Q2’23 Venture Pulse Report – Americas

Canada attracted another solid quarter of VC investment during Q2’23, helped by a $318 million raise by carbon capture technology company Svante, a $175 million raise by vacation rental management company Hostaway, a $120 million raise by blockchain protocol company LayerZero, and a $110 million raise by Abdera Therapeutics.

With the exception of a handful of larger deals, VC investments in Canada continued to revolve around small and mid-sized deals during Q2’22. Companies from across a wide variety of sectors attracted funding, highlighting the enormous diversity of Canada’s startup ecosystem. Corporates continued to be quite active in Canada, with CVC participation expected to remain resilient heading into Q3’23 as corporates look for deals and synergistic opportunities. 

VC investment in Brazil remained relatively weak in Q2’23 amidst a combination of macroeconomic and political uncertainty, including the turbulence that has resulted from the change in presidential regime in the wake of the Q4’22 election. With major tax reforms on the horizon, many VC investors have pulled back from making major investments while awaiting more clarity on the changes that will be implemented and the impact they will have on both corporates and on startups.

Despite the ongoing slowdown in VC funding, there continued to be a significant amount of optimism for Brazil’s longer-term VC market outlook. The country’s VC ecosystem has matured quite rapidly in recent years, with a growing number of VC firms, VC funds, corporates, and other knowledgeable market players participating in the market. These players will likely help fuel a resurgence in VC investment in Brazil and across Latin America once some of the uncertainty dissipates.

Sectors almost across the board continued to face challenges in Q2’23. AI—and its sub-vertical generative AI in particular—was one very noticeable exception, with interest from investors rising dramatically in the wake of OpenAI’s introduction of ChatGPT in late 2022 the announcement of a $10 billion investment in OpenAI by Microsoft in Q1’23, and other generative AI announcements by other major tech companies.  In Q2’23, Google made a $450 million investment in Anthropic, while Amazon announced that it would make two language models available through its Amazon Web Services to support the building of bots by its customers.   Microsoft-backed AI firm Inflection also had a massive $1.3 billion deal late in the quarter. 

AI has quickly become a target sector for VC investors looking for their next Home Run or to avoid the fear-of-missing-out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries. 

Fintech continued to account for the largest share of VC investment in Brazil, although deal sizes were much smaller than those seen during the peak quarters of Q2’21 and Q4’21. The largest deals of the quarter included a $21.8 million raise by auto shop focused budgeting and claims management software company Cilia.  Business productivity solutions companies and energy-focused fintech companies also attracted attention in Q2’23.

In Canada, cleantech saw quite a strong amount of activity in Q2’23. In addition to the large Svante raise, INCA Renewtech raised $39.6 million, Peak Power raised $35 million, and ChargeLab raised $30 million.

Heading into Q3’23, VC investment is expected to remain relatively subdued across the Americas as VC investors remain very cautious in light of the ongoing market uncertainty. While VC investment in Brazil will likely remain soft in Q3’23, the significant amount of dry powder and the growing number of market players is expected to drive a resurgence in activity once uncertainty wans and interest rates begin to fall.

Mega-deals will likely remain rare, although there could be an increase in mature startups raising funding rounds in order to give liquidity to their early employees. Given the amount of dry power still in the market, very hot sectors like AI will likely continue to attract outsized investments heading into Q3’23. Investments in alternative energy, B2B productivity, and health and biotech are also expected to remain somewhat resilient over the next quarter.