The Business Development Bank of Canada (BDC) has reported a significant loss in value for its venture capital portfolio in its latest annual report.
According to its report, BDC’s VC division authorized a total of $403.6 million in investments during fiscal 2024 (which encompasses the year ended March 31, 2024). This is a decrease from the $526.7 million BDC approved in the previous year, a decision it attributed in part to “declines in Canadian venture capital activity and a slower pace of fundraising.”’’
BDC said in its report that it expects “challenging market dynamics for venture capital” to persist in fiscal 2025.
Of the total funds BDC approved in fiscal 2024, $234.6 million went into direct equity investments and $171.9 million went to indirect equity investments into funds.
BDC’s plan anticipated the value of the investments in its VC portfolio to increase by $33 million in fiscal 2024. However, that value actually decreased by $220 million over the year.
At the end of fiscal 2024, BDC’s adjusted return on equity totalled four percent, which was lower than the planned 6.2 percent. BDC said this drop is mostly because its VC investments lost more value than expected.
As Canada’s largest and most active VC investor, BDC’s performance can signal trends in Canada’s broader VC landscape, although it is not considered a definitive gauge.
The Crown corporation, which has more than $6 billion in assets under management, has, through its venture division, backed over 300 companies through direct investments, and 600 through indirect investments into over 160 venture funds.
In its report, BDC noted that its VC portfolio’s fiscal 2024 results “were below plan, driven primarily by larger unrealized net fair value depreciation of investments than anticipated as uncertain market conditions continued to have an impact on venture capital’s investments.”
BDC did see a net revenue gain of $51 million in its VC portfolio, surpassing its target of $36 million. The value of its VC portfolio sat at $2.86 billion as of March 31, 2024.
BDC’s venture portfolio saw net revenue exceed its target by $15 million due to the portfolio divesting from several investments during the year. The bank noted this is “in line with our strategy of supporting the best-performing Canadian companies with the technology and talent to assume leadership at the global level.”
RELATED: Jérôme Nycz out as BDC Capital head
Although BDC’s performance doesn’t directly reflect the state of all venture capital firms in Canada, it does align with the broader trend of declining venture funding activity in the country’s tech sector, a downturn that has been evident since around 2022.
The Canadian Venture Capital and Private Equity Association recently found that total funding in Canada declined by 14 percent and deal count dropped by nearly 16 percent year-over-year in the second quarter of 2024.
At the same time, venture funds nationwide are raising significantly less than they did over the past two years. According to data from RBCx, as of July 2024, five Canadian VC funds have collectively raised a total of $500 million CAD, putting the country on pace to match 2014.
BDC’s report noted that the business development bank expects “challenging market dynamics for venture capital” to persist in fiscal 2025, which it said “should lead to further net fair value depreciation and larger net realized losses on investments.”
“As venture capital continues to grow to support the Canadian innovation ecosystem and prepares to launch several new initiatives, operating and administrative expenses are expected to increase by $3 million when compared to plan 2024,” BDC’s report stated.
BDC and its risk division BDC Capital have seen several key developments during the calendar year thus far.
In June, BetaKit was first to report that Jérôme Nycz was retiring from his role as BDC Capital’s longtime leader. That same month, BDC also earmarked $250 million CAD in new commitments to support women, Black and Indigenous entrepreneurs, which would include the creation of two $100-million CAD investment platforms for Indigenous and Black-led businesses.
Feature image courtesy of BDC.
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