According to a recent report by CPE Media, private VC’s were responsible for investing over $1.2 billion across 117 Candian startups in Q1 2019, greatly surpassing the $800 million that was raised on the TSX Venture during the same time period.
Of the approximately $1.2 billion dollars invested in Canadian startups in Q1 2019, U.S. VC’s contributed 52.8%, Canadian VC’s 39.2%, and Chinese VC’s 5.3%. The remainder came from dozens of other countries, such as Ireland, Sweden, the U.K., and others.
While $1.2 billion may sound like a big number, it should have been a lot bigger.
“In Q1 of 2019, the number of . . . Canada-based startup [VC financing] rounds across all stages hit its lowest point in five quarters.“
It’s not just Canada that’s experiencing a slowdown in VC-backed financings—it’s the entire world.
“Crunchbase projected data says that globally, about 8,097 deals were struck in Q1 2019 worldwide, down 3 percent from last quarter, but up 6 percent from last year . . .”
But for Canada, the slowdown in new financings could become especially pronounced, thanks to deteriorating relations with its third-biggest venture capital investor, China.
Chinese Investment In Canada Collapses Post-Meng
Chinese VC investment, which ranks third place in CPE Media’s list, could sink even lower during 2019. Chinese investment in Canada is already falling at a rapid clip.
Via Financial Post,
“Chinese investment in Canada nearly halved in 2018, as Beijing’s restrictions on capital outflows [combine] with rising Western scrutiny of its state-owned firms and heightened diplomatic tensions . . .
At 47 per cent, the drop in investment in Canadian firms was slightly deeper than the global decline . . . total [Chinese] investment [in Canada] fell to $4.43 billion from $8.45 billion in 2017.”
This decline in Chinese-Canadian investment isn’t across the board, however.
Historically a heavy investor in Canada’s energy sector, China is increasingly turning towards Canada’s metals and minerals in search of returns.
Via Financial Post,
“While [Chinese investment in Canada was] down overall, Chinese investment in Canada’s metals and minerals sector spiked to $3.7 billion in 2018 from $264 million a year earlier — the highest level on record.”
That’s an increase of over 1441% in just one year. During this same year, the TSX Venture rose roughly 17%.
Heightened interest from Chinese investors in Canadian metals and minerals companies could clearly be a boon for the TSX Venture.
Moreover, Canadian metals and minerals are already something that Chinese investors are well-acquainted with. According to the China Institute’s China-Canada Investment Tracker, China invests most often in B.C., with 173 of its 336 investments in B.C. related to the province’s metals and minerals sector.
TSX Venture Could Benefit From Redirected Chinese Investment
From Europe to North America, countries across the world are experiencing a slowdown in VC-backed financings. Canada, unfortunately, appears to be particularly vulnerable to this trend due to declining Chinese investment across the country. That said, this trend could become a blessing in disguise for TSX Venture investors—should the Chinese redirect their investments towards more TSX Venture-listed metals and minerals companies.