Canadian Venture Capital Review First Quarter 2017 Chris Helgren, Reuters USA Today Sports
Table of Contents Canada s VC Market in Q1 2017 3 $ 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 14 International VC Context 17 VC Funds Raised 19 Public and M&A Exits 20 Venture Capital Returns 21 Explanatory Notes & Contacts 22
Canadian Venture Capital Market Activity in Q1 2017 Canadian VC Market Trends Venture capital investment in Canadian companies continued at a strong pace in the first quarter of 2017 with $804 million invested in 115 rounds of financing. While this represented a 10% decline in dollars invested from the first quarter last year, it was still the second strongest Q1 on record since 2001. The number of rounds of financing, however, was down by 27% from the same period last year, a marked decline, and also represented the fewest deals done in a single quarter since Q2 2013. The average Canadian VC round size increased to $6.83 million in the first quarter. While this demonstrates a 93% increase over the average round size just five years ago, Canada continues to lag behind all other top VC-attracting nations. Despite the highest level of direct investment by government funds, Canadian companies on average continue to secure less than their counterparts across all VC-intensive regions. Investment by Canadian funds in non-canadian companies continued at a measured pace in the first quarter, with $119 million invested in 18 foreign companies, flat as compared to the previous quarter. Highlights of Q1 dealmaking abroad included California-based biopharmaceutical SutroVax, which raised $85.9 million from investors including CTI Life Sciences; New York-based Crowd Computing Systems, which raised $42.8 million from Georgian Partners and inovia Capital, among others; and San Francisco-based MapD Technologies, which counted VanEdge Capital among its investors in a $33.3 million round. Canadian Fund Performance While investment activity was on the rise in 2016, 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 4.1% as of the end of 2016, lagging far behind their US counterparts and public market equivalents. The improvement of Canadian VC fund performance over the past four years, however, has been consistent and has brought the sample of funds into positive territory.
Canadian Venture Capital Market Activity in Q1 2017 Canadian VC Trends by Region While Ontario saw a marked decrease in VC investment in the first quarter, with a 50% decline in dollars invested quarter-over-quarter, this was more indicative of a very strong fourth quarter last year than a weak Q1. Ontario held it s 4 th place rank among all North American regions. Venture capital investment in Québec increased 17% from the previous quarter to $251 million, earning the province a 9 th place ranking. British Columbia, showing an even greater 23% increase, ranked 14 th place with $163 million. Capturing a large majority of Ontario investment, Toronto held onto its 9 th place ranking in Q1 with $332 million invested, just barely behind Chicago, IL and slightly ahead of Denver, CO. Montreal slipped one ranking from year-end 2016, falling to 13 th place with $214 million in Q1, behind Austin, TX and ahead of Atlanta, GA. Canadian VC Trends by Sector The information technology sector continues to be the driving force behind Canadian venture capital investment, with $578 million invested, or 72% of all market activity. Within that sector, Canadian software companies alone raised $393 million, with Internet-focused companies raising an additional $140 million. Life sciences companies followed with $145 million, or 18% of market activity, while further investment was rounded out by other niche sectors including $48 million going to cleantech companies, and $21 million to energy & industrial-related businesses. Canada VC Fundraising Trends Seven Canadian funds raised a total of $169 million in the first quarter of 2017. While this was a comparatively poor showing, this quarter followed on the heels of a very strong 2016, a year in which three of four quarters saw over $500 million in new VC funds raised. Highlights included Vanedge Capital II Limited Partnership, with its third and final closing at $161 million, and ScaleUp Ventures Fund I announcing its second close with over $70 million committed.
