Québec s Venture Capital Market in Réseau Capital

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1 Québec s Venture Capital Market in 2014 A REPORT PREPARED FOR Réseau Capital FEBRUARY by Thomson Reuters (Canada); All Rights Reserved All data used for this report derive from the proprietary databases of Thomson Reuters; No part of this report may be copied or reproduced without permission.

2 Québec s Venture Capital Market in Summary Investment activity in Québec s venture capital (VC) market achieved growth in 2014 due primarily to stronger deal-making in the year s third and fourth quarters. Dollars invested by VC funds totaled $604 million as of December 31 st, edging past the $599 million invested in As a result, disbursements in 2014 were at their highest level since 2007, the peak year of the previous market cycle. The number of financings of Québec-based technology and non-technology companies also increased moderately in VC funding rounds totaled 179 in last year, up 3% from the 174 rounds reported in The number of Québec companies backed in 2014 totaled 151. Deal-making in other regions of the North American VC market also showed greater momentum last year. Across the market in Canada, dollars invested totaled nearly $2.4 billion at the end of December, or 21% more than in VC invested in the United States totaled US$48.4 billion in 2014, which is up 61% from the year before. On balance, Québec-based VC investment activity accounted for roughly one-quarter of all disbursements made across Canada in This is down from the 31% domestic market share secured by Québec in A key to growth trends in Québec s VC market in 2014 were large-sized technology financing rounds, particularly those reported between July and December. Companies such as Blockstream, Clementia Pharmaceuticals, Énergère, Enerkem and LightSpeed Retail were among those that obtained substantial rounds, and consequently pushed average deal sizes higher. Amounts invested per company averaged $4.0 million last year, up from the $3.8 million averaged in 2013, and the $2.6 million averaged in In contrast to 2013, when non-technology sectors led VC market trends in Québec, it was information technology (IT) sectors that took the largest share of investment activity in A total of $225 million went to IT companies, up 73% year over year, and reflecting 37% of total dollars invested this time around. VC funds also paid more attention to life sciences sectors, which attracted $104 million in 2014, up 56% and accounting for a 17% market share. Québec-based funds and other Canadian investors played an especially influential role in shaping trends in Québec s VC market last year. Private-independent funds, labour-sponsored and other retail funds, government funds and other local investors deployed $484 million in total in 2014, up 19% from In contrast, foreign investors were less active this time around, bringing $120 million to Québec deals. In contrast to 2014 trends in investment activity, new capital committed to Canadian VC funds decreased last year. A total of $1.2 billion was raised at the end of December, which is down 15% from the $1.4 billion added to VC industry coffers in VC fund managers headquartered in Québec captured 48% of total funds raised in the domestic market last year, or $586 million. Thomson Reuters Page 2

3 Québec VC Invested in 2014 at Highest Level Since 2007 Investment activity in Québec s venture capital (VC) market achieved growth in 2014 due primarily to stronger deal-making in the year s third and fourth quarters. Dollars invested by VC funds totaled $604 million as of December 31 st, edging past the $599 million invested in As a result, disbursements in 2014 were at their highest level since 2007, the peak year of the previous market cycle. The number of financings of Québec-based technology and non-technology companies also increased moderately in VC funding rounds totaled 179 in last year, up 3% from the 174 rounds reported in The number of Québec companies backed in 2014 totaled 151. Québec market activity between July and December drove the year-over-year expansion in terms of both VC investment values and the number of deals done. In the second half of 2014, a total of $443 million was invested in 98 financing rounds, compared to the $162 million invested in 81 rounds in the year s first half. Deal-making in other regions of the North American VC market also showed greater momentum last year. Across the market in Canada, dollars invested totaled nearly $2.4 billion at the end of December, or 21% more than in VC invested in the United States totaled US$48.4 billion in 2014, which is up 61% from the year before. Thomson Reuters Page 3

