Canadian VC investment craters in second quarter as US money retreats
Canadian venture capital disbursements fell to $1.17 billion in the second quarter of 2022 – down 67% from Q1 2022 and down 76% from Q2 2021 – as US and foreign investors abandoned the Canadian market, according to analysis from research firm CPE Media.
For context, VC investments in the US fell moderately in Q2 and H1 2022, as investors pulled back amid recessionary storm clouds and more expensive capital. According to stats from Pitchbook, VC activity in the US in Q2 2022 dropped 24% from Q1 2022 and 23% from Q2 2021, and decreased by 9% in H1 2022 compared to H1 2021.
American investors have traditionally accounted for a substantial portion of VC investment in Canada. The country’s VC market rode strong US investment to a record $13.58 billion in disbursements in 2021. Richard Rémillard, president of Rémillard Consulting Group, noted at the time “an over-reliance on the US which could place Canada in a vulnerable position should American funds pull back and given the relatively small amounts of venture capital drawn from other international sources.”
Canadian VC disbursements in H1 2022 fell 40% from H1 2021 to $4.72 billion.
The breakdown by funding source in H1 2022 was: US private VCs ($1.69 billion), foreign corporates ($574 million), Canadian private VCs ($410 million), US corporates ($323 million), Canadian governments ($250 million), and Canadian corporates ($247 million).
"As expected, Q2, 2022 VC investing volumes were down significantly in Canada. Not only have VC investments fallen dramatically quarter over quarter and year over year in Q2, but the Canadian market has experienced a much sharper downturn than in the US,” Rémillard said.
“The reliance on US and foreign VC investment, while actively pursued by federal and provincial authorities alike does reveal a strategic vulnerability in the innovation economy that will likely need to be addressed as the peak to trough to peak cycle in VC is likely to be an enduring feature of the asset class,” he added. “One partial solution, in the eyes of many, has been the potential contribution of corporate Canada to fuelling VC investment volumes. But, as this data set reveals, such an expectation is not likely to be met any time soon given the paltry contribution of the Canadian corporate VC to the overall level of investment.”
By province, Ontario companies raised $1.8 billion, followed by Quebec ($1.37 billion), British Columbia ($885 million), and Alberta ($431 million).
ICT companies continued to attract the lion’s share of capital, at $2.78 billion or 59% overall. Biotech fell from its typical runner-up position to fourth place, with $464 million raised. Financial companies received $634 million and cleantech companies received $603 million.
