Ottawa consultant warns of 'venture capital Ice Age' as funding dries up in Q3

Canadian money

The pace of new VC investments in Ottawa dropped off in the third quarter, a new report says, mirroring a national trend that has a local consultant warning of a potential “Canadian venture capital Ice Age” ahead.

Here at home, 24 companies from the capital landed a combined $91 million in VC funding from January to the end of September, according to the latest Canadian Venture Capital Report compiled by CPE Analytics. 

But Ottawa-based firms attracted just $8 million in new investments between July and September, well below the pace they set earlier in the year. By contrast, local companies landed an average of nearly $14 million each month in the first half of 2020.

Across the country, Canadian firms brought in a total of $3.59 billion in the first nine months of 2020, down 33 per cent from 2019. The total number of deals, meanwhile, fell 18 per cent year-over-year to 436.

The report’s authors say the pandemic has caused U.S. firms to pull back from the Canadian market, while homegrown VCs’ own fundraising efforts have stalled. 

U.S. investors in 'retreat'

Contributions from south of the border accounted for 31 per cent of the country’s total VC funding haul through the first nine months of 2020, down from nearly 50 per cent a year ago. Meanwhile, Canadian VCs raised about $2.7 billion in the first nine months of 2020, compared with $3.6 billion in the same period in 2019.

“Combined with U.S. investors being forced to retreat from Canadian market and Canadian VCs raising little money, the Canadian venture capital industry is entering into a unique and challenging environment,” CPE Analytics said in a statement on Tuesday. 

While the authors noted that the federal government and the provinces have stepped up their funding efforts in the back half of the year, they said “it remains to be seen if governments’ efforts alone will be enough.”

“Many are questioning whether these worrisome developments will disappear once COVID-19 has been tamed or whether they reflect more disturbing trends that could result in another Canadian venture capital Ice Age,” Richard Rémillard, president of Ottawa-based Rémillard Consulting Group, said of the report’s findings in a statement. 

“It is time to review the entire panoply of support mechanisms for the Canadian venture capital industry before it's too late.”

The Ottawa region placed fifth in the total number of VC deals in the first three quarters of the year, behind Vancouver, Toronto, Montreal and Calgary. 

Ottawa 8th in total funding

The city’s total funding haul fell to eighth nationally, well behind frontrunner Toronto at $817 million. Vancouver ($611 million), Montreal ($555 million), Kitchener ($384 million), Quebec City ($289 million), Calgary ($226 million) and Edmonton ($150 million) also eclipsed Ottawa’s VC tally for the first nine months of 2020.

While 2020 got off to a slow start in the venture financing race, the startup scene picked up steam throughout the spring and early summer. Major Ottawa deals announced between April and June included Solink’s $23-million series-B round, $17 million in new funding for Equispheres, software startup Tehama’s US$10-million round and cybersecurity firm Corsa Security’s $7-million deal.

But that momentum slowed considerably as the year wore on. Aside from one major deal ​– education software firm Kivuto Solutions’ $7.6-million financing round announced in September – local firms generated little VC buzz in the third quarter.

(Ottawa’s Variation Biotechnologies, a subsidiary of Massachusetts-based VBI Vaccines, was awarded up to $56 million from the federal Strategic Innovation Fund in August to ramp up development and testing of its experimental COVID-19 vaccine, but that deal is not included in the city’s tally.)

One major Ottawa-based law firm cracked the list of Canada’s top firms catering to VC deals. According to the report, LaBarge Weinstein LLP was involved in 20 national transactions worth a combined $299 million between January and September, the fourth-highest totals in the country.