Although, the oil and commodity sectors are slowing, Canada has one industry which is booming (at least for now(.
According to FactSet research analyst Andrew Birstingl, the Great White North might be getting ready to become the next Silicon Valley.
That’s right, Canada’s tech sector is enjoying a boom, as both venture capital funding and proceeds from equity offerings for Canadian technology firms are hitting 10-year highs.
Recent trends in Canada’s tech sector
In his November 10th FactSet Insight report, Birstingl notes that:
- Venture capital funding for technology firms based in Canada is the highest in more than a decade
- Total proceeds from equity offerings for the tech sector are also at 10-year highs
- Institutional investors continue to boost their exposure to Canadian tech companies
- The total market value of the Information Technology GICS sector in the Toronto Stock Exchange Composite and TSX Venture Composite continues to move up.
Venture capital funding for Canada tech firms hits new highs
The equity capital raised in the private market by companies in Canada’s tech sector has been moving up recently. Venture capital investment rounds in the tech sector have come to $768 million year-to-date, the largest total in the last 10 years. Of note, the annual average venture capital raised over the last decade for the Canadian technology industry is $512 million.
The two Canadian firms with the largest amount of venture capital investment are Desire2Learn (D2L) and D-Wave Systems. D2L is an education technology company that provides a range of learning solutions on an open platform. The firm has six active investors and has brought in $165 million in venture capital in two investment rounds. D-Wave Systems develops cutting-edge quantum computer systems. The company currently has 14 active investors and has raised around $162 million.
Proceeds from equity offerings moving up smartly
The amount of equity capital Canadian tech companies have been raising in public markets has also been mushrooming. Since 2005, there have been 934 IPOs by Canadian tech firms, with $33.9 billion in gross proceeds. The tech sector represented around 8% of the total gross proceeds from these IPOs going back to 2005.
Canada’s tech sector has seen four IPOs so far in 2015, with $422.1 million in gross proceeds produced. That represents a 109% boost from the total gross proceeds in 2014 for the tech sector, and is 71.4% higher than the 10-year average of $246.2 million. 2015 saw the largest total gross proceeds for Canada’s tech sector since 2010, when four IPOs totaled $876.9 million in gross proceeds.
Considering IPOs and follow-ons, the 28 equity offerings in 2015 to date have totaled $2.85 billion in gross proceeds, which is the second highest total in a decade.
Institutional investors boosting positions in Canada’s tech sector
Institutional investors have invested $60.8 billion worth of shares in tech firms based in Canada (not including firms with a share price less than $1) as of October 31st, almost 65.2% of the aggregate shares outstanding. Valeant Pharmaceuticals obviously represented the large majority of this market value due given the billion dollar plus held by funds like Pershing Square, ValueAct, and Ruane, Cunniff and Goldfarb. Birstingl decided it would be more useful to undertake the analysis excluding Valeant.
Examining tech firms in Canada ex-Valeant and excluding companies with stock prices less than $1, institutions have bought $31.3 billion worth of shares in these companies as of October 31st, around 52.7% of the aggregate shares outstanding. Of interest, this is a 2.3% increase from the prior quarter, a 3.6% increase from six months prior, and a 9.9% increase from a year ago.