Key Takeaways from CVCA Canadian Market Overviews for Q1 2022 | Knowledge

On Jun 10, 2022

The Canadian Venture Capital & Private Equity Association (CVCA) released its Canadian market overviews for Q1 2022, which are based on data voluntarily submitted by a selection of venture capital and private equity firms. You can access the overviews for venture capital and for private equity. Our key takeaways were as follows:

Venture Capital (VC) Canadian Market Overview

Second-highest quarterly investment with $4.5 billion over 196 deals. An increase of 49% in dollars invested from the previous quarter while overall investment value remains consistent with its previous record year. The breakdown of those VC investments is as follows:
$3.3 billion invested across 17 mega-deals, each of those transactions being valued over 50 million and representing nearly 75% of all dollars invested in the quarter.
Nearly all provinces across Canada saw an increase in quarter-over-quarter VC activity. A significant majority of investments were received by companies based in Ontario ($2.3 billion), Quebec ($1.1 billion) and British Columbia ($485 million), representing 86% of all dollars invested in Q1.
The Information, Communications and Technology (ICT) sector accounted for 68% of total VC investments, with $3.1 billion spread over 112 deals in Q1. Life sciences saw an 80% increase from the previous quarter and investments in real estate technologies are rebounding following a 2-year dip to pre-pandemic levels as interest rates rise in Canada.
Seed stage and early stage investments deals led Q1 investment activity, accounting for 79% of all deals. Early stage investments in this quarter more than doubled the 5-year average for quarterly investment.
The most active firms in terms of amount of financing rounds were BDC Capital and Investissement Quebec, while the most active firms in terms of amount invested were BDC Capital and Tiger Global Management LLC.
Canadian VC deal count experienced its third consecutive quarter-over-quarter decline and VC activity is expected to decline further in 2022 following the public market slowdown.
VC-backed exit momentum experienced a significant decline from the previous year, with only 12 exits totalling $186 million and no IPOs. Such decline comes with no surprise considering the current state of the global financial markets, forcing many companies and investment firms to hit the brakes as they navigate through a turbulent economic slowdown attributable to an increase in inflation, higher interest rates and geopolitical uncertainty.

Private Equity (PE) Canadian Market Overview
Total Q1 investment was $1.4 billion, spread over 212 deals. Although Q1 represents the second highest level of deal count on record, an absence of mega-deals (+$500 million) combined with a large number of deals with undisclosed values resulted in the lowest amount of dollars invested in a quarter. The breakdown of those PE investments is as follows:
92% of the deal flow (195 out of 212 deals with disclosed deal values) were small-to-medium sized deals with a value of less than $25 million.
Quebec had the highest amount of dollars invested by province and accounted for 64% of the total deal flow, with $766 million invested across 136 deals. Ontario was second and accounted for nearly 22% of the total deal flow, with $500 million invested across 46 deals.
A total of $4 million dollars was invested across 41 buyout and add-on investments deals, accounting for 19% of the total deal count. PE buyout & add-on in Q1 remained consistent with its previous quarters, with a lower total value reported as a result of undisclosed deals.
PE minority investments saw a total amount of $934 million dollars invested across 60 deals, representing a 49% decrease in dollars invested from the previous quarter. Minority investments (including growth and follow-on deals) in Q1 accounted for 65% of all PE dollars invested and more than 25% of total PE activity.
41% of the total dollars invested were attributable to the ICT sector across 35 deals, being the largest share of total PE dollars invested in comparison to the 5-year average of 20% typically invested in ICT.
The most active PE investors in terms of amount invested in Q1 were Desjardins Capital, with over $446 million invested across 67 deals and the Caisse de dépôt et placements du Québec (CDPQ), with over $434 million invested across 2 deals.
PE exits are on track to be another year with a record number as Q1 saw an amount of 42 exits primarily achieved by an M&A transaction, representing 39 deals totalling $325 million. There were no PE IPOs reported in this quarter.
The PE market in Canada saw a record-breaking level of activity with a lower amount of capital invested. The rise of inflation, valuation adjustments, the war in Ukraine and other geopolitical factors have also significantly influenced PE investments and accordingly, will continue to impact the future of the PE market in the upcoming months.