Venture Capital Market in Canada

Canada Flag

As a Venture Capital Firm, Effi Enterprises monitors the global economy, watching for countries that are prime for investment opportunity.  With recently noted boosts in their investment activity and solid plans for supporting the growth of their domestic venture capital industry, Canada has become a place of interest for investors across the globe.

State of Venture Capital in Canada

In 2012, investment activity in Canada’s venture capital market reached $1.5 billion in new venture capital investment and $1.8 billion in new capital formation for domestic venture capital funds.  These levels match the activity in 2011, which was the highest for investment activity in five years.  The information technology (IT) sector received $719 million of this investment while $224 million was invested in the non-technology sector and $368 million biotechnology, life sciences, and medtech.  The clean technology sector’s investments reached $144 million.   Ontario received the highest amount of investment activity in Canada’s VC market with Quebec following in second.  Canadian innovate firms captured 44% of the venture capital invested in American firms.

From the encouraging results in the past year, it is clear that Canada has potential as a leader in innovation in the global economy.  There were six Canadian deals amongst the top thirty largest venture capital deals done in North America.  These included Desire2Learn, Engineered Power, Thrasos Innovation, D-Wave Systems, Lightspeed Retail Inc. and Securekey Technologies Inc.  Canada’s domestic venture capital market is strong and with 33 domestic VC funds receiving $1.8 billion in new commitments in 2012, evidence suggests it will stay that way.  New commitment investments up 73% from 2011, this was the highest level of new capital formation in ten years.

Canadian technology companies have attracted interest from the global venture capital community mostly due to the Scientific Research and Experimental Development Tax Incentive Program, which provides tax credits or refunds to corporations or individuals who conduct scientific research or experimental development in Canada.

Canada has a unique form of venture capital generation in its Labor Sponsored Venture Capital Corporations (LSVCC).  Also known as Retail Venture Capital or Labor Sponsored Investment Funds (LSIF), these funds offer tax breaks to encourage retail investors to purchase them.  These Retail Venture Capital funds generally only invest in companies where the majority of employees are in Canada.

Future of Canadian VC

While 2012 was a boost in Canada’s venture capital industry, it has faced challenges in reluctance from institutional investors such as banks and pension funds to invest in early-stage firms, a shortage of experienced fund managers to lead successful venture capital funds, and relatively small size of venture funds in Canada.  Long-term sustainable capital remains a concern.  To address this issue and support the growth of this crucial industry, the Government of Canada is giving $400 million to help increase private sector investments in early-stage risk capital and to support the creation of large-scale venture capital funds led by the private sector.  The newly announced Venture Capital Action Plan will assist in the distribution of this $400 million.  The new federal Venture Capital Action Plan will hopefully allow the positive momentum to continue and bring in more corporate and institutional investor commitments to Canadian venture capital partnerships.  This plan is an opportunity to support Canada’s high-potential firms with the resources they need and lead Canada’s venture capital industry towards sustainability.