Québec saw a significant dip in venture capital (VC) in Q3 2024, continuing a multi-year trend and ranking the quarter in the bottom five of the past 10 years, according to a new joint report from Réseau Capital and the Canadian Venture Capital Association (CVCA).
Twenty-five VC deals in Québec closed this past quarter with a total of $239 million invested, representing a steep 63-percent drop in funding volume compared to last quarter. In terms of deal size, this quarter ranks 42 of 47 since 2013.
However, this Q3’s deal volume spelled an improvement on Q3 2023, which itself marked a low point for venture deals.
“The lack of exits is actually very concerning. It limits returns to LPs and therefore the recycling of those returns in the ecosystem.”
Olivier Quenneville, Réseau
In 2024 so far, Québec recorded 85 VC deals totalling $1.47 billion. That’s a 24-percent decline in deal count, but a 14-percent increase in total funding compared to the same period in 2023.
Elsewhere in Canada, the lack of pre-seed and seed funding was “worrisome,” according to CVCA CEO Kim Furlong. The quarter was marked by a strong showing in the cleantech sector and a large later-stage boost from Vancouver-based legaltech firm Clio’s $1.24-billion Series F round.
But Québec still ranked as Canada’s second-largest market after Ontario, with 85 deals worth $1.5 billion. British Columbia had a lower deal count, but Clio’s Series F helped propel the province to second place in terms of deal volume, at $2.1 billion.
The numbers are not all discouraging, however. Comparing year-over-year figures, Quebec has already passed its 2023 investment total—a goal that Ontario has yet to beat this year.
Some of the largest rounds bolstering Québec’s performance this year include enGene Inc.’s private placement at $271 million, FLO’s $136-million Series E, and cleantech startup Sofiac’s $60-million euro ($88-million) French-led round of fundraising.
No exits, no growth
In Québec, whose ecosystem was not graced by the largest Series F fund in Canadian history this past quarter, the later-stage and growth landscape is lagging. No growth-stage investment has been recorded in the province since Q2 2022.
In addition to the lack of growth-stage investments, the new report reinforces the notion that Québec companies are stuck in what CDPQ’s Tom Birch called the Land of the Living Dead: lingering in the ecosystem for too long when exiting is the best option.
Not a single exit has been publicly reported in Québec this year, which spells trouble for the ecosystem, according to Réseau Capital CEO Olivier Quenneville.
“The lack of exits is actually very concerning,” Quenneville wrote in an email to BetaKit. “It limits returns to LPs and therefore the recycling of those returns in the ecosystem.”
Other pain points, according to Quenneville, include the “lack of speed in closing funding rounds.”
Early-stage activity shows promise
A bird’s-eye view of 2024 so far demonstrates a boost in early-stage deals in Québec. The latest report notes a mixed bag, with a promising 42-percent increase in deal count for 2024 so far compared to the same period last year, but a six-percent decrease in dollar value. Réseau Capital differentiates early-stage investment from pre-seed and seed investment.
Zeroing in on the seed-stage picture is less encouraging, with only eight deals totalling $28 million. Deal count dropped by a third compared to Q3 2023. The issue isn’t confined to Québec’s borders, however, with Q3 representing the worst quarter in 2024 for both early-stage funding and deal volume nationally. The national CVCA report attributed the poor performance to the changes in the capital gains tax.
The information and communications (ICT) sector continued its dominant streak provincially, with 45 deals totalling $630 million, representing 53 percent of the total deal count and 43 percent of total funding this quarter.
A previous Réseau Capital report on the early-stage ecosystem in Québec noted immaturity in the life sciences sector and recommended establishing a working group to boost opportunities.
However, funding for both cleantech and life sciences has seen an overall resurgence this year, both growing by more than 23 percent compared to the same period in 2023.
Québec-based firms show strong national presence
Québec funds are making their mark at the national level, the report notes, with five out of the 10 most active investors nationwide based in Québec: the federally funded BDC Capital, provincial Investissement Québec, Desjardins Capital, Fonds de solidarité FTQ, and Anges Québec.
A previous Réseau Capital report found that the Québec VC ecosystem is still “highly reliant” on public or quasi-public funds. In Q3, that trend continued, with at least half of the most active Québec investors receiving public money.
Québec bucked a national trend by remaining dominant in private equity: The province represented 60 percent of all private equity deals in Canada and 79 percent of total investments.
RELATED: Québec venture ecosystem still “highly dependent” on public and para-public funding
Total funding grew by 174 percent compared to Q3 2023, with $8.11 billion invested across 283 deals.
The average transaction size for 2024 was at $28.65 million per deal—larger than the national average of $21.85 million and “driven largely by substantial buyout investments,” the report notes. This quarter’s average of $17.56 million pulled down the year’s average.
Quenneville found Québec’s private-equity performance encouraging, noting that businesses backed by private investments tend to see better results in revenue and productivity.
Feature image courtesy Unsplash. Photo by Grant Van Cleemput.
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