VCs Dropping More Cash in Canada on Fewer Deals

Canadian businesses backed by venture capital saw more cash for fewer deals in the first quarter of 2017, according to a new report from PwC Canada and CB Insights.

The report, put out Tuesday, notes that investment in venture capital-backed companies was up 10% year-over-year, with investors paying approximately USD$460 million during the first quarter.

“The Canadian market is showing the right signs of growth,” said Barry Gekiere, managing director at MaRS IAF, a Canadian venture capital firm that managed to make five investments during the first quarter, according to the report. “Industry has been generating good returns recently by attracting capital back to the market.”

According to PwC and CB Insights, there were 64 venture-backed deals during the first quarter of 2017. This compares to 79 deals during the first quarter of 2016, and 85 deals completed during the previous quarter.

So why the drop?

Part of the problem is a decrease in investment in internet-focused companies. According to the report, just 23 of the 64 deals completed during the quarter were with internet companies. This sector, usually the top in terms of venture capital funding, received 41 investments in the same quarter of 2016.

What’s more, deals are becoming more expensive to fund, according to the report. But this isn’t a bad thing, according to Chris Dulny, technology industry leader at PwC’s Canada office.

“Encouraging year-over-year increases in total funding dollars and average deal size in Q1 indicate growing confidence and capacity within the venture capital community,” Dulny said in a statement.

It’s important to note that the cash to fund the two firms that completed the most deals during the first quarter of the year – MaRS and The Business Development Bank (BDC) of Canada’s venture capital team – receive funding from either the local or federal government.

Gekiere said by phone that MaRS is fully funded through a program created by the local Ontario government. The capital gained through investments is reinvested into new venture capital projects, he said.

Meanwhile, BDC receives at least some funding from a federal program, Canada’s Venture Capital Action Plan, which gave the fund C$400 million in capital to deploy, according to BDC’s website.

The deal pipeline for the year – regardless of funding source – looks decent despite a sluggish start, Gekiere said. “Deal pipeline is good,” he said. “It’s always good at the seed stage because it tends to be underserviced.”

MaRS focuses specifically on seed stage investing, and intends on completing 12 to 15 deals during 2017. The firm works in the IT, healthcare IT, and clean technology industries, Gekiere said by phone.

BDC representatives were unable to comment on this piece.