Following a record-breaking year, Canadian venture capital activity slowed significantly in the first quarter of 2023 as macro-economic uncertainty and a correction in public markets dampened investments. In the first three months of the year, US$907.3 million was invested across 123 venture deals, down from the all-time high US$4.6 billion across 375 deals during the same period last year, according to KPMG Private Enterprise Q1 Venture Pulse report, which analyses key VC deals and trends globally.

With decreased valuations, stricter investor expectations, and a tighter fundraising market, VC deals are likely to remain soft in 2023.

Corporate venture capital (CVC) activity also took a hit with only 24 CVC deals worth $333.9 million, the lowest first quarter in over five years (in terms of deal volume and value).

While the Canadian market has cooled off, deals continue to flow in artificial intelligence (AI) (36), cleantech (32) and agtech (23), keeping Canada’s overall VC market relatively resilient compared to other global markets.

When broken down by deal type, there were 44 seed round deals, 46 early-stage investments, 70 late stage and 6 angel investments.

There were two initial public offerings (IPOs) in the first quarter, up from zero in the previous quarter. Of the 15 exits, 11 were mergers or acquisitions and two were private equity buyouts.

2022 was a challenging year for the Canadian VC ecosystem and 2023 is expected to be equally as tough. According to a recent poll, 91 per cent of Canadian business owners and decision makers feel the government needs new tax credits to encourage investment and support Canadian startups, enabling them to scale up and stay in Canada once they commercialize.

However, as we move into 2023, the resilience of the Canadian start-up and venture capital ecosystem will continue to draw in deals from foreign investors, spurred on by more open markets, favourable regulations and increasing government incentives.

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

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