VC Deal Values ($ Billions) Historical Venture Capital Investment in Canadian Companies: Deal Values Canadian companies raised $804 million in VC in Q1, 10% less than the same period last year, but this still representing the second best Q1 for Canadian companies since 2001. $4.0 $3.5 $3.7 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $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 $2.7 $0.8 $0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4
# of Deals Historical Venture Capital Investment in Canadian Companies: Deal Volumes More VC being deployed to a shrinking pool of Canadian companies. Deal volume down 27% from Q1 last year, with the fewest financing rounds in any quarter since Q2 2013. 900 800 858 700 600 500 400 300 774 676 679 514 499 489 409 387 443 449 471 562 590 571 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 115 Q1 Q2 Q3 Q4
Top Canadian Venture Capital Deals, First Quarter 2017 Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Investing Firms (Disclosed) 1 PointClickCare $110.9 Mississauga, ON Healthcare Software Dragoneer Investment Group, JMI Equity 2 Visier $59.8 Vancouver, BC Business Analytics 3 Breather Products $52.0 Montreal, QC Workspaces 4 Inocucor Technologies $38.8 Montreal, QC Agritech Sorenson Capital, Foundation Capital, Summit Partners, Adams Street Partners Menlo Ventures, Valar Ventures, RRE Ventures, Slow Ventures, Real Ventures TPG Alternative and Renewable Technologies, Cycle Capital, Desjardins, Closed Loop Capital 5 Microbion $33.3 Vancouver, BC Biopharmaceuticals Quark Venture, GF Securities 6 Fusion Pharmaceuticals $32.7 Hamilton, ON Biopharmaceuticals Johnson & Johnson Innovation, HealthCap, TPG Biotech, Genesys Capital, FACIT 7 CSDC Systems $30.0 Mississauga, ON Automation Software BuildGroup 8 Top Hat $29.4 Toronto, ON Education Software Emergence Capital, Georgian Partners, inovia Capital, Union Square Ventures 9 WealthSimple $19.9 Toronto, ON Fintech Power Financial Corp. 10 MineSense Technologies $19.0 Vancouver, BC Measurement Equipment Aurus Ventures, Caterpillar Ventures, Chrysalix Venture Capital, Cycle Capital Management, Prelude Ventures, Export Development Canada
Top Canadian Private Independent Investors in Canadian Venture Capital Deals Canadian Partnerships Q4 2016 Q1 2017 Estimated Investments Rank Firm Name # Deals Location ($ Millions) 1 Real Ventures 24 $12.0 Montreal, QC 2 Cycle Capital 12 $15.7 Montreal, QC 3 McRock Capital 4 $6.5 Toronto, ON 4 Rho Capital Partners 4 $4.2 Montreal, QC 5 Brightspark Ventures 3 $18.3 Toronto, ON 6 CTI Life Sciences 3 $14.2 Montreal, QC 7 Teralys Capital 3 $10.3 Montreal, QC 8 inovia Capital 3 $9.0 Montreal, QC 9 Georgian Partners 3 $8.8 Toronto, ON 10 Chrysalix Venture Capital 3 $8.3 Vancouver, BC 11 Golden Venture Partners 3 $4.9 Toronto, ON 12 Mistral Venture Partners 3 $4.8 Ottawa, ON 13 Relay Ventures 3 $3.4 Toronto, ON 14 Yaletown Venture Partners 3 $2.7 Vancouver, BC 15 Portag3 Ventures 3 $1.8 Toronto, ON 16 Anges Quebec Capital 3 $1.2 Montreal, QC
Top Other Investors in Canadian Venture Capital Deals, Last Six Months Canadian Government Investors Non-Canadian Investors Rank Firm # Deals Estimated Investments ($ Millions) Rank Firm # Deals Estimated Investments ($ Millions) 1 BDC Capital 44 $62.8 2 MaRS Discovery District 15 $8.9 3 Export Development Canada 9 $21.2 4 Investissement Quebec 4 $26.2 5 Fight Against Cancer Innovation Trust 3 $24.4 6 Atlantic Canada Opportunities Agency 2 $0.9 1 Connecticut Innovations 4 $5.3 2 500 Startups 4 $1.6 3 Versant Venture Management 3 $161.5 4 Accomplice 3 $14.0 5 Prelude Ventures 3 $7.5 6 Domain Associates 3 $3.0 Canadian Corporate, Retail, Institutional & Other Investors Rank Firm # Deals Estimated Investments ($ Millions) Rank Firm # Deals Estimated Investments ($ Millions) 1 Desjardins Venture Capital 15 $27.0 4 Fondaction 8 $5.9 2 New Brunswick Innovation Foundation 15 $2.4 5 Fonds de Solidarité FTQ 7 $24.0 3 igan Partners 8 $20.4 6 Golden Opportunities Fund 5 $5.8
