BY Fraser Tennant
Canadian venture capital (VC) and private equity (PE) investment declined dramatically in the third quarter of 2020, according to a report published this week by the Canadian Venture Capital & Private Equity Association (CVCA).
In its ‘Venture Capital Canadian Market Overview: Q3 2020’, the CVCA reveals that $1.4bn was invested in over 155 deals in Q3 2020, 27 percent lower than Q3 2019 ($1.9bn across 177 deals). Furthermore, year-to-date (YTD) activity is tracking 25 percent below the four-year average across 2015-2019 in both dollars invested and deals ($21bn across 565 deals).
The largest deal seen in Q3 was the $354m growth investment in Toronto-based Superior Plus by Brookfield Asset Management.
However, a decrease in mega-deals served to drive the average deal size down. In Q3 2020 there were only three mega-deals ($50m plus) that closed, compared to eight in the previous quarter. As a result, the average deal size in Q3 2020 was only $7m, bringing down the YTD average deal size to $8.5m, in contrast to 2019, when the average deal size was $11m.
“The strength of Q2 was in many ways a combination of GPs further capitalising their portfolio and the added capital injections of Business Development Bank of Canada (BDC) and Export Development Canada (EDC) matching programmes,” said Kim Furlong, chief executive of the CVCA. “Q3, however, is more aligned with the challenges the pandemic has created for deal flow. While our members are finding ways to deploy capital, the realities of COVID-19 and the continued strength of valuations is apparent in the deal flow.”
In terms of later stage deals, these represented 45 percent of the total investment in the third quarter with $1.6bn invested over 57 deals, while 42 percent ($1.5bn over 189 deals) went to early stage and 8 percent ($298m over 154 deals) went to seed stage companies.
Additionally, the CVCA notes that there were 15 PE-backed exits in the third quarter, a significant increase from the 11 exits in the entire first half of 2020. The pace of VC-backed exits is on track relative to previous years, with 26 exits completed YTD.
Ms Furlong concluded: “Despite the uncertainty due to the COVID-19 pandemic, Canadian PE firms are adapting to the evolving conditions. “Given Canadian PE’s long-term investment horizon, PE fund managers are well-positioned to help our businesses on a path to economic recovery.”