Venture capital funding in Canada surged to a record US$2.49 billion in the first three months ended March 31, 2021, setting an all-time quarterly high, driven mostly by foreign investors looking to back promising Canadian companies likely to outperform in a post-pandemic world, according to the Q1'21 edition of the KPMG Private Enterprise Venture Pulse report.

The deal count totalled 157 (down by 10 from the Q4 '20), most of which were either later stage (64) – reflecting the global trend – or angel or seed financings (54). The remaining financings (39) were for early stage companies in the development phase.

Foreign investment represented 73 per cent, or US$1.82 billion, of total VC funding in the first quarter, on track to match - or even outpace – the full-year record of US$4.12 billion in 2019, finds a special analysis of the Canadian VC market.

Venture financing in Canada with US-based investor participation
Venture financing in Canada with foreign (non-US) Investor participation

Canada's growing cohort of mature companies that are able to raise nine-figure rounds, late-stage financing sizes have soared the most, year-over-year. With serial entrepreneurs and other high-quality growth companies in Canada attracting sophisticated investors, they can now scale into very large and globally meaningful businesses.

To be sure, lofty valuations in pockets of the market, rising bond yields, and new lockdowns to control the rampant spread of new COVID-19 variants are fuelling concerns in the equity markets. But, it remains to be seen if and when these concerns will impact VC investment.

Globally, VC-backed companies raised US$126.9 billion across 6,508 deals in the first quarter. The competition for the biggest and best deals was red hot, as FOMO – fear of missing out – appeared to engulf investors, leading to numerous oversubscribed rounds and driving up valuations. Unicorn companies were the big winners, accounting for almost 40 per cent of all VC funding. The quarter saw over US$49 billion raised across 182 unicorn funding rounds, compared to a mere US$101 million raised across 403 unicorn rounds during all of 2020.

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For more information on Canadian and global VC trends, see KPMG Private Enterprise's quarterly Venture Pulse report.