Canada’s tech firms drawing increasing interest from Chinese venture capital firms
Canada’s state-owned venture capital arm BDC Capital sees Chinese interest growing in the country’s AI and other sectors, driven by both technological prowess and cheaper valuations
Chinese venture capital firms and technology giants are increasingly taking note of Canada’s technology scene, with artificial intelligence as well as clean technology and life sciences some of the areas attracting interest.
As well as the research capabilities, the lower valuations of Canadian technology companies compared to their US counterparts make them attractive to Chinese investors, with the number of tech-related deals in Canada involving Chinese venture capital firms more than doubling to nine in 2017 from four in 2016.
Alison Nankivell, vice-president of global expansion at BDC Capital – the venture capital arm of the Business Development Bank of Canada (BDC), pointed to AI research at universities in Montreal and Toronto as one area of interest, and said she was “optimistic that high-net-worth investors from Greater China will be the next wave of investors looking at investing into Canadian companies.”
The Chinese government has set a goal of building a domestic artificial intelligence industry worth nearly US$150 billion in the next few years, and to make the country an “innovation centre for AI” by 2030.
Tencent Holdings, one of China’s tech “big three” along with Baidu and Alibaba Group Holding – who are all rapidly developing their AI businesses, has already dipped its feet into the Canadian AI scene, investing in Element AI, a start-up co-founded by Montreal university academic and deep learning expert Yoshua Bengio.
Separately, money is also flowing into Canadian start-ups focused on other areas, including clean technology and life sciences, Nankivell said.
For example, Tsing Capital, a Beijing-based private equity fund, has invested in GaN Systems, which develops gallium nitride transistors for power conversion for solar and wind power grids and for electric vehicles. BDC Capital has also invested in GaN Systems through its ICE (industrial, clean and energy) technology venture fund.
Tencent has also invested in multiplatform entertainment company Wattpad, a social network platform for story writers and readers, while Baidu has this month signed a deal with former smartphone maker Blackberry to jointly develop self-driving car technology for Baidu’s Apollo autonomous driving system.
Nankivell said that while no hard data was available, she believed from a rough estimate that valuations of Canadian technology companies were lower than those of their US counterparts.
“I would not be surprised to see that the deal valuations for the equivalent-sized companies based in Silicon Valley could be up to one-third higher, if we look at the average size of the deals being done in Canada in recent years. More intense competition for deal flows in the US has pushed up their valuations,” she said.
She noted that the Canadian government is rolling out the Venture Capital Catalyst Initiative, a C$1.5 billion (US$1.2 billion) programme to develop the country’s venture capital ecosystem. Under the programme, investors, including from China and Asia, will be able to invest in Canadian tech start-ups through a fund-of-fund format.
For the third quarter of 2017, the average size of an investment in a Canadian technology company was C$6.04 million. A total of C$980 million was invested over 149 deals for that quarter, up 43 per cent from a year earlier.
That brought total deal activity for the first nine months of 2017 to C$2.6 billion across 431 deals, according to figures from the Canadian Venture Capital Private Equity Association.
Figures from Preqin, a provider of data on the alternative assets industry, showed that venture capital investment from Chinese investors was growing, with nine deals in 2017 worth a total of US$180 million, up from four deals worth around US$50 million the year before.