Nine notes: Latest VC data crystallizes Vancouver tech’s threats and opportunities

I won't lie to you – the news isn't all bad, but it's also not all good. My talk at the recent Western Angel Investment Summit – which dug into CVCA’s latest venture capital data – ended on an ominous final note. My last point touched on global peril. But before I got there, I explored a few key shifts in Canada and B.C.’s investment landscape – the threats and opportunities evident in the numbers. The summary: it’s complicated.

If you look only at the 2022 data alone, you don’t get much of a story. But if you compare the numbers to 2021, the narratives start to grow. They sprout like seedlings that have drawn in their first drops of rain. In my presentation, I gave them a sprinkling. Let’s water them some more.

1. A dramatic drop: The total venture capital attracted by Canadian companies in 2022 dropped from $14.7 billion to 10 billion. This wasn’t a surprise. In fact, in the fall of 2022 – when mid-year data revealed that B.C. firms had so far raised $1 billion less than the previous year – Relentless Venture Fund’s Brenda Irwin told us, “The drop was predictable.” She went on to say that with “market uncertainty, institutional investors tend to shift to triage mode and focus on maintaining capital reserves versus new deployment.”

2. Penny pinchers: In B.C., the net result of shifting investment strategies resulted in smaller cheque sizes. In 2021, B.C. firms raised $2.9 billion in 105 deals. In 2022, the number of deals stayed virtually unchanged at 106, but the amount of capital attracted dropped by $1.3 billion.

3. Island vibes: While Vancouver remained the top city in B.C. for venture capital investment, and third overall in Canada, Victoria saw its total investment nearly quadruple from $28 million to $109 million. Although just two companies – Certn and Audette – account for nearly 75 percent of that number, there is no denying that the city is teeming with emerging startups set for significant growth this year.

4. New frontiers: Victoria entrepreneurs are bullish, too. “I think we're going to see some massive funding rounds in 2023,” explained Armon Arani, CEO at Cognito Health, to our colleagues at Victoria Tech Journal. “There are 40 funds in Canada sitting on a pile of dry powder and Victoria has an insane pool of talent building Canada's next unicorn.” As for Vancouver, its deal count rose from 75 in 2021 to 81 in 2022, but overall dollars dropped from $2.8 billion to $1.5 billion. The drop is not just the result of smaller deals…

5. Capital erosion: Money is also pouring into other communities. In 2021, B.C.’s share of investment dollars was 20 percent. B.C., Ontario and Quebec (the big three) together attracted 93 percent of the capital being invested in the country. Last year, B.C.’s share decreased by 4 percent and the big three together lost 5 percent. So, where is the money going?

6. Next-door neighbours: I was recently asked by Fort Capital’s Cameron Burke where I thought Canada’s hottest ecosystems outside of B.C. were right now. I didn’t hesitate to answer: Alberta, Saskatchewan, and Manitoba. Investors are taking note too. Last year, Alberta attracted $729 million (up 30 percent) and Manitoba brought in $101 million (up 77 percent). The total dollars raised by Saskatchewan companies decreased, but the province still drew in $136 million through 18 deals. The annual Uniting the Prairies tech conference is in just over two months. For the rest of Canada, it’s probably worth the trip.

7. Getting digital: When examining the two biggest deals over the past two years, what investors focused on is clear. In the case of 2021, Trulioo’s mammoth $476 million round was precipitated by society’s immense shift online. That accelerated a need to build and invest in tools to more effectively operate in this new digital world. The year’s other major deal was a multi-hundred million round led by Coatue, Andreessen Horowitz, Version One Ventures, and GV for Dapper Labs. The excitement around its NFT projects was understandable. “I think we're on track to be the fastest-growing marketplace ever," claimed Dapper Labs CEO Roham Gharegozlou in February of that year. Until recently, the company that invented NFTs seemed unstoppable.

8. Investing in the future: 2022’s top two deals are interesting for two completely different reasons. LayerZero Labs $168 million round represented investors’ interest not in flashy consumer Web3 projects, but in significant blockchain infrastructure: the decentralized web’s plumbing, if you will. Svante, which develops carbon capture technology, raised an astonishing $434 million. The number illustrates the massive amounts of capital required to build hardware technologies and commercial-scale manufacturing facilities. It’s also indicative of one more thing…

9. Crisis to crisis: The top sectors in 2021 for B.C. investment were information communications technology (63 deals), which is always number one, and life sciences (10 deals). In the midst of a pandemic, who can be surprised that biotech firms were being funded? In 2022, ICT once again led the pack (57 deals). And beyond ICT, the industry that got the most funding is the one trying to solve that other crisis, society’s most obvious existential threat: cleantech (12 deals).

Any predictions for what tech category leads the list next year? Perhaps I’ll ask my friend ChatGPT what it thinks.