Investors based in Canada are among the most active investors in private equity, according to Preqin’s June 2018 Private Equity & Venture Capital Spotlight. CPP Investment Board is the largest institutional investor in private equity, with $80.3bn currently allocated to the asset class. The public pension fund has historically made investments in venture capital funds, although in recent years the firm has begun to invest more in buyout, secondaries and growth vehicles. Still, the appetite for venture capital in Canada is growing: 2017 reached a record level of Canada-focused fundraising, with 20 funds collectively securing $1.58bn in venture capital.
According to Preqin’s online platform, 251 venture capital firms are based in Canada and an additional 81 firms have a secondary office located in the country. The highest concentration of venture capital firms in Canada is in the province of Ontario, which is home to 48%, 83% of which are in the Toronto area. British Columbia follows with 21% of firms, while 15% are located in Québec.
Since 2008, Canada-focused funds have been raised primarily by either Canada-based fund managers (70%) or US-based fund managers (28%), with some foreign fund managers, based in Europe and Asia for example, targeting Canadian start-ups. Emerald Technology Ventures, a Switzerland-based firm, is currently raising Emerald Canadian Cleantech Fund, which makes investments solely in Canada’s clean technology sector. Of the 34 Canada-focused venture capital funds currently in market, 68% invest in technology, often in relation to health or agriculture. The two funds closed so far this year – Georgian Partners Growth Fund IV, a $550mn fund which closed in August 2018, and Golden Venture Partners III, which closed on CAD 72mn in May 2018 – both focus on technology start-ups. Technology is one of the most attractive investment sectors in Canada, accounting for 50% of funds closed and 59% of aggregate capital raised in 2017.
As seen in the chart below, Canada-focused venture capital fundraising has fluctuated over the past decade, and averages at 10 vehicles closed and $768mn in aggregate capital secured per year. Canada-focused fundraising was 34% higher in 2017 than in 2016, with 1.5x as many funds closed. The number of first-time funds closed jumped by 35 percentage points to set a new record in 2017: eight first-time funds closed on $306mn, the most capital raised by first-time funds within the past 10 years. Of the 34 funds currently in market, targeting a total of $814mn, 18 of those are first-time funds. As just two Canada-focused funds have closed this year, it is unlikely that 2018 will be another record-breaking year for venture capital fundraising in Canada – but the overall outlook, especially in the technology sector, remains positive.