Riding the tailwinds Riding the tailwinds Riding the tailwinds

After an astronomical start to the year, venture capital investment in Canada took a slight breather over the summer months—but it was still a quarter for the record books.

Canadian VC investment totaled US$2.62 billion in the third quarter, the third highest quarterly total on record, according to the Q3'21 edition of the KPMG Private Enterprise Venture Pulse report. The third quarter saw 202 deals—an impressive number considering many lawyers, accountants and advisors were likely putting their feet up at the cottage (or cabin, depending on where you live in Canada) during July and August.

The slowdown in VC activity was consistent with a typical subdued Q3, but 2021 has been anything but typical. The first half of the year, which saw US$10.1 billion in Canadian VC investment, was exceptionally strong. There were a few factors at play: lots of pent up demand, multiples reaching dizzying heights and investors finally putting dry powder to work.

With everyone now returning to the office, that activity is expected to come roaring back in the next few months. A healthy number of venture capital and private equity deals are already percolating, so Q4 activity could surpass anything we've ever seen before.

IPO activity
As Canadian startups continue to mature, deal sizes will likely increase, as well. A lot more growth-stage capital is available in Canada, and we're seeing startups that normally would have sold by now doing larger series C and D raises.

Exit activity could also be a prominent theme in the coming months, as companies consider initial public offerings or other M&A opportunities. We're already seeing lots of preparation by companies wanting to go public thanks to lofty valuations, and I expect at least a few IPOs in each of the next three quarters.

Meanwhile, the shift to a virtual world has made Canadian startups more attractive and accessible to investors worldwide. With so much business conducted through video calls over the last 20 months, VC investors have realized they don't have to stay close to home to find the right opportunities, and they're deploying their capital abroad. Canadian firms could therefore see more VC investment from the U.S., Asia and elsewhere. Whether it's from a pension fund, hedge fund, a private equity shop or a major sector player scooping up a smaller competitor, investment in Canadian startups will likely be broad in range and geography. The success of a few well-publicized IPOs over the past few years proved to the world that Canadian startups have the ability to scale up, and they don't need to move to Silicon Valley in order to grow.

Healthtech and fintech are sectors to watch
The Canadian VC ecosystem will continue to see strong investment across a wide range of sectors, with healthtech, biotech and fintech driving a lot of the investment activity. Healthtech in particular is ripe for more investment because companies have the ability to come to market fairly quickly, thanks to the rapid digital transformation of healthcare during the global pandemic. The COVID-19 vaccine development and rollout has shown us that healthcare companies have been held back by excessive red tape for years, and when it finally gets removed, investments start to flow.

Fintech will also continue to garner investment, especially in areas like payment processing. Businesses that didn't have an online presence prior to the pandemic (e.g., some retailers) had to shift online models, and that's been a boon for payment processors. Expect to see more raises popping up weekly for these types of businesses. The company that raises $100 million tomorrow is one whose name you likely don't even know today.