not mature enough to secure giant funding rounds in the third quarter, said Furlong, adding they may take place in the fourth quarter or early next year.

So far this year, as of September 30, later-stage deals saw the largest share of the investment, at 45 per cent of activity; among sectors, the information, communication and technology sector received the most, at 53 per cent. A bright spot was life sciences claiming the No. 2 spot, with 29 per cent of deals, which “is far above anything that we’ve ever seen,” said Furlong, noting the pandemic has boosted the sector, though many of the deals were likely in the works before the spread of COVID-19.

Private equity funding, meanwhile, experienced a smaller drop. It fell by 27 per cent year over year, with $1.4 billion invested across 155 deals, compared to $1.9 billion over 177. Nuvei’s initial public offering was the most notable exit during the quarter. The Montreal-based payment-processing company raised the largest dollar amount by a tech company in TSX history during its September IPO, giving it a market capitalization north of $5 billion shortly after.

The CVCA also released employment numbers for VC-backed firms for the first time. These companies employed 18,419 people year to date as of September 30, according to figures released in partnership with job platform Prospect.

While it’s unlikely that fourth-quarter venture capital activity will inject enough dollars to beat 2019’s $6.2-billion total, Furlong said Canada is on track to outpace 2018’s $3.7 billion, and remains optimistic about the close of the year.

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“I’m hoping to see a quarter that is at least equivalent to Q3,” she said. “But the mood out there is good and people are feeling very confident with their portfolios.”