5 Takeaways From Toronto’s Record-Setting Fourth Quarter of 2019

As we’ve discussed, Toronto has rapidly risen to become renowned as one of the world’s top tech hubs, with a deep talent pool, innovative entrepreneurs and business-friendly government. And now, the money seems to be pouring into the biggest city in Canada like never before.

According to a new report from private market data collector Hockeystick and Toronto-based innovation hub OneEleven, the greater Toronto area generated a record $3.1 billion of early-stage and venture capital funding in 2019 – a massive 68 percent increase from the $1.9 billion invested in 2018. There were more rounds, too – 316, up 16 percent from 2018.

The authors of the study say that “unlike many reports, this is not an estimation.”

“Using a combination of public and private data, we provide a unique snapshot of what’s happening in the GTA,” the report reads. “Each dollar value represented is tied to an actual deal or transaction.”

“Toronto’s tech sector has been feeling the love,” said Mayor John Tory in celebrating the news.

What’s behind this banner year and its hugely lucrative final quarter? We took a closer look.

Life Sciences Leading the Way

The fourth quarter of 2019 proved to be the healthiest time of year for Toronto’s life sciences startups. Hockeystick’s report found that the 225 companies in the sector generated $302 million in early-stage investment over 16 funding rounds in the fourth quarter – roughly equal to the rest of the year combined.

Leading the way was $114 million Series D generated by Geneseeq, an industry leader in next-generation sequencing for precision medicine that was founded in Toronto in 2008 before being incorporated in China in 2013. 

That was one of many late-in-the-year victories for Toronto’s life sciences sector. 

MindBeacon, creator of a digital mental health treatment platform, raised $18 million as part of a Series A follow-on investment round, EBT Medical announced $10 million in Series A investment to further develop its non-invasive neuromodulation technology for pelvic health disorders, and Winterlight Labs raised $5.6 million to further develop technology that helps healthcare professionals assess patients’ brain health from short clips of their speech.

The sector hasn’t shown signs of slowing in 2020, either. Already, BenchSci has raised $29 million Series B and Aspect Biosystems announced $26 million Series A. 

Bullish Local Investors

Toronto’s breakneck growth couldn’t have happened without robust support from local investors.

Hockeystick’s report found that the most active investors of 2019 – out of a total of 341 investors – included the Toronto-based likes of MaRS Investment Accelerator Fund, Round13 and Espresso Capital, alongside the Business Development Bank of Canada, iNovia and Real Ventures. And previously, Hockeystick’s third-quarter report found that 70 percent of funds invested in Toronto came from domestic sources.

On that front, the fourth quarter of 2019 also brought major news to Toronto’s VC scene: Portag3 Ventures closed a $427 million second fund, the largest Fintech-focused venture capital fund in Canada and one of the largest globally.

Portag3 has already deployed $115 million to local startups including Wealthsimple, Borrowell, and Clearbanc, so the new investment round can only bode well for Toronto’s thriving startup scene.

“Effectively, if you’re a B2B fintech company, especially serving the insurance, wealth management or banking sectors, (Portag3) should really be your first call,” said executive chairman Paul Desmarais III. “Because not only are we the biggest in Canada and one of the biggest globally, but we also have an embedded set of potential partners and relationships that could drive your business.”

Fintech on the Rise

In the third quarter, it was Toronto’s Fintech companies that were the talk of the town. The $776 million raised by the city’s Fintech industry by the third quarter had already exceeded the $691 million generated in all of 2018, with Vena Solutions, Wealthsimple and TouchBistro leading the way with nine-figure funding rounds. Meanwhile, the $300 million in new funding announced by Clearbanc stood out as the biggest deal of the year in Toronto.

Well, there was more good news in the fourth quarter. 

Koho announced a $25 million Series B round just six months after the initial close of the round at $42 million, while also striking a notable new partnership with National Bank. Positioning itself as an alternative to traditional banks, Koho plans to be “really aggressive in Canada in terms of our capital position and our leadership position in the market,” noted CEO Daniel Eberhard. 

