Recalibration to pre-2020 levels of growth and fading performance tempering the Canadian venture capital market outlook: BDC Study
Montreal, May 28th, 2024– The Business Development Bank of Canada’s (BDC) investment arm, BDC Capital, today releases the 2024 edition of Canada’s Venture Capital (VC) Landscape report. Its findings show that 2023 marks a repeat year of recalibration for the asset class characterized by depressed valuations and an ongoing slump in activities from the record levels of 2021, along with the first manifestations of softening returns.
In 2023, the Canadian 10-year VC Internal Rates of Return (IRR) decreased to 11.7%, following a similar downward trajectory as U.S. VC returns, while continuing to gradually narrow the gap between the two countries’ long-term performance. Concurrently, the 1-year VC IRR fell into negative territory, largely influenced by valuation corrections following the exuberance of 2021.
Nevertheless, Canadian VC showed signs of progression and resiliency by maintaining higher total investment dollars than the 5-year pre-pandemic average (2015-2019). Moreover, it experienced a slower year-over-year decline in dollars invested compared to global VC investment. For a second year in a row, over 50% of VC transactions included foreign participation, demonstrating the growing interest for the Canadian VC asset class and its compelling opportunities even in turbulent times.
‘’As an enabler, BDC has supported the evolution of the Canadian VC ecosystem for over a decade now and we will continue to do so across market cycles,‘’ says Isabelle Hudon, President and CEO, BDC. ‘’Acting as a catalyst for growth, a strong and dynamic VC industry fosters an environment conducive to not only nurturing Canada’s most innovative businesses but also scaling them into global champions.’’
When it comes to capital availability, BDC estimates that Canadian-headquartered investors hold $10.4 billion in dry powder – amount of committed, but unallocated capital by VC investors – while U.S. counterparts sit on a record $421 billion1, with 2% of it historically directed toward Canadian companies.
Despite ongoing fundraising challenges, the report highlights signs of maturation for the Canadian industry, with an increase in the number of active General Partners (GPs), together with a healthy level of developing GPs raising subsequent funds; leading to some of them becoming established managers. A close look at stages and sectors of active Canadian GPs reveals considerable gaps at both the earliest and late stages in the Life sciences and Energy and Clean Technology (ECT) sectors.
To help understand disparities and opportunities across the Canadian market, this year’s enhanced report includes a new regional analysis, with various metrics presenting the state of VC markets in Ontario, Québec, British Columbia, Prairies, and the Atlantic region. The report shows that regions with the highest concentration of technology startups and hubs – Ontario, Quebec, British Columbia – attracted the biggest share of VC investments.
As Canada’s most active VC investor, BDC Capital supports over 750 Canadian companies directly and indirectly, and 160 private sector funds nationwide, while remaining committed to ensuring a healthy ecosystem. The annual VC landscape study provides the Canadian ecosystem with a deep examination of the VC situation in the country. BDC undertakes this study to equip market participants with a data-based view of the industry’s dynamics, driving more informed outcomes, and ultimately a more resilient asset class.
1 Source: PitchBook-NVCA, data as of June 30, 2023
About BDC Capital
BDC Capital is the investment arm of BDC, Canada’s bank for entrepreneurs. With over $6 billion under management, BDC Capital serves as a strategic partner to the country’s most innovative firms. It offers businesses a full spectrum of capital, from seed investments to growth equity, as well as fund investments, supporting Canadian entrepreneurs who have the ambition to stand out on the world stage. Visit bdc.ca/capital.
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