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Canadian Venture Capital and Private Equity Association CEO, Kim Furlong.

Canadian Venture Capital and Private Equity Association

Venture-capital investment surged to its strongest first half on record, injecting $2.15-billion into Canadian startups and scale-ups, according to the Canadian Venture Capital & Private Equity Association (CVCA).

Helped along by a record second quarter, which saw $1.28-billion invested over 143 deals, venture-capital (VC) investment in Canada beat the previous record of $1.7-billion set in the first half of 2018, according to the CVCA’s market overview report, released on Tuesday.

Eleven “megadeals” – investments worth $50-million or more – accounted for 42 per cent of VC investment, the CVCA said. Four of those deals reached more than $100-million. Overall, the average deal size was $9-million, a 22-per-cent increase from the second quarter last year and up 26 per cent compared with the average deal size over the past five years of $5.9-million.

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“You’re seeing more dollars, bigger deals, a variety of financing options, and that is a direct correlation to the quality of businesses that are being started by Canadian entrepreneurs,” CVCA chief executive Kim Furlong said.

Information- and communications-technology companies made up more than half of Canadian venture investment at 54 per cent, with $1.2-billion over 144 deals. Life sciences surpassed the five-year average of 21 per cent, accounting for 27 per cent of VC investments with $586-million over 55 deals.

The biggest fundraising round so far this year went to Hamilton-based biopharmaceutical company Fusion Pharmaceuticals Inc., which raised $140-million in series B financing from a syndicate that included Fight Against Cancer Innovation Trust and Genesys Capital Management Inc. That was followed by $115-million in growth-equity financing to Toronto-based software company Vena Solutions Inc., funded by United States investors.

Companies based in Toronto garnered the most investment at 34 per cent of all VC dollars, with $741-million across 76 deals. Montreal followed at 22 per cent with $473-million invested across 67 deals, and Vancouver at 7 per cent with $158-million across 27 deals.

The first half of 2019 also saw an increase in VC-backed exits – the moment that an investor sells its stake in a company – with 20 completed deals totalling $2.1-billion – more than half of the 36 exits at $989-million for all of last year. Two exits included initial public offerings (IPOs). Montreal-based Lightspeed POS Inc. completed the largest IPO since 2017 with a market capitalization of $1.1-billion, and Saint-Laurent, Que.-based Milestone Pharmaceuticals Inc. closed its IPO on NASDAQ at $468-million.

“The bets that were placed on entrepreneurs are paying off,” Ms. Furlong said. “These IPOs signal the willingness to go to that line and not sell out earlier and really build a company that you can bring public.”

Meanwhile, private-equity (PE) investment in Canada fell to the the lowest level in a first half since 2013, when the CVCA began collecting data. PE investment totalled $4.9-billion over 289 deals. All deals with disclosed values were below $500-million, with the exception of a single megadeal. They include the $1.4-billion buyout by Thoma Bravo LLC of privately held London, Ont.-based Autodata Solutions Inc. and the $445-million acquisition of Toronto-based Gluskin Sheff & Associates Inc. by Onex Corp.

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Ms. Furlong said rising valuations on companies that are beyond the early stages is behind that decline in PE investment. “We’re seeing a lot more activity in smaller deals,” she said.

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