Venture capital investment in Canada took a major dip in the third quarter (Q3) of 2020, according to the Canadian Venture Capital and Private Equity Association (CVCA).
Investment in Q3 dropped by 63 percent year-over-year, with just $891 million across 126 deals (all dollar figures are in CAD). This is also 47 percent less than the total investments made in the second quarter (Q2) of 2020.
“The realities of COVID and the continued strength of valuations is apparent in the deal flow.”
CVCA CEO Kim Furlong attributed the decreased venture capital investment to the COVID-19 pandemic. “The realities of COVID and the continued strength of valuations is apparent in the deal flow,” she said, noting that Q3’s results are more aligned with the deal flow challenges created by the pandemic than those from Q2.
“The strength of Q2 was in many ways a combination of GPs further capitalizing their portfolio and the added capital injections of BDC and EDC matching programs,” said Furlong.
The second quarter of 2020, which was the first quarter that reflected the effect of the COVID-19 on the market, saw Canadian venture capital investment reach a record high – much to the surprise of industry leaders. In the quarter, $1.66 billion was invested across 145 deals, a 23 percent year-over-year increase and more than double the amount invested in the first quarter of 2020.
At the time, Furlong attributed the deal flow to stimulus and incentives from the federal government, as well as VC firms “doubling down” on investing in the “leading stars” in their portfolios.
Last quarter was also the second-biggest quarter for Canadian venture capital investment over the last number of years, only beat out by Q3 2019, which marked the highest dollar amount ever invested in Canadian companies ($2.48 billion).
A direct correlation can be made between Q3 2020 and Q3 2019, as both quarters saw 126 deals, though with notably different dollar amounts invested.
While Q3 2019 saw 12 mega deals, this latest quarter only saw three such deals reported: Vancouver-based Chinook Therapeutics’ $140 million pre-IPO round; Kitchener-based ApplyBoard’s $70 million Series C extension; and Calgary-based Attabotics’ $66 million Series C round.
Much like Q2 2020, the third quarter continued to see the largest amount of capital going towards later-stage deals. Later stage represented 45 percent of the total investment with $1.6 billion over 57 deals. Early-stage received 42 percent of investment, while eight percent went to the seed stage.
The data shows a noticeable change in early-stage venture capital investment in Canada, when compared to Q3 2019. Despite the large number of later stage mega-deals last year, early-stage companies still received the largest portion of investments, with later-stage pulling in just 23 percent.
This reflects trends that have been seen throughout 2020 where investors are looking to bolster their portfolio companies, with limited investment in new and earlier stage companies.
Investment by sector, region, private equity
Investment in the information, communication and technology sector remained strong, as did the regions that receive the most amount of capital. Ontario led the way, followed by Quebec and British Columbia.
An interesting juxtaposition to CVCA’s national report is the recent data from Hockeystick. Disclosure: BetaKit is a Hockeystick Tech Report media partner. In two reports published Wednesday, Hockeystick found that the Greater Toronto Area (GTA) and British Columbia (BC) had positive quarters for venture capital investments.
Following two disappointing quarters for venture funding of startups in the GTA, the region reached a yearly high. In BC, the tech ecosystem saw “robust venture capital deal activity” in Q3. Hockeystick’s report stated, “COVID-19 has not slowed down deal activity in the [BC] region, but its impact can be seen in the types of companies raising funds.”
Notably, Hockeystick’s data is sourced through exclusive partnerships with organizations like the CVCA and the National Angel Capital Organization, as well as data from startups using its platform and public data sources.
The CVCA also reported that private equity investment was down in Q3 2020, with $1.4 billion invested over 155 deals compared to $1.9 billion over 177 deals last year. The report stated that year-to-date private equity activity is tracking 25 percent below the four-year average in both dollars invested and deals.
Photo by Adeolu Eletu via Unsplash
Does Bitcoin have a place in every investment portfolio? – Global News
Some investors have long believed everyone should allocate some of their portfolios to gold or other commodities. Gold, goes the argument, helps protect your investments from inflation and stock market drops.
Now some are arguing the same thing about Bitcoin.
