Canadian Venture Capital Review First Quarter Mark Blinch, Reuters

Transcription

1 Canadian Venture Capital Review First Quarter 2018 Mark Blinch, Reuters

2 Table of Contents Canada s VC Market in Q $ Invested and # Companies Financed 5 Top VC Deals 7 Top VC Investors 8 North American Rankings 10 Investor Type & Nationality 13 Canada by Sector & Stage 15 Canadian Dealmaking Abroad 18 VC Funds Raised 19 Public and M&A Exits 20 Venture Capital Returns 21 Explanatory Notes & Contacts 22

3 Canadian Venture Capital Market Activity in Q Canadian VC Market Trends Venture capital investment in Canadian companies continued at a strong pace in the first quarter of 2018 with $1.36 billion invested in 128 rounds of financing. In dollar terms, this represented the strongest single quarter in seventeen years, and the fifth best quarter on record. It also marked the fifth time in the past six quarters that Canadian companies received over $1 billion in investment. Deal volumes, however, did not reach the same heights. With only 128 rounds of financing in the quarter, deal volumes fell 9% from the same period last year and marked the fewest deals in a first quarter in five years. With dollar disbursements up and deal volumes down in the first quarter, the average Canadian venture capital round soared to $10.5 million, an all-time high. While this is nearly double the average Canadian round size just four years ago, Canada s average round size in the first quarter still placed eighth among the top ten VC-attracting nations, edging out only the United Kingdom and Singapore. In contrast, the average round size for the United States in the first quarter was $25.3 million. While Canadian companies have been securing larger VC rounds, this growth could not be attributed to domestic investors. Canadian investors were responsible for approximately 41% of capital disbursed in the first quarter; United States-based funds accounted for an additional 49%, and the remainder was accounted for by overseas investors, mostly from the United Kingdom, China, and Hong Kong. The last year in which Canadian investors accounted for such a low share of VC investment in Canadian companies was 1992, when 38% of VC investment in Canadian companies could be sourced to Canadian firms, with the remainder originating in the United States. Canadian Fund Performance While investment activity was on the rise, the performance of Canadian venture capital and growth equity funds had not reached the same heights. Preliminary data provided by Cambridge Associates shows Canadian venture capital & growth equity funds with vintage years of 2000 or greater returned a since inception IRR of only 1.7% as of the end of 2017, lagging far behind both US counterparts and public market equivalents. The improvement of Canadian VC fund returns from 2012 through 2015 has not maintained momentum, and returns since have continued to decline.

4 Canadian Venture Capital Market Activity in Q Canadian VC Trends by Region The increase in venture capital investment in Q was led by the province of Ontario, which saw $737 million of VC investment, nearly double the amount invested in Ontario companies in the same period last year. This propelled Ontario into fourth place overall in a North American context, behind Massachusetts. Québec-based companies raised $418 million, which represented a 46% improvement over the prior year. This earned Quebec an 8 th place ranking overall, behind New Jersey and ahead of Washington state. British Columbia, with $189 million, placed 15 th, between North Carolina and Ohio. Among major urban centres, 38 Toronto-based companies raised $620 million in the quarter, ranking the city 6 th in the North American rankings, ahead of Washington D.C. and behind Los Angeles. Montreal ranked 9 th with $397 million invested in 26 deals, ahead of Seattle, but behind San Diego. Canadian VC Trends by Sector Canadian IT companies raised $780 million in the first quarter, the most capital invested in the sector in a single quarter since Q2 2001, and representing a 33% increase over the same period last year. While investment in the life sciences sector was lackluster with only $155 million of investment, cleantech companies, led by Enerkem and Ecobee, raised a collective total of $376 million in Q1. This more than doubled the previous quarterly record for Canadian cleantech companies, which was set in Q Canada VC Fundraising Trends Six Canadian funds raised a total of $157 million in the first quarter. While this represented an increase of 9% over the same period the year prior, Q also saw comparatively few fund closings. A number of Canadian fund closings are expected in the months to come, most notably Georgian Partners Growth Fund IV, with a target of $645 million.

