Canadian venture-capital investment is down, except when it comes to companies with COVID-19 tie-in

Canadian venture-capital investment has skidded during the coronavirus pandemic, but some of the biggest VC deals getting done involve companies that could help the fight against COVID-19, audit firm KPMG says.

VC investment in Canada for the not-yet-complete second quarter stood at US$796.6 million as of Wednesday afternoon, down 12 per cent compared to the first quarter and by 33 per cent from the second quarter of 2019, KPMG told the Post.

Things could be worse, however, as COVID-19-related investments have picked up some of the slack.

“While market uncertainty has slowed overall investment in the Canadian sector, funds continue to flow to firms developing technologies to combat the impacts of the coronavirus,” said Sunil Mistry, a partner with KPMG in Canada, in a press release.

But similar drops in VC investment have been seen in other countries, KPMG said, as closed borders, travel restrictions and physical distancing have prevented in-person meetings between financiers and companies. Domestic investors have had it easier, but it has not been enough to make up for a drop-off in foreign capital.

“The COVID-19 pandemic has abruptly slowed — if not upended — the bull run in venture capital of the past decade,” lawyers from Torys LLP wrote earlier this month.

There were earlier signs that VC investment was slipping. The Canadian Venture Capital and Private Equity Association — which defines venture capital as “a form of investment for early-stage, innovative businesses with strong growth potential” — reported $831 million in VC investment during the first quarter of 2020, seven per cent lower than a year earlier.

The COVID-19 pandemic has abruptly slowed — if not upended — the bull run in venture capital of the past decade

Torys lawyers

Compared to the previous quarter, activity was down 45 per cent, “the most pronounced drop” VC investment has seen between the fourth and first quarters over the past five years, according to the CVCA.

“We expect to continue to see a drop in the second quarter and potentially the third as investors have increased their reserve funding for existing portfolio companies,” said Kim Furlong, the association’s CEO, in its first-quarter report. “Also, the challenges in conducting due diligence given social distancing may impact the number of deals that get done in the next few months.”

But the coronavirus has also “reshaped” Canada’s venture capital scene, KPMG said, with companies that can potentially contribute to the response to the pandemic scoring some of the biggest financings.

KPMG’s list of top deals for Q2 included the approximately $142-million financing closed near the end of May by Vancouver-based AbCellera Biologics Inc., a privately held biotech firm that works with other biotech and pharmaceutical companies on new therapies. AbCellera announced on June 1 that the lead antibody it had worked on with drugmaker Eli Lilly and Co. had begun human testing as a potential COVID-19 treatment.

Montreal-based WorkJam, which helps companies manage frontline workers digitally, closed an approximately $68-million round of funding in April, KPMG noted. In May, WorkJam announced the release of a new “health check analysis tool” to try to help employers stem the spread of COVID-19 in the workplace.

Meanwhile, VC firms have been adapting their operations, with the rate of investment picking up again after the “pause” caused by the coronavirus, Mistry said in an interview with the Post. This is being made possible with video chats via Zoom or Microsoft Teams, as well as due to virtual data rooms that allow for due diligence to be conducted.

One of the lines Mistry said he used to hear about venture capital was that a firm was not investing in a company, it was investing in the people who worked there. Being able to have live conversations “is always going to be key,” he said.

The Canadian Business Growth Fund, an investment fund backed by Canada’s biggest financial institutions, has made six investments during the pandemic, CEO George Rossolatos told the Post.

CBGF’s latest investment was announced Wednesday, as the fund led a $24-million capital raise by Winnipeg-based Librestream, which provides an augmented-reality platform for workers.

“Our deal flow has certainly increased during this period and we expect to remain on plan if not invest in more companies than we planned for 2020,” Rossolatos added in an email.

Source: Financial Post