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Venture Pulse Q1 2019

Venture Pulse Q1 2019

Quarterly global report on VC trends published by KPMG Enterprise

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Sunil Mistry

Audit Partner, Enterprise and TMT

KPMG in Canada

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Venture Pulse Q1 2019

KPMG Enterprise's latest quarterly report on global venture capital trends

After a record-shattering level of VC investment in 2018, the VC market globally got off to a relatively weak start in Q1'19. But there continued to be strong interest in Canada, if not a lot of large numbers. Indeed, Canada attracted numerous moderate sized deals in Q1'19, highlighting the country's dynamic and varied market, with its established innovation hubs in Vancouver, Toronto, Waterloo, Ottawa and Montreal.

Small business focused point-of-sale and e-commerce provider Lightspeed raised $240 million in its Canadian IPO in March, making it one of the exchange's ten largest tech IPOs in history and demonstrating that the US is not the only viable market for successful IPO exits. Meanwhile, Turnstone Biologics' $42 million raise showcased the ongoing strength of biotech and life sciences investments in the country, while platform-based offerings also saw some nice sized deals, including a $40 million raise by asset maintenance and management platform Fiix and a $30 million raise by connected car platform company Mojio.

More information about these and other deals, in Canada and around the world, are available in the latest edition of KPMG Enterprise's Venture Pulse report, which tracks and analyzes global VC trends on a quarterly basis.

Download the full report

In the following interview, Sunil Mistry, a Toronto-based partner in KPMG Enterprise's Canadian practice who specializes in the Technology, Media and Telecommunications industry, offers additional insight into the current state of VC in Canada.

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Q. There weren't any particularly large deals that really stand out in Canada this quarter but there were a few in the $10-15 million range. What do you make of the overall list?

A. I cannot say that I knew all of those companies, but I looked into a number of them and I think what's interesting is the majority of those deals are related to some sort of technology.

Q. Can you give us a sense of how big the Lightspeed IPO was relative to other IPOs in Canada?

A. I haven't seen what it's been doing since it went live, but I think the fact of the matter is we just don't see a lot of IPOs these days, and to actually have one go IPO is good for the sector and good for the country. We spoke all through last year about the lack of IPOs so to have one so early in the year is maybe a good sign that the IPO market might be pretty robust this year.

Q. What do you think the Canadian outlook is for IPOs specifically?

A. A lot of companies have been talking about going this route, and I expect many of them that wanted to go last year will possibly look at 2019 as the year they execute.

There's still going to be a lot of deals and a lot of these companies are going to come out of those funds and be sold to other private equity or maybe they go IPO out of those funds. Meanwhile, new money will also come into the system. Sometimes I feel like a broken record, but I think all of the things that we've talked about over the last 24 months or so continue to be in force now, like low interest rates—there have been a few tick-ups here and there but not as much as I think the markets thought would occur.

Q. The Canadian Venture Capital Association just published a report on 2018, in which they say that 70% of the VC deals in Canada were valued at less than $5 million and pointed to that as a sign of robustness in the Canadian VC market. What's your reaction?

A. I'm not surprised by that. Just the number of businesses that are in Canada—we don't have that large a unicorn base, per se, and I think that—whether it's Vancouver, or Toronto, or Waterloo, or Ottawa, or Montreal—there's just a large number of companies that are looking to get funded. So to see that sort of a figure is not surprising to me.

In terms of all the deals that happened up to March 5, there's no $100-million deal, but there are $15 million, $40 million, $22 million and $32 million dollar deals. I believe that is also a function of money needing to be spent out of these funds. And the other aspect I think you'll see happening is a cycle of those initial funds from three to five years ago now also being collapsed because they need to distribute the money back out to the fund holders.

Q. It's been a few quarters since we talked about government support for the VC and tech ecosystem, with programs like the federal Venture Capital Action Plan (VCAP) and the Venture Capital Catalyst Initiative (VCCI). What are your thoughts on the state of these and other government initiatives that are helping to support the market?

A. Those funds continue to be active as well. From a governmental perspective, SR&ED continues to be a huge driver. And the Industrial Research Assistance Program (IRAP) continues to be very active.

Q. What are your thoughts on what some of the American tech giants have been doing in Canada?

A. Certainly through last year, the back quarter of this year, you couldn't go a couple of days without some sort of press release saying that one of the large US tech companies was opening an A.I. shop in Toronto or a development shop in Waterloo. I'll come back to things I've said in the past, that it's a safe environment here in Canada, and we have a great base of employment and resources. Lots of infrastructure. And for a lot of these companies, it just makes sense to try and expand their footprint here. Most of them are here already, and there are a lot of new verticals that they're looking at, A.I. being one that we see all the time. And on the automotive side, we certainly have a pretty big manufacturing base, and some of these companies are looking at autonomous cars and other transportation-related technologies.

Q. We've previously discussed the ICT sector and how it's kind of the dominant space in Canada. Any news on that front or any other industry areas?

A. ICT continues to be a large driver in the Canadian high growth markets. Health care and the associated health tech also continues to be very active. From a Canadian perspective, because of the nature of our health care system, there's opportunity for a lot of these kinds of companies to be created here, to try to help solve medical problems and logistical problems in health care. Again, there's a lot of that out there, and I think we'll see more and more of it.

Q. The Collision Conference is coming to Toronto this year. Is there anything you want to say about that, maybe the extent to which it's an indication of the strength of the Toronto or Canadian VC scene and the degree to which you see it growing?

A. Collision is going to be very exciting for the city. We at KPMG are certainly involved. I've not been to this particular event before when it was in New Orleans, but I did go to Web Summit for a couple of years, which is part of the same group of conferences. The city is going to be alive for sure with the Collision conference. We're going to have so many people, so many companies from around the world, and it's certainly going to shine the spotlight on Canadian start-ups and other high growth companies that are past the start-up stage. There's going to be a ton of investors, a ton of larger conglomerates—whether it's your Apples, your Googles, your Amazons—as well as all sorts of other industries that play a part in this as well. And not only with Collision: there's another event that we are sponsoring and hosting in the coming months called the Future Innovation SportsTech World Series. It's exciting to see that so many of these events want to come to Toronto; it's a great spot for them and it just makes sense.

Q. What should we be watching out for moving forward? And any other key themes?

A. I think it will be an interesting year. I was reading an article the other day where somebody said something to the effect of "I've been saying for seven years that there's got to be a downturn or something coming, and yet it still hasn't." You do hear rumblings about interest rates potentially going up and what impact that's going to have. But at the same time, as we've seen through Q1, things continue to be robust. Maybe not "shooting the lights out" as we've seen in prior quarters or years, but the numbers are still showing that there's a lot of activity out there.

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