Canadian Venture Capital Review

Full Year 2018

Chris Wattie, Reuters Table of Contents

Canada’s Venture Capital Market in 2018 3 $ Invested and # Companies Financed 5 Top Venture Capital Deals 7 Canada by Stage 8 Top Venture Capital Investors 9 North American Rankings 11 Investor Type & Nationality 15 Canadian Dealmaking Abroad 17 Canada by Sector 18 VC Funds Raised 20 Public and M&A Exits 21 Venture Capital Returns 22 Explanatory Notes & Contacts 23

2 Canadian Venture Capital Market Activity in 2018

Canadian VC Market Trends

Canadian venture capital activity had a banner 2018, with $4.3 billion invested in 489 rounds of financing. This marks the strongest year since the end of the dot-com era and is the ninth consecutive year of growth, with a 6.4% increase over 2017 figures. The fourth quarter rebounded from a sluggish third with $1.2 billion raised across 93 rounds, up 88% in dollar terms. This also marked the seventh time in the past nine quarters when quarterly Canadian investment values rose above $1 billion

Leading the Top Deals list for the year was the $280 million February round into Montréal-based Enerkem, a company that turns solid waste into biofuels and renewable chemical products. The round, which was Canada’s largest cleantech deal ever, included a consortium of Canadian investors including Cycle Capital, Fondaction, Investissement Québec, and Fonds de Solidarité FTQ. Other top deals included cloud-based medical care platform PointClickCare’s $187 million investment by Dragoneer Investment Group, and startup financing company Clearbanc, which secured a $162 million investment by a group of investors including Canadian firms iNovia Capital, Portag3 Ventures, and Real Ventures.

Growth throughout the year was largely due to outside investment. For the first time since 1992, United States-based funds accounted for a greater share of invested capital than Canadian funds, with a share of 47%. Canadian-based funds were responsible for 44% of dollars invested, a share that has been steadily declining since 2014, when Canadian investors accounted for 57%. Despite the rise in United States-based cross-border flows, other overseas investors mostly from Asia and Western Europe accounted for only 9% of capital invested, down from 15% the year prior.

The six most active investment firms for the year were all based in Montréal, and were collectively involved in 243 rounds. These include Business Development Bank of Canada with 89 investments, Desjardins Capital with 64 investments, and Real Ventures also with 64.

Canada VC Fundraising Trends

Canadian venture capital firms raised a total of $2.8 billion across 38 funds during 2018, yet another record in the post-dot-com era as it was the most raised since 2001 and was up 123% from 2017 figures. Leading the pack was the $715 million close of Georgian Partners Growth Fund IV, which will be used to expand the firm’s presence across the entirety of North America. Other substantial closings during the year include the $257 million closing of Brookfield Ventures, White Star Capital’s oversubscribed Fund II at $233 million, and BDC’s Women In Technology Fund at $200 million.

3 Canadian Venture Capital Market Activity in 2018

Canadian VC Trends by Region

Ontario-based companies received $2.1 billion, or 49% of all disclosed investment dollars during the year. This represented a 55% increase from the same period last year for the province and landed Ontario in sixth place in the North American rankings, behind Washington and ahead of New Jersey. Québec-based companies raised $1.3 billion during the same period, a decrease of 6% from the prior year. This earned Québec a thirteenth place ranking overall, behind Maryland and ahead of Pennsylvania. British Columbia also made the top thirty with $724 million, earning it the 22nd spot, between Ohio and Maine, although this was a 22% decrease from the investment level in the province during 2017.

Toronto-based companies were the reason behind Ontario’s surge, as they raised $1.8 billion in the year, a solid 72% increase from 2017 financings. Of all Ontario financings, 84% took place in the greater Toronto area, and this earned the city a 10th place finish in the North American city rankings, ahead of Denver and behind Seattle. Montréal raked in 90% of all Québec investment dollars, resulting in a rank of 13th with $1.2 billion invested in 132 deals, ahead of Orange County and behind Chicago.

Canadian VC Trends by Sector

Canadian information technology companies continued to be the main driving force behind VC investment, raising $3.0 billion over the course of the year, representing a 18% increase year-over-year. Information technology companies also accounted for a 70% share of overall VC in the period, a share that has consistently risen from a 50% share in 2009.

Despite a strong fourth quarter, with $175 million invested in 14 rounds, the life sciences sector on the other hand saw its second straight year of declines, with only $497 million invested, down from the $1.1 billion invested in the sector in each of the previous two years. Cleantech companies raised $569 million in 2018, up 161% year-over-year, led by the $280 million Enerkem investment.