North American VC Rankings, by Province & State North American Rankings North American Rankings Q1 2017 Rank State / Province # Deals Q1 2017 VC Invested ($ Millions) $ Change from Q4 2016 Q1 2017 Rank State / Province # Deals Q1 2017 VC Invested ($ Millions) $ Change from Q4 2016 1 California 342 8,621.8 32.4% 16 Pennsylvania 39 148.9 25.6% 2 Massachusetts 95 2,431.8 65.9% 17 Florida 16 130.1 12.0% 3 New York 107 1,123.1-46.6% 18 Idaho 2 127.6 4,169.9% 4 Ontario 47 366.2-49.9% 19 North Carolina 16 125.9-16.8% 5 Texas 39 363.2 22.6% 20 Connecticut 15 121.1 47.2% 6 Washington 33 355.4 8.7% 21 Missouri 8 118.1 1,100.2% 7 Colorado 23 342.7 137.0% 22 D. of Columbia 8 116.1 171.4% 8 Illinois 26 338.3 78.8% 23 Ohio 15 95.5-48.4% 9 Quebec 36 251.1 16.6% 24 Arizona 11 94.2 13.5% 10 Maryland 14 222.1 192.6% 25 Michigan 14 65.3 131.8% 11 Georgia 15 212.8 123.2% 26 Montana 3 53.7 976.6% 12 Utah 13 195.8-36.3% 27 Tennessee 9 50.7-33.2% 13 New Jersey 7 195.1-41.2% 28 Wisconsin 4 46.8-7.8% 14 British Columbia 15 163.1 22.8% 29 Nevada 2 41.3 203.0% 15 Virginia 18 154.8-32.8% 30 Oregon 8 31.2-11.3%
Canadian VC Investment by Province & Region British Columbia companies raise over $160 million in Q1, a sum surpassed only once in the past nine quarters. Atlantic Canada sees weakest quarter since Q3 2012. $4 $163-20% $20-2% Ontario 9 8% 8 7% Quebec $804 Million Invested $366-46% British Columbia 15 13% 115 Deals 47 41% Prairies $251-31% Atlantic Canada 36 31%
North American VC Rankings, by City North American Rankings Q1 2017 Rank Metro Area # Deals Q1 2017 VC Invested ($ Millions) $ Change from Q4 2016 1 San Jose 123 4,173.9 102.9% 2 San Francisco 136 3,128.0 14.2% 3 Boston 87 2,308.2 61.3% 4 New York City 118 1,128.9-52.1% 5 Los Angeles 43 742.4-8.3% 6 Washington Metroplex 40 493.1 40.7% Montreal Median Investment: $1.33 M Median Round Size: $3.0 M 7 Seattle 30 346.6 7.5% 8 Chicago 24 336.1 77.6% 9 Toronto 40 332.2-41.1% 10 Denver 22 276.8 91.4% 11 San Diego 22 248.2-27.4% Toronto Median Investment: $1.35 M Median Round Size: $2.8 M 12 Austin 25 239.0 22.9% 13 Montreal 26 214.4 54.0% 14 Atlanta 15 212.8 123.2% 15 Orange County 12 202.2-58.5% Vancouver Median Investment: $1.85 M Median Round Size: $6.2 M
Venture Capital Investment by Origin of Capital Corporate funds comprise 19% of Q1 VC activity. United States funds now investing more in Canadian companies than domestic VC investors, a phenomenon last seen in Q1 2004. Investor Type 100% Investor Location 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 2013 2014 2015 2016 Q1 2017 Private Independent Corporate Government Institutional Retail Angels & Individuals Other 0% 2013 2014 2015 2016 Q1 2017 Canada United States Other
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 $ Billions $ Billions Information Technology Sector Driven by Software Dealmaking Canadian IT companies raised $578 million in Q1 2017, having successfully broken the half billion mark for the third time in the past five quarters. All Sectors Information Technology $1.2 $0.7 $1.0 $0.6 $0.8 $0.5 $0.6 $0.4 $0.3 $0.4 $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
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 $ Billions $ Billions Biotech, Medical & Cleantech Sectors Round Out First Quarter Investment Activity Biotech companies raise $83 million in Q1. Pharmaceuticals investment falls following a 2016 that brought large rounds to Dalcor Pharmaceuticals, BlueRock Therapeutics. Life Sciences $0.6 Other Sectors $0.30 $0.5 $0.25 $0.4 $0.20 $0.3 $0.15 $0.2 $0.10 $0.1 $0.05 $0.0 $0.00 Biotechnology Medical & Health Cleantech Consumer-Related Energy & Industrial Other
# of Deals VC Investment in Canadian Companies: Deal Stages Expansion stage deals up by 29% quarter-over-quarter, but early stage deals decline by 37%. This Q1 sees fewest VC deals completed since Q2 2013. 175 150 125 100 127 139 130 169 159 149 134 149 158 169 122 125 118 75 50 25 0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Seed Early Stage Later Stage Expansion Other Advanced Stage
Venture Capital Deal Sizes in Canada, International Context Among top VC attracting nations, Canada ranks highest in direct government participation within its VC deals, but last in average round size. Average VC Deal Size, Last 5 Quarters ($ Millions) $45 $40 $35 $30 $25 $20 $15 $10 $5 Direct Government Investment in VC Last 5 Quarters 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% $0 0.0% China India United States Italy Israel United Kingdom Netherlands Germany Japan Canada
