Venture Pulse Q4 2022: Ending the year on a strong note

Canada’s venture capital (VC) market ended the year on a strong note, with over US$10 billion invested in Canadian companies across 1,080 deals, the second highest year on record, according to KPMG Private Enterprise’s Venture Pulse report. The record was set in 2021 when 1,361 deals were inked, worth US$13 billion.

Despite significant market volatility, ongoing geopolitical and economic turmoil, including recessionary fears, Canada’s venture capital market remains robust. This shows that the diversity of Canada’s maturing innovation ecosystem continues to attract a wide array of venture capital investors.

According to the KPMG Venture Pulse report, a quarterly global analysis of venture funding, 2022 was a year of near-record deal values for venture capital and corporate venture capital (CVC) investments, despite slight dips in deal counts. Although shy of the 2021 record, deal values remained well above quarterly levels seen prior to 2021.

While 2022 was a good year, we expect venture capital investment to slow significantly as the market undergoes a bit of a reset, shifting from a growth to a sustainability mindset. Deals are going to take longer to close as investors increase their due diligence requirements and reassess valuations.

• Canadian venture capital deals in 2022 fell 23 per cent US$10.3 billion across 1,080 deals from a historic US$13.3 billion across 1,361 deals in 2021.
• Corporate venture capital-backed funding totalled US$5 billion across 230 deals, more than three times higher than the US$1.6 billion in 2020 when economies were shuttered during the global pandemic, and only 15 per cent below than the record in 2021 with US$5.9 billion.
• Exits remained robust with 104 valued at approximately US$8 billion. While lower than last year, it’s well above the number of exits seen in years prior to 2021.
• Venture capital funding in the fourth quarter was US$1.9 billion across 187 deals – up in value but down in deal count from the third quarter, which had US$1.6 million across 216 deals.

New and clean-energy technology, draw strong investments as venture capitalists align with the government to ensure energy independence. Fintech, biotech, cybersecurity, business to business (B2B), machine learning and artificial intelligence, particularly, generative AI and conversational AI,  also continue to draw strong VC investor interest and are expected to continue into 2023, the report notes.

Fundraising slowed for the second year in a row, with just over US$2.2 billion raised by VC funds, as investors are cautious about raising new funds given economic and geopolitical uncertainty.

Heading into 2023, we will continue to see deals close in in the first quarter as there is significant hangover from 2022 but we expect that investors will focus primarily on the investments they’ve made over the past six months.

For more information on Canadian and global VC trends, see KPMG Private Enterprise's quarterly Venture Pulse report.