“My personal belief is allocating to Bitcoin is a logical approach and should have a role in everyone’s portfolio, in the same way that many people believe gold or commodities should, as a diversifier,” Meltem Demirors, chief strategy officer at cryptocurrency investment firm CoinShares, recently told Barron’s Streetwise podcast.
But to what extent is the world’s most popular cryptocurrency similar to the world’s best-known safe-haven asset — and do investors truly need to have gold in their portfolios, anyway?
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Bitcoin: a bit like gold but with ‘huge volatility’
The economic downturn triggered by the COVID-19 pandemic has re-ignited inflation fears among some investors.
Many central banks, including the U.S. Federal Reserve and the Bank of Canada, have been increasing the amount of money in circulation in their countries as a way to stimulate economic activity. The playbook is similar to the one central banks turned out during the global financial crisis of 2007-08.
And now, like back then, some fear this kind of monetary policy will eventually fuel inflation.
“The usual idea is that the money supply increases, then people just have more money in their hands and prices will go up,” says Andreas Park, associate professor of finance at the University of Toronto.
Consumers flush with cash, in other words, can end up bidding up prices, causing inflation.
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Park doesn’t think fears of rampant inflation are justified. Economies like the U.S. and Canada haven’t seen high inflation since the 1980s, he notes.
But investors who worry about inflation often look to gold as a way to hedge against it. While central banks can dial up the amount of money in circulation, there is only a limited quantity of gold available in the world.
“You have to mine it if you want to add to it,” Park says. “It cannot be inflated.”
The same is true of Bitcoin.
The digital token, which was intended to be an alternative to inflationary national currencies, was designed to have a maximum cap of 21 million coins. New coins are created only as a reward for “miners,” users who employ computing power to record and validate crypto transactions.
So far, around 88 per cent of bitcoins have been mined.
And as with gold, there is little use in the real world for Bitcoin, Park says. You can use gold to make jewelry, for electronics, or as a collectible. And you can use Bitcoin to pay for some goods and services if you find a seller willing to accept crypto. For the most part, gold and Bitcoin are only worth what buyers are willing to pay for them.
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Some people also buy Bitcoin, like gold, as an investment that’s not going to be correlated with the performance of the stock market, says Robb Engen, a financial planner and author of the popular personal finance blog Boomer and Echo.
Gold is commonly touted as a safe-haven asset, an investment that will retain or increase in value during times of market turbulence.
But both as an inflation hedge and as a safe-haven investment, Bitcoin comes with “huge volatility,” Park warns.
While gold itself is volatile, Bitcoin’s ups and downs dwarf the precious metal’s price swings, Park says.
On Friday, Bitcoin was trading at around US$32,000 ($40,700), more than 20 per cent below the record high of US$42,000 ($53,500) hit two weeks ago, losing ground amid growing concerns that it is one of a number of price bubbles and as cryptocurrencies catch regulators’ attention.
Traders also blamed the sell-off on a report posted to Twitter by BitMEX Research suggesting that part of a bitcoin may have been spent twice, even if concerns were later resolved.
The pullback still leaves the cryptocurrency some 700 per cent above its 2020 low of US$3,850 ($4,900) hit in March. The dizzying rally has been partly driven by large investors, with a number of Wall Street firms making moves in the crypto space.
JP Morgan Chase, for example, has created and tested its own digital token, JPM Coin, despite CEO Jamie Dimon having been a vocal critic of Bitcoin in the past. The investment banking giant has also started offering banking services to two well-known crypto exchanges, Coinbase and Gemini Trust.
And Paypal announced in October that it would enable U.S. account holders to buy, hold and sell cryptocurrency. Derivatives marketplace CME Group and Fidelity Investments Inc. also offer services that allow for buying and selling crypto assets.
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Placing a bet on Bitcoin
Engen sees both gold and Bitcoin as speculative investments. Investing in cryptocurrency may also be a way to get exposure to a technology in its early days.
As with cannabis stocks pre-legalization and the dot-com boom of the late 1990s, investors can make big profits by pouring money into a new industry in its infancy, he says. But with that comes the risk of steep losses when the boom goes bust, he warns.
