Booming Canadian tech sector breaks record for venture capital funding set in dot-com bubble



Canada’s burgeoning tech sector set a full-year record for venture capital fundraising after nine months, surpassing the previous high set during the dot-com bubble.

Preliminary figures provided to The Globe and Mail by market data firm Refinitiv show that as of Wednesday 427 companies had raised a total of $ 10.92 billion in venture capital in 2021.

This is already more than the previous record of 7.57 billion dollars set in 2019. But given inflation, the total for 2019 did not exceed the record set in 2000. That year, at most Out of the original dot-com bubble, companies raised $ 6.71 billion in venture capital, or $ 10 billion today. It’s a record that fell last month, according to Refinitiv.

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This year’s performance drove a spike in laps of over $ 100 million – 34 this year – nearly triple the record of 12 set in 2019. It has occurred in companies from a variety of technology sub-sectors including online travel, education, finance and healthcare; software for small businesses and businesses; semiconductors; cryptocurrency; and precision agriculture. The average deal size nearly doubled, reaching $ 23.4 million from $ 12.4 million in 2019.

Record funding levels are partly due to increased investor interest in the technology driven by the widespread accelerated pace of digitization during the pandemic. Increasingly aggressive foreign investors such as Tiger Global and Softbank have also proactively offered promising big dollar companies at high valuations and quick closings. Several companies have raised funds twice in a year after such an aggressive courtesy, although they did not need the money.

But it also reflects a maturation of Canada’s tech sector, which was marked a decade ago by the demise of Nortel Networks and the decline of BlackBerry. Access to capital for startups was scarce, and venture capitalists pleaded with governments for financial assistance. National tech companies were underfunded and sold to foreign buyers at bargain prices. The few promising local startups have been told by venture capitalists that they need to move south.

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But a new wave of Canadian entrepreneurs have started building digital businesses, taking advantage of trends such as the massive adoption of smartphones and social media, the shift to cloud-based software, and the commercialization of artificial intelligence. New Canadian venture capital firms made bets that generated returns comparable to those of major US funds. Governments have committed funds to venture capital firms that have funded Canadian startups.

Today’s success “is the result of a paradigm shift in the minds of entrepreneurs and investors, with strong support and initiatives from government,” said Senia Rapisarda, Managing Director of HarbourVest Partners, a financial sector in the Canadian technology sector.

While many companies have failed, stumbled, or sold, a significant crop has grown to the scale and size necessary to attract growing funding and valuations, and to emerge as global players or disruptors to the industry. industry. As such, they attract funding levels and valuations more common to hot American startups.

“The valuations have come very close to the US valuations, and it’s really the influence of US investors entering our market,” said Alison Nankivell, senior vice president of fund investments at BDC Capital, a branch of the Business Development Bank of Canada. . “It’s partly a catch-up. … I think we’re all a little surprised at how quickly they move.

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There is growing concern that valuations are too high, as they were in 2000, and that many investors could retreat if valuations collapse. But many of the emerging tech stars have more substance this time around – though many are unprofitable – and technology is more ubiquitous in all walks of life.

“In 2000, it was the early stages of the internet, there were few strong companies, it was clearly a bubble,” said Boris Wertz, general partner of Version One Ventures, one of the start-up investors. most prosperous in Canada. “The biggest lesson of the last decade is that these tech markets are actually much, much bigger than we thought. COVID-19 has accelerated all of this. “

Mr Wertz added: “As far as valuations go, yes, they are high. But everyone has said that every year for the past 10 years, and that we’re in a bubble – and the underlying opportunity has been proven to be far greater. So it’s hard to tell if it’s too expensive.

The dynamism of private markets reflects the activity of public stock exchanges; The Toronto Stock Exchange has completed 14 technology IPOs since July 2020, compared to 12 in the 11 years ended December 2019. Information technology companies now represent 11.4% of the S & P / TSX Composite Index, compared to 1% in 2012. “Technology is a big part of the market right now and will continue to play an even bigger role as this country shifts to knowledge-based industries,” said David Wismer, global head of banking services technology investment at BMO Capital Markets.

The trends are similar in the United States, where companies have raised a record US $ 190 billion in venture capital and the pace of IPOs has reached dot-com boom levels.

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