$ Millions Canadian Dealmaking Abroad Canadian VCs invest $119 million in 18 non-canadian companies in Q1, down substantially from Q1 last year, but still significantly exceeding the first quarters of the two prior years. Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Canadian Investors (Disclosed) 1 SutroVax $85.9 San Mateo, CA Biopharmaceuticals CTI Life Sciences 2 Crowd Computing Systems $42.8 New York, NY Software Robots Georgian Partners, inovia Capital 3 MapD Technologies $33.3 San Francisco, CA Data Analytics VanEdge Capital 4 Payfone $31.1 New York, NY Mobile Authentication Relay Ventures, Rogers Ventures 5 Qwant $25.6 Paris, France Search Engines La Caisse de dépôt et placement du Québec $350 $300 $250 $200 $150 $100 $50 $0 $341 $178 $150 $135 $143 $120 $119 $83 $56 $64 $60 $75 $83 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
$ Millions VC Fundraising by Canadian Firms Seven funds raised $169 million in Q1 2017, a marked decline from 2016 which was itself the strongest year for Canadian VC fundraising since the height of the dot com era. $1,000 $900 $929 $800 $700 $725 $600 $500 $569 $493 $553 $400 $300 $200 $100 $155 $185 $312 $238 $364 $118 $45 $169 $0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17
# of Exits Canadian VC-Backed Exits First quarter exit volumes up 25% over same period last year. Top Canadian exits include two large IPOs plus TIO Networks acquisition by Paypal. Portfolio Company Investors Rank Company Name Deal Value ($ Millions) Location Sector Investors (Disclosed) 1 Freshii $144 Toronto, ON Food Service Klass Capital 2 TIO Networks $141 Burnaby, BC Fintech 3 Zymeworks $80 Vancouver, BC Biopharmaceuticals Compaq Canada, Core Innovation Capital, Edison Partners, IA Capital Group, Napier Park Global Capital Advanced Biotechnologies Venture Fund, BDC Venture Capital, Celgene Corp, CTI Life Sciences, Eli Lilly and Co, Fonds de solidarité FTQ, Lumira Capital, Merlin Nexus, Northleaf Capital Partners, Teralys Capital, Brace Pharma Capital 20 15 10 5 0 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 M&A Public Secondary Sale
Cambridge Associates: Venture Capital Fund Performance Canadian private independent funds holding positive returns following long stretch of underperformance, but still lagging US-based funds, public markets. Canada 10% 8% United States 10% 8% 8.6% 6% 4% 4.1% 6% 4% 2% 2% 0% 0% -2% -2% -4% -4% -6% -6% -8% Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016-8% Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 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
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 investor reports from Canadian and non-resident fund managers. 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, IPOs, 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 six-month period from October 1 st, 2016 to March 31st, 2017. 7. 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 US dollars, from inception to the end of the indicated quarter, under preliminary data mode Q4 2016. Preliminary dataset approximately 65% updated; results subject to change. 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 25th, 2017. 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: http://thomsonreuters.com/en/products-services/financial/venture-capital-and-private-equity.html For further reports on private equity, venture capital, and other asset classes, please visit us at: http://dmi.thomsonreuters.com 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 E-mail: gavin.penny@thomsonreuters.com E-mail: greg.beaman@thomsonreuters.com Tel: 416-687-7577 Tel: 416-687-7510