“By all means, you could use five per cent of your portfolio to make a bet,” Engen says. “But you have to go into it with your eyes open.”
You could lose most of your investment, he warns.
If you do want to dabble in speculative investments, you’ll need to start out with some clear ground rules in mind and stick to them. For example, committing to having no more than five per cent of your investments tied up in volatile crypto assets implies you’ll have to sell a lot of your holdings if they surge in value, which means they’d be taking up a larger share of your portfolio, Engen notes.
But it can be hard to bring yourself to sell investments that saw skyrocketing growth, he adds.
Early success with speculative assets may lead you to believe “you are good at this,” when, in fact, it was just luck, he says.
— With files from Reuters
© 2021 Global News, a division of Corus Entertainment Inc.
A new era of low-cost investing has arrived for Gen Z and millennials – The Globe and Mail
Words they live by in the investment industry: Small accounts get small consideration.
So it follows that the record of investment firms in welcoming young people as customers was pretty terrible until recently. The rise of digital investing – taking orders and sometimes providing advice online or via mobile device – has changed all that for the better by making small accounts more economical to serve.
Suddenly, there are all kinds of ways for young adults to get started as investors while keeping their costs to a minimum. There’s a free stock-trading app, and another app with zero commissions for investing in exchange-traded funds. Several online brokers offer special pricing for young clients that can reduce their costs significantly, and there are also robo-advisers to consider.
With a six-figure portfolio, paying $5 to $10 to buy stocks or exchange-traded funds is nothing to complain about. But for a young investor with a small portfolio, these costs are prohibitive. Biweekly purchases of a balanced ETF (more on these in a moment) at $9.95 per trade works out to an annualized fee of 1.7 per cent on a $15,000 account. For context, the bonds or bond funds in a portfolio might yield about 1 per cent these days.
Further costs for young investors might include annual administration fees of $100 or more for registered retirement savings plan accounts or $100 in account maintenance fees per year (often charged on a $25 per quarter basis).
Special deals for young investors are available at several online brokers, but they’re not well-publicized and thus easy to miss out on. Some examples:
- For students, CIBC Investor’s Edge reduces its regular flat $6.95 commission for trading stocks and ETFs to $5.95 and waives the $100 annual fee on registered and non-registered accounts.
- For investors 30 and younger, National Bank Direct Brokerage provides 10 free trades a year and then lowers its regular price of $9.95 per trade to $4.95; also, account admin fees are waived.
- For investors aged 18 to 30, Qtrade Investor offers a flat commission of $7.75, down from the usual $8.75, as well as waiving quarterly admin fees.
- For clients 25 and younger, Scotia iTrade will waive the $100 annual admin fee on RRSPs and the $100 per year maintenance fees on small non-registered accounts.
- The Kick Start Investment Program at Virtual Brokers allows an investor to buy (or add to) up to five ETFs each and every month, for no commission. Normally, the cost is $50 a year for this service, unless you’re a student or have graduated within the past two years.
Do-it-yourself investing happens to make great sense for young investors. Investment advisers are notoriously uninterested in young clients for the most part, unless they happen to be the kids of rich clients. Also, the needs of young investors may be too small-scale to justify the fees advisers charge.
Bank mutual funds are an easy way to get started investing, and they’re friendly to rookie investors because they can be bought at no cost. On the negative side, bank mutual funds too often combine lacklustre returns and hefty fees.
The ideal product for young investors? Consider the balanced ETF, with fees as low as 0.2 per cent (mutual fund management expense ratios are typically in the 2-per-cent-plus range).
Balanced ETFs hold underlying funds that produce blends of stocks and bonds suitable for conservative, middle-of-the-road and aggressive investors. A twentysomething could easily choose an aggressive approach, with the understanding that there will be rotten years on the way to good long-term results. Long term, by the way, means 10 years or more.
The Wealthsimple Trade app is a zero-commission way to buy and sell balanced ETFs, as well as other ETFs and stocks. The lack of commission costs invites frequent stock trading that eventually does more damage than good, but a disciplined investor could use it to stuff money into balanced ETFs on a regular basis.