Canadian Fund Performance

Although investment activity continues to reach new heights, the performance of Canadian venture capital and growth equity funds had not quite attained the same levels. Published data provided by Cambridge Associates shows Canadian venture capital & growth equity funds with vintage years of 2000 or greater returned a since inception IRR of only 4.8% as of the end of Q3 2018, lagging behind both U.S. counterparts and public market equivalents. Despite a dip in performance through 2016 and 2017, returns have shown a slight recovery in 2018, up 1.9% for the year.

4 Historical Investment in Canadian Companies: Venture Capital Deal Values Canadian companies raised $4.3 billion in 2018, up 6.4% over 2017 and the strongest full year since 2000. Investment in Q4 was $1.2 billion, also the strongest fourth quarter since 2000.

$7 $6.4

$6

$5

$4.2 $4.3 $4.1 $4 $3.7

$3 $2.7 $2.7 $2.3 $2.4 $2.0 $1.9 $2 $1.8 $1.8 $1.6 $1.6 $1.6 $1.4

VC Deal Values ($ ($ Billions) Values Deal VC $1.2 $1.0 $1

$0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4

5 Historical Investment in Canadian Companies: Venture Capital Deal Volumes A total of 489 venture capital deals were completed in 2018. This was down 4% from the previous year’s volumes and marked the third consecutive year of declines. Q4 saw only 93 transactions, the weakest individual quarter since Q3 2012.

1,400 1,331

1,200

1,000 971

855 800 774 674 679 600 569 594 576 511 499 489 511 489 # of VC Deals VC of # 475 443 447 408 400 388

200

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4

6 Top Canadian Venture Capital Deals, Full Year 2018

Portfolio Company Investors Deal Value Rank Company Name Location Sector Investing Firms (Disclosed) ($ Millions) Blackrock, Braemar Energy Ventures, Cycle Capital, Fondaction, Fonds 1 Enerkem $280.0 Montréal, QC Biofuels & Renewables de Solidarité FTQ, Investissement Québec, National Bank, Rho Capital Partners, Sinobioway, Waste Management, Westly Group 2 PointClickCare Technologies $187.3 Mississauga, ON Healthcare Software Dragoneer Investment Group Upper90 Fund, Portag3 Ventures, Founders Fund, Berggruen Holdings, 3 Clearbanc $161.6 Toronto, ON Financing Services Emergence Capital , iNovia Capital, Real Ventures, CoVenture, 8VC, FJ Labs, Social Capital, Precursor Ventures 4 Assent Compliance $129.9 Ottawa, ON Supply Chain Management Warburg Pincus OMERS Ventures, BDC Venture Capital, Accomplice, Caisse de dépôt 5 Hopper $116.0 Montréal, QC Travel Booking et placement du Québec, Brightspark, Investissement Québec, Citi Ventures RTW Investments, Domain Associates, BDC Venture Capital, Forbion Capital Partners, GO Capital , Novo Holdings, Pappas Ventures, Fonds 6 Milestone Pharmaceuticals $104.6 Saint-Laurent, QC Pharmaceuticals de Solidarité FTQ, Tavistock Group, Tekla Capital Management, Venrock 7 Coveo Solutions $100.0 Québec, QC Enterprise Search Evergreen Coast Capital Georgian Partners, Greylock Partners, Insight Venture Partners, Mistral 8 Ritual Technologies $85.6 Toronto, ON Dining App Venture Partners Energy Impact Partners, Amazon Alexa Fund, Export Development 9 ecobee $78.8 Toronto, ON Smart Thermostats Canada, GXP Investments, Northleaf Capital Partners, Ontario Capital Growth Corp, Relay Ventures, Tech Capital , Thomvest JPMorgan Chase, OMERS Ventures, BDC Venture Capital, Relay 10 TouchBistro $67.8 Toronto, ON Mobile POS Solutions Ventures, Napier Park Global Capital, Recruit Holdings

7 Venture Capital Deal Volumes by Stage There were 190 early stage deals in 2018, which represented a 39% share of overall deal volumes, up from 36% in 2017. Expansion stage deals came second at 28%, the highest share it’s seen since 2012.

