Venture capital investment in Canada had a last quarter that was stronger than the first nine months of 2022. One thing, however, has not changed for a long time: the state remains the most important funder, twenty years after a government report which strongly recommended leaving this more risky investment to the private sector.
“In the last quarter of 2022, we can clearly see that institutional funds – including governments – are very present. Funds like Investissement Québec and the BDC are very present at the top of the biggest investors,” says Olivier Quenneville, vice-president of business intelligence and development at Réseau Capital. Jointly with the Canadian Venture Capital and Private Equity Association (CVCA), Réseau Capital publishes a portrait of the Canadian venture capital and private equity market every three months.
The year 2022 has not been easy for investors specializing in the financing of companies which are at a very preliminary stage in their existence. The first nine months of the year saw the value and number of deals slow as concerns about the health of the global economy grew.
The year ended better, rebounding from a particularly depressed third quarter. The year 2022 ended with a total venture capital investment of 3.8 billion, far behind the approximately 6 billion in 2021, according to figures from CVCA.
For example, in the early stages of investing, the top two venture capitalists in Canada in 2022 are BDC, a Crown corporation, and Investissement Québec, with 51 and 13 deals respectively during the year. The total sums invested by the two firms reached 1.1 billion over twelve months.
This is the same amount that was invested in 2022 by all of the eight other firms that make up the list of the ten major venture capital firms. Among these are Fondaction (CSN), the Solidarity Fund of the FTQ, Desjardins and the specialized Montreal firm iNovia Capital.
We should not conclude too quickly from the sight of these figures that Canadian venture capital is made up exclusively of institutional or public investors, nuance Olivier Quenneville. “There are also generalist funds. We do not have the perfect ecosystem, but it is certain that a pre-seed fund specializing in a very niche investment sector will seem less imposing than a generalist fund. »
A state less present
The fact that government money is driving Canada’s venture capital industry is nothing new. But as the past is sometimes a guarantor of the future, certain concerns have arisen in recent weeks. The turbulence experienced by several technology companies following the bankruptcy of Silicon Valley Bank, one of the most important lenders for North American start-ups, brought back bad memories to those who were already in the sector at the turn of the millennium.
Twenty years ago, in November 2003, the Quebec Minister of Economic and Regional Development, Michel Audet, received from a working group headed by Pierre Brunet a report on the place of the State within this industry. .
“The major efforts that the Government of Quebec has made in recent years to support business financing have meant that the place of the public sector in the Quebec venture capital market has grown significantly, so much so that it has become preponderant “, noted Pierre Brunet at the time.
After the bursting of the stock market bubble in 2000, “the significant losses they are recording are currently creating additional pressure on Quebec public finances”. The working group therefore recommended considerably reducing the role taken up by the State.
A reassuring role
Twenty years later, returns are significantly better than they were after the bursting of the tech bubble. Result: the governments give no sign that they will reduce the place they occupy these days. On the contrary, Investissement Québec recently reiterated its desire to be more active with young businesses here. Ottawa is in the midst of a multi-year investment plan that won’t end anytime soon.
Réseau Capital is delighted. The commitment of major funds such as Investissement Québec reassures private firms, which then hesitate less before investing in local businesses.
In more difficult economic contexts, such as the one experienced in 2022, the presence of public institutions in the market can in fact have another beneficial effect: to compensate for the loss of appetite of private venture capital, adds Olivier Quenneville.
“We would obviously like to see the investment ecosystem further diversify its investor base, says Olivier Quenneville, but the government still has a role to play in developing expertise and leading the industry to become more mature, more autonomous. »