The Canadian Venture Capital and Private Equity Association ("CVCA") released its Q1 2024 Canadian Venture Capital Market Overview (the "Report"). The Report illustrates the main trends in Venture Capital ("VC") and Private Equity ("PE") activity in Canada during the first quarter of 2024 (the "Period").
Some of the key findings from the Report are outlined below.
Generally, the Report shows that there is continued momentum in VC and PE investment in Canada compared to Q1 2023, with the Period seeing an increase in the average VC and PE deal size which was offset by a decrease in deal count on both fronts.
KEY VC FINDINGS
- Increase in deal size. In Q1 2024, the average disclosed deal size was $10M, representing a 47% increase in the average deal size from Q1 2023. Despite the increased deal value compared to Q1 2023, the average value of $10M represented a 27% decrease from the 5-year average of $13.7M. The distribution of deal sizes was skewed towards smaller investments with 87% of all deals valued between $5M and $20M. There were 7 mega-deals ($50M+) in the first quarter of 2024, which accounted for a nearly 61% share of total VC dollars invested, including one mega-deal valued above $200M.
- VC investment value maintains momentum. There was a total of $1.3B invested over 128 transactions in Q1 2024. The total investment value was in line with Q1 2023 although underlying that aggregate figure was a trend of fewer deals (decline of 28%) which was offset by an increase in deal value (increase of 47%).
- Ontario, Quebec and BC-based companies continue to attract the most investment. Ontario continues to be the jurisdiction with the highest volume of deals (34% of all deals). Despite the higher volume of deals in Ontario, Quebec claimed the top spot for total investment value of $583M representing 45% of all VC investment in the quarter. BC-based companies trailed with 14% of the total investment volume ($175M).
- Investments in Life Sciences grow and Investments in Information, Communication and Technology (ICT) slow. Life Sciences exhibited an excellent performance in Q1 with total investments reaching $425M across 30 transactions, representing a 3x increase in investment value compared to the previous quarter. Meanwhile, the ICT sector experienced a significant downturn compared to historical levels with only $464M invested across 69 deals. While the number of deals remained stable, the investment value of the ICT deals was down 43% quarter-over-quarter. Cleantech remained consistent with deal volume and value levels observed in Q1 and Q3 of 2023 and Agribusiness experienced a decline in both deal value and volume compared to its record year in 2023.
- Continued investment in early-stage companies. There was a sustained appetite for VC investment into early-stage companies during the Period, particularly through Series A funding, with these companies receiving 45% of total VC investment value, sustaining levels seen in 2023. Pre-seed and later-stage companies both experienced a notable decrease in both deal volume and deal value.
- Uptick in exits. VC-backed exits remain strong in Q1 2024 with 18 total exits totaling a value of $3.9B. One exit, alone, accounted for 88% of the aggregate exit value ($3.3B). Exits via M&A drove the majority of exit activity (89%) amounting to $3.7B.
PE FINDINGS
- A decrease in total PE investment. In Q1 2024, $4B was invested across 140 deals in Canada. While the total deal volume decreased by 10% on a year-over-year basis, the average deal size increased to $28.7M, representing a 52% increase in deal values compared to Q4 2023.
- PE investment remains focused on small and medium-sized enterprises. 84% of transactions during the Period were valued under $25M and 8% of transactions were valued between $25M and $100M. Despite the continued trend of focus on smaller-sized investments, the deal size during the Period was $28.7M, making it the highest quarterly average since Q1 2020.
- Quebec and Ontario dominates in PE volume and PE dollars. 55% of PE deals during the Period were in the province of Quebec. The dollar value of these deals was $2.9B which accounted for 73% of total PE investment in Canada. Ontario captured 23% of deal flow and 23% of the total PE investment dollars ($923M).
- Surge in buyout and add–on investment activity. There was a significant increase in buyout and add-on investment activity, with $2.9B raised from 36 deals, representing a quarter-over-quarter increase of 292% in investment volume. The majority of this increase was driven by two major privatization transactions, each exceeding $1B in value.
- Automotive & transportation sector leads. For the first time on record, the Automotive & Transportation sector saw the most dollars invested with $1.4B invested across 6 deals, accounting for over a third of total investment value. The ICT sector remained strong, securing $1.3B in investments and the industrial & manufacturing sector had the highest number of deals during the Period, with 35 total deals, although the investment value was only $194M.
- The volume of PE exits increases. The total volume of exits increased to 15 (totaling $2.8B). This total value of exits already exceeds the value of all exits for the entire year of 2023 and is on track to surpass the exit values of both 2021 and 2022. 80% of the exits occurred through M&A transactions, accounting for 48% of the total exit value.
CONCLUSION
As illustrated by the Report, while the dollar values of VC and PE investments slowly trend upward, investors continue to exercise greater caution in making fewer and more selective investments across the board. The sustained aggregate investment values amid decreases in deal volume signals that there is still momentum and capital available to be deployed, although investors continue to view opportunities more cautiously and are exercising restraint and selectiveness.
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