100%

90%

80%

70%

60%

50%

40% # of VC Deals VC of # 30%

20%

10%

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Seed Early Stage Expansion Later Stage Other Advanced Stage

8 Top Venture Capital Investors in Canadian Companies, Partnerships

Estimated Investment Rank Firm Name # of Deals Location ($ Millions)

Canadian Private Independent Partnerships 1 Real Ventures 64 $87.2 Montréal, QC 2 iNovia Capital 26 $46.0 Montréal, QC 3 Cycle Capital – Ecofuel 22 $40.9 Montréal, QC 4 Anges Québec Capital 19 $12.0 Montréal, QC 5 Relay Ventures 13 $54.2 Toronto, ON 6 Yaletown Venture Partners 11 $38.1 Vancouver, BC 7 iGan Partners 9 $14.0 Toronto, ON 8 Vanedge Capital 9 $11.4 Vancouver, BC 9 Panache Ventures 9 $2.7 Montréal, QC 10 Golden Ventures 8 $17.0 Toronto, ON 11 GeneChem 7 $7.3 Montréal, QC 12 Portag3 Ventures 5 $25.5 Toronto, ON 13 Pallasite Ventures 5 $3.9 Vancouver, BC 14 Mistral Venture Partners 4 $23.7 Ottawa, ON 15 Genesys Capital Partners 4 $18.9 Toronto, ON

9 Top Venture Capital Investors in Canadian Companies, Other

Estimated Investment Rank Firm Name # of Deals Location ($ Millions) Canadian Government Investors 1 BDC Venture Capital 89 $129.3 Montréal, QC 2 Sustainable Development Technology Canada 18 $73.4 Ottawa, ON 3 MaRS Investment Accelerator Fund 17 $5.7 Toronto, ON 4 Export Development Canada 16 $52.0 Ottawa, ON 5 Investissement Québec 5 $48.9 Québec, QC Canadian Retail, Institutional, and Other Investors 1 Desjardins Capital 64 $50.0 Montréal, QC 2 New Brunswick Innovation Foundation 17 $11.9 Fredericton, NB 3 Westcap 8 $6.9 Saskatoon, SK 4 Anges Québec Angel Group 8 $4.2 Montréal, QC 5 CIBC Innovation Banking 7 $31.3 Toronto, ON Non-Canadian Investors 1 Intel Capital Corp 5 $10.4 Santa Clara, CA 2 White Star Capital 4 $13.0 London, United Kingdom 3 Accomplice 4 $6.0 Cambridge, MA 4 Rho Capital Partners 3 $32.0 New York, NY 5 Kayne Anderson Capital Advisors 3 $22.2 Los Angeles, CA

10 North American Venture Capital Rankings, by Province & State

North American Rankings – Full Year 2018

Deal Values Year-Over-Year Rank State / Province # of Deals ($ Millions) Change in $ Invested

1 California 1,761 $80,771.5 ▲ 91.1% 2 New York 546 $13,762.5 ▼ -13.0% 3 Massachusetts 406 $13,594.0 ▲ 44.3% 4 North Carolina 69 $2,618.0 ▲ 221.8% 5 Washington 131 $2,376.5 ▲ 14.0% 6 Ontario 175 $2,132.8 ▲ 55.3% 7 New Jersey 45 $1,963.0 ▲ 237.0% 8 Texas 170 $1,862.8 ▲ 30.3% 9 Colorado 126 $1,650.1 ▲ 35.0% 10 Illinois 113 $1,533.4 ▼ -14.9% 11 Florida 62 $1,450.1 ▲ 2.1% 12 Maryland 58 $1,357.6 ▲ 102.8% 13 Québec 161 $1,347.3 ▼ -6.1% 14 Pennsylvania 180 $1,110.1 ▼ -5.3% 15 Connecticut 58 $1,019.0 ▲ 166.9%

11 North American Venture Capital Rankings, by Province & State

North American Rankings – Full Year 2018

Deal Values Year-Over-Year Rank State / Province # of Deals ($ Millions) Change in $ Invested

16 Minnesota 40 $889.5 ▲ 56.6% 17 Georgia 46 $836.7 ▼ -22.1% 18 Tennessee 32 $818.2 ▲ 495.7% 19 Utah 49 $807.7 ▼ -18.0% 20 Oregon 35 $753.1 ▲ 115.8% 21 Ohio 93 $753.0 ▲ 87.7% 22 British Columbia 91 $723.6 ▼ -22.1% 23 Maine 6 $620.6 ▲ 5,448.5% 24 Virginia 65 $562.8 ▼ -9.8% 25 Arizona 36 $503.4 ▲ 119.9% 26 D. of Columbia 18 $495.1 ▲ 2.3% 27 Michigan 44 $435.3 ▼ -11.3% 28 Missouri 30 $278.5 ▲ 11.9% 29 Indiana 38 $244.6 ▲ 109.4% 30 Wisconsin 26 $222.2 ▲ 141.3%

12 Canadian Venture Capital Investment by Province & Region With $2.1 billion across 175 deals, Ontario saw a 55% increase in disbursements year-over-year, landing in 6th place in the North American rankings, between Washington & New Jersey. Québec saw $1.3 billion invested within its borders, decreasing 6% over 2017 values and coming in 13th place in the North American rankings.

