Canadian Underwriter

Artificial intelligence saw record high investments in Canada in past five years: report

July 26, 2017   by Canadian Underwriter

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Artificial Intelligence (AI) attracted US$162 million in investments across 12 deals in the first half of 2017, the highest amount of funding in Canada in the past five years, according to the quarterly MoneyTree Canada Report from PwC Canada and CB Insights.

But despite the record high in AI deals, investments in venture-backed companies based in Canada slowed down in the first half of 2017, PwC Canada noted in a press release last week. Funding decreased 14% to US$885 million in the first half of 2017 from US$1.03 billion from the same period in 2016; the number of deals also decreased to 127 deals from 170 (25%) from the same period last year.

PwC Canada noted in the release that quarterly activity in Q2 2017 saw US$400 million deployed across 58 deals, a decline from Q2 2016, which also saw 58 deals but US$600 million deployed. Sector-wise, Internet deal count was up 19% from Q1 2017; Healthcare and Mobile accounted for much of the quarterly decline in Canada as a whole.

In terms of thematic areas, a US$102 million mega-round pushed annual funding to Canadian AI companies to the high of US$162 million across 12 deals through H1 2017, while deal activity is also on pace to surpass last year’s high, the release said.

“The increase of corporate investments in AI is shaping Canada as a leader in this sector,” suggested Chris Dulny, national technology industry leader with PwC Canada. “Canadian companies are attracting larger investments from top [venture capitals] (VCs) who are increasingly focused on our homegrown tech talent and innovation. The funding landscape which includes corporate and government funding makes Canada a top destination for international investors who are keen to see tech reach its full potential.”

According to the report, deals and dollars invested were both down in the leading hub of Toronto, with US$107 million deployed across 24 deals. Vancouver saw three more deals completed than the first quarter of the year, but 29% less capital invested. Montreal saw deal count drop, but total funding spike 145% to US$189 million, buoyed by several larger financings.

“This wasn’t a great quarter for Canada’s venture ecosystem especially when viewed against the global and U.S. funding and deal trends our data reveals,” said Anand Sanwal, co-founder and CEO of CB Insights, in the release. “There are, however, some positive signals, including the resilience in seed-stage deal activity and the continued presence of corporate and corporate VC investors. In addition, as artificial intelligence startups have risen to the fore globally, Canadian companies working in AI are also gaining momentum and interest.”

Other highlights in the report include:

  • Seed-stage deal share has bounced back after falling below 40% for two consecutive quarters, as Q2 2017 saw seed share rising to 45%. Expansion-stage deal share also hit an eight-quarter high, accounting for 19% of Q2 2017 deals;
  • Despite the slowing Canadian funding environment overall, 26% of all deals to Canadian companies featured at least one corporate or corporate venture capital investor in Q2 2017, climbing for the second consecutive quarter and setting a fresh eight-quarter high;
  • Internet deal share reached an eight-quarter high of 53% amid soft Healthcare and Mobile & Telecom activity. Healthcare deal share in particular dipped to an eight-quarter low, representing just 7% of the Q2 2017 total and down from the 20% high of Q1 2017;
  • Digital Health annual funding also already reached an annual high of US$106 million, although deal pace is on track to fall short of last year’s figure; and
  • On a trailing-twelve-month basis, investors based in Canada represented at least 50% of all active investors in Canadian companies across seed, early and expansion stages, with later-stage deals being the lone exception. U.S. investor participation rate was 33% or greater across stages, with an especially active presence in larger later-stage deals, where U.S.-based firms accounted for 58% of all investors.