The report shows a recalibrating VC market, with resilient investments despite challenges
The Business Development Bank of Canada's (BDC) investment arm, BDC Capital, has released the 2024 edition of Canada's Venture Capital (VC) Landscape report.
The report shows that 2023 marked another year of recalibration for the asset class, characterized by depressed valuations and a continued slump from the record levels of 2021, alongside initial signs of softening returns.
In 2023, the Canadian ten-year VC Internal Rates of Return (IRR) decreased to 11.7 percent, following a similar downward trend as US VC returns. This shift continued to narrow the performance gap between the two countries.
Additionally, the 1-year VC IRR fell into negative territory, influenced by valuation corrections after the exuberance of 2021.
Despite these challenges, Canadian VC demonstrated resilience by maintaining higher total investment dollars than the five-year pre-pandemic average (2015-2019). The decline in investment dollars year-over-year was slower compared to global VC investment.
For the second year in a row, more than 50 percent of VC transactions included foreign participation, indicating a growing interest in the Canadian VC asset class.
“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,” stated Isabelle Hudon, president, and CEO of BDC.
“Acting as a catalyst for growth, a strong and dynamic VC industry fosters an environment conducive to nurturing Canada's most innovative businesses and scaling them into global champions.”
BDC estimates that Canadian-headquartered investors hold $10.4bn in dry powder, which is the committed but unallocated capital by VC investors. US counterparts hold a record $421bn, with 2 percent historically directed towards Canadian companies.
The report also highlights signs of maturation in the Canadian industry, with an increase in the number of active General Partners (GPs) and a healthy level of developing GPs raising subsequent funds, leading some to become established managers.
Analyzing the stages and sectors of active Canadian GPs, the report identifies considerable gaps at both the earliest and late stages in the Life Sciences and Energy and Clean Technology (ECT) sectors.
This year's report includes a new regional analysis, presenting various metrics on the state of VC markets in Ontario, Québec, British Columbia, the Prairies, and the Atlantic region.
Regions with the highest concentration of technology startups and hubs—Ontario, Québec, and British Columbia—attracted the largest share of VC investments.