$67 $76 34 28 $724

Ontario 175

Québec 91 $4.3 Billion $2,133 489 Deals Invested British Columbia

Prairies $1,347 Atlantic Canada

161

13 North American Venture Capital Rankings, by Metro Region

North American Rankings – Full Year 2018

Deal Values Year-Over-Year Rank Metro Region # of Deals ($ Millions) Change in $ Invested

1 San Francisco 779 $45,115.3 ▲ 162.8% 2 San Jose 591 $23,810.1 ▲ 33.5% 3 New York City 594 $16,008.2 ▼ -2.3% 4 Boston 391 $13,456.9 ▲ 47.4% 5 Los Angeles 228 $6,901.3 ▲ 74.1% 6 San Diego 87 $3,314.5 ▲ 114.3% 7 Research Triangle 50 $2,492.8 ▲ 946.4% 8 Washington Metroplex 141 $2,415.5 ▲ 35.8% 9 Seattle 125 $2,262.4 ▲ 12.8% 10 Toronto 143 $1,791.3 ▲ 71.7% 11 Denver 117 $1,554.7 ▲ 37.3% Montréal Avg. $9.2 Million 12 Chicago 110 $1,530.9 ▼ -14.0% Toronto Avg. $12.5 Million 13 Montréal 132 $1,210.8 ▼ -1.1% 14 Orange County 56 $1,128.9 ▲ 4.2% 15 Philadelphia 122 $1,121.4 ▲ 24.1%

14 Venture Capital Investment by Origin of Capital Over two thirds of VC investment was attributable to private independent funds during 2018. Funds based within the U.S. accounted for a greater share of invested capital for the first time since the early 1990’s.

100% 100%

90% 90%

80% 80%

70% 70%

60% 60%

50% 50%

40% 40% # of VC Deals VC of # 30% 30%

VC Deal Values ($ Billions) ($ Values Deal VC 20% 20%

10% 10%

0% 0% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 Private Independent Corporate Government Canada United States Other Institutional Retail Angels & Individuals Other 15 Venture Capital to Canadian Companies from Non-Canadian Investors Investment by United States-based firms accounted for 47% of all VC investment in Canadian companies. Other non-Canadian investors, mostly from Europe and Asia, accounted for 9% of all activity, down from 15% in 2017.

UK: $41M

New York: $553M California: $376M China: $41M

Hong Kong: $30M

Singapore: $34M

Australia: $31M

16 Canadian Dealmaking Abroad Canadian funds invested $1.5 billion in non-Canadian companies over the course of 2018, down 2% from the 2017 total but still the second highest year on record since 2000.

Portfolio Company Investors

Deal Value Rank Company Name Location Sector Canadian Investors (Disclosed) ($ Millions) Building Development 1 Katerra $1,068 Menlo Park, CA Canada Pension Plan Investment Board Optimization 2 BYJU’S (Think & Learn) $723 Bangalore, India E-Learning Canada Pension Plan Investment Board 3 Tradeshift $325 San Francisco, CA Supply Chain Platform Public Sector Pension Investment Board Electric Vehicle 4 ChargePoint $240 Campbell, CA Canada Pension Plan Investment Board Charging Stations Energy Storage 5 Stem $200 Millbrae, CA Ontario Teachers’ Pension Plan Intelligence

$1.0

$0.8 $0.6

$0.4 ($Billions) VC VC Deal Values $0.2 $0.0 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

17 Venture Capital by Sector IT investment continued to grow in both gross and proportional terms in 2018. With $3.0 billion in financings representing an increase of 18% year-over-year, IT companies received 70% of total investment, up from a share of less than 50% in 2009.

All Sectors Information Technology 1.6 1.0

1.4

0.8 1.2

1.0 0.6

0.8

0.4 0.6

0.4 VC Deal Values ($ Billions) ($ Values Deal VC 0.2 0.2

0.0 0.0

Information Technology Life Sciences Other Sectors Computer Software Internet Specific Other IT Sectors

18 Venture Capital by Sector Life sciences companies received only $497 million in 2018, down 54% from the blockbuster $1.1 billion totals in both 2017 and 2016. Cleantech investment reached $569 million, up 161% from 2017, largely thanks to the Enerkem and ecobee rounds.