5 VC Deal Values ($ Billions) Historical Venture Capital Investment in Canadian Companies: Deal Values Canadian companies raised $1.36 billion in Q1 2018, the strongest single quarter in seventeen years, and the fifth best quarter on record. $6.0 $6.4 $5.0 $4.0 $4.2 $3.7 $4.1 $3.0 $2.0 $1.0 $2.7 $1.6 $2.1 $1.8 $1.9 $2.4 $1.4 $1.0 $1.2 $1.6 $1.6 $1.9 $2.4 $2.8 $1.4 $ Q1 Q2 Q3 Q4

6 # of Deals Historical Venture Capital Investment in Canadian Companies: Deal Volumes More VC being deployed to a shrinking pool of Canadian companies. Deal volume down 9% from Q1 last year, fewest deals in a first quarter in five years. 1,400 1,200 1,332 1, Q1 Q2 Q3 Q4

7 Top Canadian Venture Capital Deals, First Quarter 2018 Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Investing Firms (Disclosed) 1 Enerkem $280.0 Montreal, QC Biofuels & Renewables Blackrock, Braemar Energy Ventures, Cycle Capital, Fondaction, Fonds de Solidarite FTQ, Investissement Québec, National Bank, Rho Capital Partners, Sinobioway, Waste Management, Westly Group 2 PointClickCare Technologies $187.3 Toronto, ON Healthcare Software Dragoneer Investment Group 3 Ecobee $78.8 Toronto, ON Smart Thermostats Energy Impact Partners, Amazon Alexa Fund, Export Development Canada, GXP Investments, Northleaf Capital Partners, Ontario Capital Growth Corp, Relay Ventures, Tech Capital, Thomvest 4 Wealthsimple $64.8 Toronto, ON Robo-Advisor Power Financial 5 Tilray Canada $63.5 Nanaimo, BC Cannabis Privateer Holdings 6 Wattpad $63.0 Toronto, ON 7 Igloo Software $58.6 Kitchener, ON 8 Builddirect.com $55.2 Vancouver, BC Multiplatform Entertainment Digital Workplace Solutions Home Improvement Technology 9 Rubikloud Technologies $37.6 Toronto, ON Data Analytics Tencent Holdings, BDC Venture Capital, Kickstart Ventures, Peterson Group, Raine Frontier Capital Mohr Davidow Ventures, Fidelity Investments Canada, Pelecanus Investments, Lyra Growth Partners, Beedie Capital Intel Capital, Access Industries, Horizon Ventures, inovia Capital, OpenText Enterprise Apps Fund 10 Profound Medical $34.5 Mississauga, ON Medical Devices Genesys Capital

8 Top VC Investors in Canadian Companies, Partnerships & Governments Canadian Private Independent Partnerships Oct 1, 2017 Mar 31, 2018 Rank Firm Name # Deals Estimated Investments ($ Millions) Location 1 Real Ventures 30 $19.2 Montreal, QC 2 Cycle Capital - Ecofuel 13 $39.7 Montreal, QC 3 inovia Capital 10 $39.9 Montreal, QC 4 Anges Québec Capital 9 $4.5 Montreal, QC 5 igan Partners 7 $11.3 Toronto, ON 6 Yaletown Venture Partners 5 $6.3 Vancouver, BC 7 Walter Capital Partners 5 $2.4 Montreal, QC 8 Relay Ventures 4 $21.8 Toronto, ON 9 McRock Capital 4 $6.9 Toronto, ON 10 Fonds Innovexport 4 $4.1 Québec, QC Canadian Government Funds Oct 1, 2017 Mar 31, 2018 Rank Firm Name # Deals Estimated Investments ($ Millions) Location 1 BDC Venture Capital 21 $37.9 Montreal, QC 2 MaRS Investment Accelerator Fund 9 $3.0 Toronto, ON 3 Investissement Québec 4 $49.5 Montreal, QC 4 Innovacorp 4 $5.0 Halifax, NS 5 Sustainable Development Technology Canada 3 $14.6 Ottawa, ON