TD GoalAssist, from Toronto-Dominion Bank, is another app for mobile devices that offers a cost-effective way for young people to invest. Pick one of TD’s own balanced ETFs and contribute money whenever you like with no commissions to pay. GoalAssist also lets you set investing goals and track how you’re progressing.
Robo-advisers are another way for young adults to get help in building diversified ETF portfolios. For a fee starting at roughly 0.5 per cent, a robo-adviser will assess your needs with an online questionnaire and then suggest a diversified grouping of ETFs. Investing is a simple matter of electronically transferring money to your robo-adviser, which then contributes it proportionally to the ETFs in your portfolio.
Robo-advisers typically have lower fees for larger accounts, but a young investor still gets a fair deal.
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Enforcement Notice – Decision – IIROC Sanctions Montréal Investment Advisor Naghmeh Sabet – Canada NewsWire
MONTRÉAL, Jan. 22, 2021 /CNW/ – On January 19, 2021, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a Settlement Agreement, with sanctions, between IIROC staff and Naghmeh Sabet.
Mrs. Sabet admitted that she recommended the purchase and holding of securities that were unsuitable for a client, pursuant to this client’s investment objectives, and that she engaged in personal financial dealings with a client by accepting the offer of a short-term loan by the client for an imminent real estate transaction.
Specifically, Mrs. Sabet admitted to the following violations:
(a) In March and April 2016, the Respondent recommended the purchase and holding of securities that were unsuitable for a client, pursuant to this client’s investment objectives, thus contravening IIROC Dealer Member Rule 1300.1(q);
(b) In December 2015, the Respondent engaged in personal financial dealings with a client by accepting the offer of a short-term loan proposed by the client for an imminent real estate transaction, thus contravening IIROC Dealer Member Rule 43.
Mrs. Sabet agreed to the following penalties:
a) An aggregate fine in the amount of $25,000, as follows:
- a $10,000 fine for Count 1;
- a $15,000 fine for Count 2.
b) The obligation to pass the Conduct and Practices Handbook Course exam, within sixty (60) days following acceptance of this Settlement Agreement by the Hearing Panel.
c) Costs in the amount of $2,000 payable to IIROC.
The Settlement Agreement is available at:
IIROC formally initiated the investigation into Mrs. Sabet’s conduct in August 2017. The alleged contraventions occurred while Mrs. Sabet was a registered representative with the Montréal branch of Scotia Capital Inc., an IIROC-regulated firm. Mrs. Sabet is still employed with Scotia Capital Inc.
Documents related to ongoing IIROC enforcement proceedings – including Reasons and Decisions of Hearing Panels – are posted on the IIROC website as they become available. Click here to search and access all IIROC enforcement documents.
* * *
IIROC is the pan-Canadian self-regulatory organization that oversees all investment dealers and their trading activity in Canada’s debt and equity markets. IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while supporting healthy Canadian capital markets. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of 175 Canadian investment dealer firms of varying sizes and business models, and their more than 30,000 registered employees. IIROC also sets and enforces market integrity rules regarding trading activity on Canadian debt and equity marketplaces.
IIROC investigates possible misconduct by its member firms and/or individual registrants. It can bring disciplinary proceedings which may result in penalties including fines, suspensions, permanent bars, expulsion from membership, or termination of rights and privileges for individuals and firms.
All information about disciplinary proceedings relating to current and former member firms is available in the Enforcement section of the IIROC website. Background information regarding the qualifications and disciplinary history, if any, of advisors currently employed by IIROC-regulated firms is available free of charge through the IIROC AdvisorReport service. Information on how to make investment dealer, advisor or marketplace-related complaints is available by calling 1 877 442-4322.
SOURCE Investment Industry Regulatory Organization of Canada (IIROC) – General News
For further information: Enforcement Contact: Claudyne Bienvenu, Vice-President, Québec and Atlantic, 514 878-2854, [email protected]; Media Contact: Andrea Zviedris, Manager, Media Relations, 416 943-6906, [email protected]
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