Methodology

This study analyzes the preferred share deal terms across financings for 192 Canadian headquartered startups that raised at least $500,000 on venture or venture-like terms between January 1, 2021 and December 31, 2021. Criteria included all categories of publicly reported preferred share venture financings, from series seed through to later stage financings. We have compared this data to our 2020 Venture Financing Report.

While we identified 675 publicly reported venture-backed financings for the 2021 calendar year, only 192 of such financings satisfied the criteria outlined above and had publicly accessible articles. In analyzing the financings to arrive at the 192 analyzable financings, the following financings were excluded from the study:

  • non-preferred share financings, including common share financing rounds, convertible note and SAFE financing rounds;
  • financings completed by companies governed by the Business Corporations Act (British Columbia), as the share terms for these companies are not publicly available. However, preferred share financings completed by companies that are headquartered in British Columbia and governed by another corporate statute, including the Canada Business Corporations Act, were included; and
  • financings in which the preferred shares issued to investors departed significantly from standard venture style preferred share terms contemplated by the Canadian Venture Capital and Private Equity Association's model legal documents.

As the study solely focuses on legal terms negotiated in preferred share financings, certain data points may not perfectly align with other reports published on the Canadian venture capital market, which look at a broader range of financings (including SAFEs, convertible notes and common share financings).

This is our second annual Venture Financing Report and we have included comparisons to the data from our 2020 Venture Financing Report throughout.

In the U.S. several law firms publish similar reports, which are referenced in this study to provide additional context on where Canadian market practices align and/or diverge from U.S. trends1 . For a quick overview of all the data, including a Canadian vs. U.S. comparison, please see the Snapshot on page 23.

Unless otherwise noted, the study reports all financings in Canadian dollars. For financings where the announcement was reported in U.S. dollars, the applicable amounts were converted into Canadian dollars using the daily average exchange rate published by the Bank of Canada on the date the applicable financing was reported.

Executive Summary

Despite being the second year of a global pandemic, 2021 was another record year for venture capital financing in Canada.

2021 saw record amounts of money invested in the Canadian Venture Capital ecosystem giving startup companies choices as to who to seek investment from and creating a company-friendly (as opposed to investor-friendly) environment.

As outlined in our Report, this company-friendly investing environment was evident in the deal terms we reviewed. While the movements in deal terms were not dramatic, there was a clear directional trend towards more company-friendly provisions and deals.

These included:

  • more deal activity in provinces that have not historically been financial centres, in particular Nova Scotia and Saskatchewan;
  • fewer instances of Senior Liquidation Preferences which favour new investors; and
  • more up-rounds and fewer down-rounds.

Additionally, in our 2020 Report, we predicted that as the Canadian startup ecosystem continues to mature, we will see an increase in later-stage deal activity (a natural evolution as companies grow). In 2021, we saw early evidence of this, with proportionately fewer Series Seed and Series A investments in 2021 as compared to 2020 and a greater number of Series B and later rounds in 2021 vs. 2020. Historically, most Canadian venture capital deals have been into early-stage companies and as these companies mature, we expect this trend toward later-stage financings to continue.

Our Report therefore illustrates that 2021 was a great year for founders and the Canadian startup ecosystem is evolving as expected.

Footnote

1 See (i) Silicon Valley Venture Capital Survey, Fourth Quarter 2020, published by Fenwick & West LLP on February 17, 2021, and (ii) the Entrepreneurs Report for Private Company Financing Trends for the Full-Year 2020, published by Wilson Sonsini on February 18, 2021 (collectively, the "U.S. Deal Studies")

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