9 Top VC Investors in Canadian Companies, Foreign & Other Non-Canadian Investors Oct 1, 2017 Mar 31, 2018 Rank Firm Name # Deals Estimated Investments ($ Millions) Location 1 White Star Capital 5 $14.0 London, United Kingdom 2 Intel Capital Corp 3 $9.4 Santa Clara, CA 3 Kayne Anderson Capital Advisors 2 $33.0 Los Angeles, CA 4 Amazon 2 $19.9 Seattle, WA 5 Trend Forward Capital Management 2 $9.2 San Jose, CA 6 ff Venture Capital 2 $5.4 New York, NY 7 Sierra Ventures 2 $5.4 Foster City, CA 8 Accomplice 2 $5.1 Cambridge, MA 9 Connecticut Innovations 2 $2.1 Rocky Hill, CT 10 Techstars Central 2 $1.3 Boulder, CO Canadian Retail, Institutional & Other Investors Oct 1, 2017 Mar 31, 2018 Rank Firm Name # Deals Estimated Investments ($ Millions) Location 1 Desjardins Venture Capital Lévis, QC 2 New Brunswick Innovation Foundation Fredericton, NB 3 Caisse de dépôt et placement du Québec Québec, QC 4 Fonds de Solidarité FTQ Montréal, QC 5 Fondaction Montréal, QC

10 North American VC Rankings, by Province & State North American Rankings Q Rank State / Province # Deals Q VC Invested ($ Millions) $ Change From Q North American Rankings Q Rank State / Province # Deals Q VC Invested ($ Millions) $ Change From Q California 448 $15, % 16 Ohio 19 $ % 2 New York 132 $2, % 17 Utah 14 $ % 3 Massachusetts 87 $2, % 18 Minnesota 4 $ % 4 Ontario 51 $ % 19 Kansas 2 $ % 5 Florida 13 $ % 20 Virginia 16 $ % 6 Maryland 17 $ % 21 Connecticut 10 $ % 7 Texas 40 $ % 22 Tennessee 6 $ % 8 New Jersey 8 $ % 23 Missouri 10 $ % 9 Québec 39 $ % 24 Indiana 8 $ % 10 Washington 29 $ % 25 Oregon 7 $ % 11 Colorado 24 $ % 26 Oklahoma 1 $ % 12 Illinois 32 $ % 27 Michigan 9 $ % 13 Pennsylvania 31 $ % 28 Montana 2 $49-9.0% 14 North Carolina 18 $ % 29 Arizona 6 $ % 15 British Columbia 20 $ % 30 Georgia 7 $ %

11 Canadian VC Investment by Province & Region Ontario investment in Q nearly doubles over Q1 2017, Québec up 46% over same period. British Columbia down 52% following a record-setting Q % 1% Ontario 14% 31% $1,360 Million Invested 54% Quebec British Columbia 16% 128 Deals 40% Rest of Canada 30%

12 North American VC Rankings, by City North American Rankings Q Rank Metro Area # Deals Q VC Invested ($ Millions) $ Change from Q San Francisco 199 $7, % 2 San Jose 157 $5, % 3 New York City 132 $3, % 4 Boston 82 $2, % 5 Los Angeles 54 $1, % 6 Toronto 38 $ % 7 Washington D.C. 35 $ % 8 San Diego 15 $ % 9 Montreal 26 $ % 10 Seattle 25 $ % 11 Chicago 31 $ % 12 Denver 20 $ % 13 Philadelphia 12 $ % 14 Orange County 14 $ % 15 Austin 21 $ % Vancouver Median Investment: $1.2 M Median Round Size: $2.6 M Montreal Median Investment: $1.7 M Median Round Size: $2.7 M Toronto Median Investment: $4.0 M Median Round Size: $4.3 M

