Investors Pour Venture Capital into Canada

Venture capital interest in Canadian start-ups, particularly tech, has skyrocketed in 2021, drawing capital from both domestic and foreign investors

Venture capitalists have taken a shine to Canadian companies in recent years. This could be surprising to some, who see the country’s investment ecosystem revolving around energy and natural resources. So far this year, more than $6.2bn has been invested in Canada-based portfolio companies, adding some momentum to a trend that temporarily flatlined in 2020.

Average deal value in Canada has spiked in the first half of 2021 (Fig. 1). This is consistent with the global deals trend and that of its southern neighbor, although with fewer deals and higher entry prices. Behind these transactions are predominantly tech-focused software, internet, and cybersecurity companies, which were involved in many of the top deals and remain the chief drivers of venture capital-backed innovation in Canada. 

Software companies in Canada received $2.6bn in funding through most of the first half of the year, already $600mn more than in 2020, but via less than half the number of total transactions. Similar trends characterized internet tech and cybersecurity companies, with the latter noting a significant bump this year. 

This isn’t new for tech in Canada. Software companies have led other industries in outside investment for several years, and by a wide margin. In each of the past five years, software and internet companies assumed an annual average of 49% of all venture capital investments made in Canadian companies by both foreign and domestic investors (Fig. 2). 

Canadian venture capitalists, led by BDC Capital and Novacap, have been active in domestic tech deals. But over the past five or so years, US mainstays Vista Equity Partners, Thoma Bravo, and KKR have ventured north. Since 2016, each of these managers has closed more than $1bn in deals for Canadian tech companies.

Top Deals
All five of the largest venture capital deals in Canada have taken place in 2021. The largest of these was a $596mn software deal for Toronto-based online investment management service Wealthsimple. This funding is likely to make Wealthsimple "one of Canada’s most highly valued private technology companies.” Wealthsimple has followed the trajectory of many online trading platforms, such as Robinhood, as younger retail investors begin exploring alternative wealth-building methods. The company provides “automated wealth management services over the internet” based on investor profiles, and is targeted toward younger, tech-savvy users. 

The second-largest deal ($394mn) was in cybersecurity. Vancouver-based Trulioo is an online identity and document verification platform which is compatible with global identity verification standards and works across countries. This deal underscores the rise in demand during the pandemic for cybersecurity tech as more firms have digitized practices.   

The size of these deals and their success is testament to the strength of Canada’s growing tech community, which will be looking to build on this year’s momentum as innovation centers continue to pop up outside of more traditional regions.