Skip to main content

Canadian venture capital activity is set to pull back sharply in 2020 after record levels last year, according to an industry association.

The Canadian Venture Capital and Private Equity Association said Wednesday there were 117 venture capital deals raising a total of $831-million in the first quarter - which ended two weeks after the pandemic forced widespread economic shutdowns. While the amount raised was down just 7 per cent over the same period a year ago, the association, which represents private capital investors in Canada, noted the number of deals fell by 45 per cent from the fourth quarter, the sharpest such decline in five years.

It was a different story for private equity: The 146 deals in the quarter, consistent with averages over the past four years, drew $4.7-billion in investment, more than double the level a year earlier. Those included deals backed by pension giant Caisse de dépôt et placement du Québec: a buyout of Groupe Canam Inc. and a $600-million financing of pipeline testing firm Eddyfi NDT Inc., with other Quebec investors to bankroll the two acquisitions.

CVCA chief executive Kim Furlong said a clearer picture will emerge for deal flow in the second and third quarter, which will reflect the full impact of the pandemic.

She said venture capitalists spent the early weeks of the pandemic in crisis mode, extensively reviewing their young portfolio companies to determine the effect on their prospects and financial situations, focusing more on the most pressing concerns with existing investments than striking new deals.

Ms. Furlong said their restricted ability to meet new entrepreneurs in person “will impact who gets funded.” Meanwhile, many companies benefited from government support programs, including wage subsidies and funding through the Business Development Bank of Canada and Export Development Canada, that may “decrease and disappear” later this year, she said.

Deals do continue to close. Notable venture capital financings announced this quarter include investments announced this week by factory automation players Vention Inc. of Montreal and Clearpath Robotics Inc. unit Otto Motors along with recent deals for companies offering work-from-home technologies and digital health care solutions.

But over all, “I think [venture capital deals] in the second quarter will be down significantly” from the $1.3-billion booked in the second quarter of 2019, followed by “a slight rebound” in the third quarter, Ms. Furlong said. Last year, venture capital investing reached a post-2000 high of $6.2-billion thanks to a slew of megadeals, 77 per cent above the average of the prior three years. Ms. Furlong said she would have been content before the pandemic if 2020 levels dropped back to the $3.5-billion average of recent years. Whether it will reach even that now “is hard to say,” she said.

She added the amount of private equity deals valued at $25-million or less – which typically account for the vast majority of transactions – could increase this year as aging founders sell out to private financiers and retire rather than face continued economic uncertainties.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.