13 Venture Capital Investment by Origin of Capital Private Partnerships grow to a 69% share of VC activity in Q Domestic funds sink to 41% of all investment, a 4th straight year of declining Canadian market share. Investor Type 100% Investor Location 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% Q Private Independent Corporate Government Institutional Retail Angels & Individuals Other 0% Q Canada United States Other

14 Foreign Venture Capital Investment by Origin of Capital US-based funds accounted for 83% of Canada s VC investment from non-resident sources. China & Hong Kong invested $62 million in Q1, or 47% of the amount invested in all of % 3% 5% 18% California $120 M Massachusetts $27 M New York $110 M North Carolina $59 M United Kingdom $19 M China & Hong Kong $62 M 16% 37% 8% 4% California New York North Carolina Massachusetts Other US China & Hong Kong United Kingdom Other Regions

15 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 $ Billions $ Billions Information Technology Sector Driven by Software Dealmaking Canadian IT companies raised $780 million in Q1 2018, the most investment in a single quarter since Q2 2001, and an increase of 33% over Q All Sectors Information Technology $1.4 $0.9 $1.2 $0.8 $1.0 $0.7 $0.6 $0.8 $0.5 $0.6 $0.4 $0.4 $0.3 $0.2 $0.2 $0.1 $0.0 $0.0 Information Technology Life Sciences Other Sectors Computer Software Semiconductors & Electrical Internet Specific Other IT Sectors

16 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 $ Billions $ Billions Enerkem & Ecobee Drive Q Cleantech Investment Activity Canadian life sciences companies raised only $155 million in Q1. Cleantech companies received $376 million, more than doubling Canada s last all-time high set in Q Life Sciences $0.6 Other Sectors $0.5 $0.5 $0.4 $0.3 $0.2 $0.4 $0.3 $0.2 $0.1 $0.1 $0.0 $0.0 Biotechnology Medical & Health Cleantech Consumer-Related Energy & Industrial Other

17 # of Deals VC Investment in Canadian Companies: Deal Stages With only 128 deals in the first quarter, Canada deal volumes fall 8% overall from Q Early stage deals, however, increase by 9% over the same period last year Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Seed Early Stage Later Stage Expansion Other Advanced Stage

18 $ Millions Canadian Dealmaking Abroad Canadian VCs invested over $1.2 billion in 129 non-canadian deals in the past 4 quarters, a level of investment last seen from Q through Q Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Canadian Investors (Disclosed) 1 Katerra $1,068 Menlo Park, CA 2 Collective Health $141 San Francisco, CA Building Development Optimization Workforce Health Management Canada Pension Plan Investment Board Sun Life Financial 3 Stem $101 Millbrae, CA Energy Storage Intelligence Ontario Teachers Pension Plan 4 Crinetics Pharmaceuticals $82 San Diego, CA Drug Discovery Versant Ventures (Fund V) 5 True Fit Corporation $75 Boston, MA Apparel-Fitting Software Georgian Partners $400 $300 $200 $100 $0 $382 $340 $332 $308 $207 $150 $134 $143 $132 $138 $84 $73 $87 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18

19 $ Millions VC Fundraising by Canadian Firms Six funds raised $157 million in Q1 2018, a 9% increase from a similarly lackluster Q However, several large Canadian VC funds expected to close later in the year. $1,000 $900 $890 $800 $700 $725 $600 $500 $493 $553 $475 $453 $400 $364 $300 $200 $100 $238 $118 $45 $144 $203 $157 $0 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18

