Canada ends year with near record VC investments, despite volatility

Canada’s venture capital (VC) market ended the year on a strong note, finishing 2022 with over US$10.3 billion invested across 1,080 deals, according to KPMG Private Enterprise’s Venture Pulse report. This year was the second-highest year on record, trailing only 2021 when 1,361 deals generated some US$13 billion.

“Despite difficult market conditions last year, venture capital activity in Canada remained robust, with interest widespread in innovative, high-growth-potential firms,” says Sunil Mistry, Partner, Enterprise and Technology, Media and Telecommunications, KPMG in Canada. “The year ahead may however prove to be more challenging. A potential recession and bearish market have venture capitalists raising the bar on their due diligence and laser-focused on their return on investment.

“Last year’s rout in the public markets and rising interest rates has led to uncertainty over the valuations of privately held assets and their price on the secondary market. As a result, venture capitalists are increasingly looking to deploy funds in companies where they can achieve returns over a shorter time horizon, generally one to two years. With ‘caution ahead’ the watchwords, we expect to see a bit of a reset in the market making it unlikely that we’ll see deals close as quickly as they did over the past couple of years.”

While the KPMG report calls for a slowdown in the market, it is calling for the fintech, biotech, sustainability and cleantech, cybersecurity, machine learning and artificial intelligence (AI) – particularly, generative AI and conversational AI – to continue drawing strong investor interest in 2023.

“Canada has built up a vibrant entrepreneurial startup ecosystem rooted in attractive immigration and tax policies, support programs, an affordable education system, and unmatched collaboration among academic organizations and the public and private sectors,” says Anuj Madan, Partner and KPMG in Canada’s National Industry Leader, Technology, Media & Telecommunications. “The risk now - and what we need to pay close attention to – is how this market reset affects funding in the innovation ecosystem.”

“A lot of promising startups that require time to develop their ideas into marketable products could find it more difficult to attract the capital they need,” he says. “It’s important for Canada’s future that investments continue to flow into the ecosystem, from academic research to commercialization. Canadian startups need to think globally and focus on areas that demonstrate high-growth potential in order to attract investment in an increasingly volatile market.”

• The US$10.3 billion across 1,080 deals in the Canadian venture capital market was the second highest on record, only trailing the 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 in 2021, the number of exits last year were well above that seen in prior years.
• Fourth-quarter VC funding rose to US$1.9 billion across 187 deals – up in value but down in deal count from the third quarter, which had US$1.6 billion across 216 deals.

Learn more about KPMG Private Enterprise’s Venture Pulse by accessing the full report.