“The goal is to build the next great bank in Canada, and we want to be around in 50 years,” he said. “Three years ago, it was hard for a lot of people to understand that you could do this, and do this in a market of Canada’s size and have a really good outcome.

“Now, I think people are seeing that the economics are there, the growth rate is there and you can really do this and build a true kind of functional banking experience and challenge even an oligarchy as entrenched as we have in Canada.”

Meanwhile, Delphia raised $10 million Series A while making headlines by publicly unveiling its first product, a service that allows users to use their personal data as a source of capital that can be invested into the stock market.

Although the biggest-money deals in Toronto’s Fintech industry occurred earlier in the year, the last quarter of 2019 also saw some notable mergers and acquisitions. Pungle was acquired by fellow Toronto-based company Berkeley Payment Solutions for an undisclosed sum while financial planning startup Snap Projections was scooped up by Vancouver-based WealthBar Financial Services.

Powerhouse Startups

As we mentioned, massive funding rounds for top Toronto startups Clearbanc, TouchBistro, and Wealthsimple made news through the first nine months of the year – but the second-largest deal of the year was yet to come.

In November, 1Password – a previously bootstrapped password manager that grew over 14 years without a penny from venture capital – announced a $200 million Series A round from Accel, the largest single investment in the firm’s 35-year history. It was also one of the largest-ever Series A rounds raised by a Canadian tech company.

It’s easy to understand all the enthusiasm about 1Password, which grew its B2B by more than 300 percent over the years leading up to the investment.

“1Password has been profitable since day one, really, and we have been growing really fast for 14 years, all without investment,” Matt Davey, 1Password’s chief operations optimist, said. “But things have really changed recently with all the data breaches that have been happening, and password managers have gone from an early adopter, heavily technological thing to a major trend that (is) not going anywhere anytime soon.”

The final quarter of the year brought other notable funding rounds for Toronto startups. Workplace management platform Eden announced the close of a $25 million Series B round led by Reshape in November, SocialChorus received a $10 million debt facility from Espresso Capital, and Second Closet raised $13.2 million in its latest round of funding with an eye on expanding its self-storage business within Canada.

“The self-storage space is a few billion-dollar sleepy industry where ‘you build it and they come’ – that’s the model,” said CEO and co-founder Mark Ang. “Our model is more aligned with what consumers today expect.”

The good news kept coming for Toronto startups as the decade wound down. Ritual announced its first expansion into non-English speaking markets, FreshBooks unveiled plans for its first international office (in Amsterdam), and Toronto’s Trufan acquired the New York-based social media analytics platform SocialRank.

Seeds Sewn

An interesting note about all of this funding activity in Toronto? According to Hockeystick’s numbers, 54 percent of funding rounds were seed – and that can only bode well for the future.

Many of those notable seed rounds occurred late in 2019. Proptech startup Naborly, which developed a platform for tenant screening, announced a $7.5 million seed round led by Susa Ventures and First Round Capital to be put toward its product NaborlyShield, a service that guarantees rental income and lease terms for landlords and tenants.

“We see a world where Naborly is the glue for the rental industry, improving the lives of tenants while providing landlords better data and financial security,” said Chad Byers, general partner at Susa. 

Meanwhile, EcoPackers raised $4.3 million in pre-seed and seed financing for its biodegradable bioplastics business, biotech startup AmacaThera closed a $3.6 million seed financing round, and Convictional – a startup with a B2B eCommerce platform focused on managing inventory – raised a C$3 million seed round.

A graduate of Silicon Valley accelerator Y Combinator, Convictional actually shifted operations back to Toronto in part because of the city’s deep talent pool.“We decided after Y Combinator to move back to Canada to build the company here because we felt that for the kind of business we wanted to build, the engineering talent is incredible and is on par with what we saw down in Silicon Valley,” said co-founder Chris Grouchy.