20 # of Exits Canadian VC-Backed Exits Canada saw 12 completed exits from VC-backed companies in Q1 2018, a 20% improvement over the 10 exits completed the same period last year. Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Investors (Disclosed) 1 Napec $395.7 Drummondville, QC Energy & Industrial Business Development Bank of Canada, Caisse de dépôt et placement du Québec, Fondaction, Fonds de Solidarité FTQ, Investissement Québec 2 AlarmForce Industries $163.2 Toronto, ON Security Solutions Clearspring Capital Partners, GrowthWorks Capital Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 M&A Public Secondary Sale

21 Cambridge Associates: Venture Capital Fund Performance Canadian private independent funds holding slightly positive returns following long stretch of negative performance, but still lagging far behind US-based funds, public markets. Canada 12% 8% United States 12% 8% 8.7% 4% 1.7% 4% 0% 0% -4% -4% -8% -8% -12% Q Q Q Q Q Q % Q Q Q Q Q Q Venture Capital & Growth Equity Funds mpme: S&P/TSX 60 Index Venture Capital & Growth Equity Funds mpme S&P 500 Index Source: Cambridge Associates, Standard & Poor's

22 Explanatory Notes 1. Data collected and analyzed by Thomson Reuters for this statistical report were drawn from a variety of sources including Thomson Reuters M&A databases, regulatory filings, press releases, and proprietary reports from Canadian and non-resident venture capital firms, private equity firms, law firms, and other service providers. 2. The Thomson Reuters Canadian venture capital report measures cash for equity and quasi-equity investments by the professional venture capital community in emerging companies in Canada. These transactions are referred to as VCReporter Deals on Thomson Reuters databases. 3. The report includes the investment activity of professional venture capital firms, whether Canadian-based or not, including private independent funds, retail funds (LSVCCs and PVCCs), venture arms of corporations, institutions, government funds, angel funds, and similar entities whose primary activity is financial investing. Where there are additional participants such as angels, corporations, governments, or company officers in a qualified and verified financing round, the entire amount of the round is included. 4. The report excludes venture debt, buyouts, recapitalizations, secondary purchases, IPO exits, and other forms of private equity that do not involve cash such as services-in-kind. Investments in capital pool companies (CPCs & JCPs) are not eligible. Companies whose primary activity is the extraction of natural resources (agriculture, forestry, mining, and oil & gas exploration) without a specific focus on technology are not eligible. 5. Rounds are tracked based on investment location. This predominantly includes Canadian-headquartered companies, but companies headquartered outside of Canada with Canadian research & development facilities are also eligible. 6. Rankings of top VC investors include only investment activity made in Canadian portfolio companies. Estimated investment activity is based on the actual syndicate breakdown, where available, and is split equally among disclosed investors where actual breakdowns are not available. Private independent, government, and other funds are independently ranked in their respective categories. Rankings capture the twelve-month period from January 1 st, 2017 to December 31st, Fund performance data and public market equivalents are produced via the Cambridge Associates Benchmark Calculator, available through Thomson Reuters Eikon. Returns are for Canadian and US venture capital and growth equity funds with vintage years of 2000 or greater, on a first cash flow basis, in Canadian dollars, from inception to the end of the indicated quarter, under preliminary data mode Q Preliminary sample as of 12/31/2017 is approximately 72% updated. Pooled internal rates of return are net of fees, expenses and carried interest. CA Modified Public Market Equivalent (mpme) replicates private investment performance under public market conditions. The public index s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mpme NAV is a function of mpme cash flows and public index returns. 8. All current and previous years data is as of Tuesday, April 24th, Data is continuously updated and is therefore subject to change. All figures are in Canadian dollars unless otherwise noted. For further information on Thomson Reuters venture capital and private equity offerings, please visit us at: For further reports on private equity, venture capital, and other asset classes, please visit us at: Contributors to this analysis are provided with additional packages of data. If you would like to participate in the submission process, receive quarterly press releases, or have questions about our venture capital criteria, please contact us at: Gavin Penny Greg Beaman gavin.penny@thomsonreuters.com greg.beaman@thomsonreuters.com Tel: Tel: