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Investment in B.C. normalizes to pre-pandemic level

Minimal growth in venture capital and private equity investment expected this year
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Vancouver-based LayerZero Labs, a blockchain messaging protocol developer, raised the second-largest VC round in the province last year, at $120 million.

After spikes in 2021 and 2022, investments in B.C. companies returned to pre-pandemic levels last year and activity is expected to either stabilize or grow mildly in 2024, according to experts.

Around $1.2 billion in venture capital was raised across 92 deals in B.C. last year, a 15-per-cent drop in deals and a 25-per-cent decline in total value compared to 2022, according to Canadian Venture Capital & Private Equity Association (CVCA)’s year-end 2023 Canadian market reports.

On the private equity side, $458 million investment was raised across 67 deals, a 38-per-cent decline in deals and a 51-per-cent decrease in value, year over year.

“We’re noticing a downturn from the previous two years and that’s because those were really outlier years. It is a return to normal investment levels since 2019,” said David Kornacki, director of data and product at CVCA.

“It’s less than 2021 and 2022, but it’s still an increase since 2019.”

CVCA attributed the year-over-year slowdown to rising interest rates and economic uncertainty.

B.C. ranked third in VC investment value in Canada in 2023, following Ontario ($3.3 billion) and Quebec ($1.4 billion), and the fourth in PE investment, behind Ontario ($4.2 billion), Quebec ($4 billion) and Alberta ($840 million).

“That’s typically where we see the investment activity in B.C.... It’s right in line with what we saw in 2019, almost identical,” said Kornacki.

B.C. claimed an 18-per-cent share of total Canadian VC investment in 2023, with the areas of tech (48 deals), life sciences (16 deals) and cleantech (14 deals) leading provincial investment.

Burnaby-based Photonic, a quantum startup, secured the largest disclosed VC deal in the province, raising a $137 million funding round from Inovia Capital, British Columbia Investment Management Corp. (BCI) and a consortium of U.S. and global investors.

Vancouver-based LayerZero Labs, a blockchain messaging protocol developer, raised the second-largest VC round in the province, at $120 million.

On PE investment—dominated by Ontario and Quebec, which accounted for nearly 85 per cent of total investment in Canada—only four per cent of total investment went to B.C., where the most active sectors were life sciences (20 deals), finance (13 deals) and tech (12 deals).

“In private equity, we saw a pretty significant drop in terms of year-over-year trends. In 2021, we saw $20 billion invested [in Canada] and then only half of that in 2023,” said Kornacki.

He said PE investment has in recent years shifted focus to small to medium-sized businesses instead of mega deals.

“Investors are pulling back from private capital investing right now. Given inflation rates, the looming recession and overall interest rates, it’s more difficult to create an opportunity to invest those sums of money in the current market,” said Kornacki.

Vancouver-based BDC Capital Inc was the most active firm in VC investment in Canada last year, investing more than $1.66 billion across 68 rounds. The firm was the third most-active PE investor: $868 million across 87 deals. 

Experts expect investment levels in B.C. will hold steady in 2024 before picking up in 2025.

“What we’ve seen happen in B.C. in 2023 and continuing into 2024 is representative of what has happened globally,” said Ray Walia, CEO of Launch Academy, a Vancouver-based tech incubator and accelerator.

“2023 was a reset and into 2024 there is a renewed focus on business fundamentals and positive cashflow for venture-backed companies, primarily around a greater focus on revenue and growth.”

Walia said he has seen many VC funds that raised money from 2020 to 2022 struggling with maintenance and growth in a different economic environment.

“We’ll see more positive increases in 2025.… If interest rates go down, we will see an increase in investment levels for sure,” said Kornacki.

Artificial Intelligence was a big driver in tech investment in 2023 and Walia said the trend is here to stay.

“There will be a higher level of risk tolerance and desire to get in on investment opportunities that fall into the AI category because of the potential returns those investments could bring,” he said.

Kornacki expects investments in cleantech and agritech to “really explode” in B.C. and Canada in the next few years.

dxiong@biv.com

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