4 On balance, Québec-based VC investment activity accounted for roughly one-quarter of all disbursements made across Canada in This is down from the 31% domestic market share secured by Québec in A key to growth trends in Québec s VC market in 2014 were large-sized technology financing rounds, particularly those reported between July and December. Companies such as Blockstream, Clementia Pharmaceuticals, Énergère, Enerkem and LightSpeed Retail were among those that obtained substantial rounds, and consequently pushed average deal sizes higher. Amounts invested per company averaged $4.0 million last year, up from the $3.8 million averaged in 2013, and the $2.6 million averaged in Montréal continued to dominate the Québec VC market in 2014, with local deals capturing three-quarters of all disbursements. Québec City took second spot with a 7% market share. Québec IT Sectors Lead Deal-Making in 2014 In contrast to 2013, when non-technology sectors led VC market trends in Québec, it was information technology (IT) sectors that accounted for the largest share of investment activity in A total of $225 million went to 46 software and other IT companies last year, up 73% from the previous $130 million invested. Consequently, IT-related activity captured a leading 37% of total dollars invested this time around. VC funds also paid more attention to Québec life sciences sectors in A total of $104 million was invested in 14 biopharmaceutical and other life sciences companies by the end of Thomson Reuters Page 4

5 December, which is 56% more than the $67 million invested the year before. This gave life sciences activity a 17% share of all disbursements in 2014, up from 2013 s 11%. In contrast with IT and life sciences sectors, clean technology sectors lost ground in Québec s VC market last year, with a total of $90 million going to five companies, or less than half of the $212 million invested in As a result, clean technology s market share stood at 15% in Thomson Reuters Page 5

6 Québec non-technology sectors continued to capture a sizeable share of total VC invested last year, or 31%. This occurred despite the fact that investment activity in these sectors decreased moderately, from $191 million in 2013 to $185 million this time around. Non-technology companies backed by VC in 2014 totaled 86. Last year, Canadian VC market activity continued to be led in IT sectors, which garnered $1.4 billion invested, or 61% of all disbursements. Life sciences activity also contributed to growth trends, accounting for $451 million invested, or 19% of the total. Growth Primarily in Québec Early-Stage VC Financings The year-over-year increase in dollars invested in Québec s VC market in 2014 owed in part to higher levels of early-stage activity. Seed and start-up financing rounds attracted a total of $153 million this time around, or close to double the $80 million invested in As a result, early-stage companies took one-quarter of total VC invested last year, up from the previous 13% share. In contrast, VC deals involving Québec companies at later stages of development lost ground in Expansion and related late-stage VC financing rounds secured a total of $410 last year, which is down 16% from the $488 million invested in However, this deal-making continued to account for by far the largest share of all disbursements last year, or 68%. Thomson Reuters Page 6

7 Canadian VC market trends in 2014 were very similar to those of Québec by stage of development. Expansion and related late-stage deals accounted for 64% of total dollars invested, while early-stage activity assumed a 26% share. Local VC Funds Increase Investment Activity in Québec Local VC funds played an especially influential role in shaping trends in Québec s VC market last year. In contrast, foreign investors brought fewer dollars to deal-making in 2014 than they did the year before. Québec-based funds and other Canadian investors increased their deal-making in the Québec market last year, putting a total of $484 million to work in VC financing rounds, or 19% more than the $406 million they were responsible for in Among the most active VC fund types this time around were private-independent funds, labour-sponsored and other retail funds, and government funds, which helped local VC fund activity account for approximately 80% of all disbursements. 1 American and other foreign VC funds brought a total of $120 million to investment activity in Québec in 2014, or about one-fifth of total dollars invested. However, this level of activity is 1 Québec labour-sponsored and other retail VC funds are increasingly doing a mix of direct investments and limited partner activity (i.e., making commitments to private funds). Both roles are relevant to reports of market trends, though data cited here reflect direct investments only. Thomson Reuters Page 7

8 down from the year before, when U.S. and other foreign investors deployed $193 million to Québec deals and accounted for a nearly one-third market share. Foreign investors accounted for a larger share of Canadian market activity in 2014, or 34% of total VC invested. Canadian funds and domestic syndicate partners continued to be responsible for by far the largest amount of disbursements, however, investing $1.6 billion last year. Pace of Canadian VC Fund-Raising Activity Slows in 2014 In contrast to 2014 trends in investment activity, new capital committed to Canadian VC funds decreased last year. A total of $1.2 billion was raised at the end of December, which is down 15% from the $1.4 billion added to VC industry coffers in 2013, and down 30% from the $1.7 billion added in Canadian VC funding-raising activity was last year led by private-independent funds, which brought $798 million into the market, or 65% of total new commitments. Labour-sponsored and other retail funds accounted for $400 raised as of December 31 st, or 33% of the total. VC fund managers headquartered in Québec continued to account for the largest percentage of new commitments made in the domestic market in Of the $1.2 billion raised in total across Canada, Québec funds captured a 48% share, or $586 million. Thomson Reuters Page 8