Canadian VC funding declines for second straight quarter after record Q1, reveals new report

BY Fraser Tennant

Following a record Q1, Canadian venture capital (VC) funding declined in Q3 2018 for a second straight quarter, reveals a new report by PwC Canada and CB Insights.

According to the ‘MoneyTree Canada Report Q3 2018’, Canadian venture-backed companies closed 87 deals, down from 127 in Q2. At the same time, total VC funding totalled $541m in Q3 2018, a 42 percent decline in investment from the previous quarter.

However, despite the overall fall, there has been an increase in VC funding for Canadian digital health and FinTech companies in the third quarter of 2018.

“The first half of 2018 saw a new high in venture capital investment in Canada, and yet we have seen a marked decrease in deal activity in the third quarter,” said Michael Dingle, national deals technology leader at PwC Canada. “While a decrease does not come as a surprise, we will be sure to keep a close eye on investment trends for the following quarters as the tech sector in particular seeks to maintain funding levels.”

The report also notes that: (i) early-stage rounds increased to 30 percent of all Canadian deals, while seed stage deals declined to 25 percent of all deals; (ii) corporate investment in Canadian startups has been rising steadily in recent quarters, and increased to 39 percent of all deals in Q3 2018; (iii) corporate participation in deal activity increased for the third consecutive quarter; (iv) Toronto and Vancouver continued to drive the highest number of deals; and (v) investment in Canadian digital health companies jumped 170 percent to $83m, the third-straight quarterly increase.

While Vancouver and Toronto remained the top markets in deal activity, funding and deal activity for these cities decreased slightly in Q3 2018 to $104m across 21 deals and $248m across 30 deals, respectively. Montréal also saw a slight decline, falling to $95m over 16 deals during Q3 2018, compared to $105m over 17 deals in Q2 2018. In addition, Québec City experienced a significant decline in funding – from $147m to $14m – returning to its historical range, following a massive second quarter.

"While overall funding and deal activity among Canadian startups fell this quarter, there were bright spots like digital health and FinTech," said Anand Sanwal, co-founder and chief executive of CB Insights. "The digital health sector saw a 168 percent spike in funding -- the third-straight quarterly increase in this industry and well above the funding range in recent years."

Report: MoneyTree Canada Report Q3 2018


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