Life Sciences Other Sectors 0.7 0.5

0.6 0.4 0.5

0.3 0.4

0.3 0.2

0.2

VC Deal Values ($ Billions) ($ Values Deal VC 0.1 0.1

0.0 0.0

Biotechnology Medical Health Cleantech Consumer Related Energy & Industrial Other

19 Canadian Venture Capital Fundraising A total of $2.8 billion was raised by 38 Canadian VC funds in 2018, up 123% from the previous year’s fundraising total and the highest level seen since 2001.

$2,000

) $1,576

$1,500 Millions

$1,000

Raised ($ ($ Raised $890

$725 $716

$563 $493 $475 VC Funds Funds VC $453 $500 $364 $392

$238 $203 $157 $118 $144 $45 $0 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

20 Exits from Canadian Portfolio Companies Canada saw 38 completed exits from VC-backed companies in 2018, down 17% from 2017 volumes.

Portfolio Company Investors

Deal Value Rank Company Name Location Sector Investing Firms (Disclosed) ($ Millions) Pharmaceutical 1 AurKa Pharma $736.6 Montréal, QC TVM Capital Research BDC Venture Capital, Caisse de dépôt et placement du 2 Napec $395.7 Drummondville, QC Energy & Industrial Québec, Fondaction, Fonds de Solidarité FTQ, Investissement Québec 3 AlarmForce Industries $163.2 Toronto, ON Security Solutions Clearspring Capital Partners, GrowthWorks Capital 4 Bonfire $140.3 Kitchener, ON Sourcing Enablement Battery Ventures, Crosslink Capital, Spider Capital Partners

5 Jempak Canada $117.1 Oakville, ON Chemicals Roynat Capital, Acasta Enterprises

20

15

10

# of Exits of # 5

0 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Trade Sale Secondary Sale Public Exit

21 Cambridge Associates: Venture Capital Fund Performance Canadian private independent funds holding positive returns following long stretch of negative performance, but still lagging behind US-based funds and public markets.

10% 10% 9.3%

8% 8%

6% 6%

4.8% 4% 4%

2% 2%

0% 0%

-2% -2% Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Canadian Venture Capital & Growth Equity Funds U.S. Venture Capital & Growth Equity Funds mPME: S&P/TSX 60 Index mPME S&P 500 Index

Source: Cambridge Associates 22 Explanatory Notes

1. Data collected and analyzed by Refinitiv for this statistical report were drawn from a variety of sources including Refinitiv M&A databases, regulatory filings, press releases, and proprietary reports from Canadian and non-resident venture capital firms, private equity firms, law firms, and other service providers.

2. The Refinitiv Canadian venture capital report measures cash for equity and quasi-equity investments by the professional venture capital community in emerging companies in Canada. These transactions are referred to as VCReporter Deals on Refinitiv databases.

3. The report includes the investment activity of professional venture capital firms, whether Canadian-based or not, including private independent funds, retail funds (LSVCCs and PVCCs), venture arms of corporations, institutions, government funds, angel funds, and similar entities whose primary activity is financial investing. Where there are additional participants such as angels, corporations, governments, or company officers in a qualified and verified financing round, the entire amount of the round is included.

4. The report excludes venture debt, buyouts, recapitalizations, secondary purchases, IPO exits, and other forms of private equity that do not involve cash such as services-in-kind. Investments in capital pool companies (CPCs & JCPs) are not eligible. Companies whose primary activity is the extraction of natural resources (agriculture, forestry, mining, and oil & gas exploration) without a specific focus on technology are not eligible.

5. Rounds are tracked based on investment location. This predominantly includes Canadian-headquartered companies, but companies headquartered outside of Canada with Canadian research & development facilities are also eligible.

6. Rankings of top VC investors include only investment activity made in Canadian portfolio companies. Estimated investment activity is based on the actual syndicate breakdown, where available, and is split equally among disclosed investors where actual breakdowns are not available. Private independent, government, and other funds are independently ranked in their respective categories. Rankings capture the twelve-month period from January 1st, 2018 to December 31st, 2018.

7. Fund performance data and public market equivalents are produced via the Cambridge Associates Benchmark Calculator, available through Refinitiv Eikon. Returns are for Canadian and US venture capital and growth equity funds with vintage years of 2000 or greater, on a first cash flow basis, in Canadian dollars, from inception to the end of the indicated quarter, under published data mode Q3 2018. Pooled internal rates of return are net of fees, expenses and carried interest. CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns. 8. All current and previous years data is as of Thursday, January 24th, 2019. Data is continuously updated and is therefore subject to change. All figures are in Canadian dollars unless otherwise noted.

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Gavin Penny Greg Beaman E-mail: [email protected] E-mail: [email protected] Tel: 416-687-7577 Tel: 416-687-7510 23