It’s a great moment to be a startup that uses or builds on AI: Last week, The Exchange looked into the growth in venture capital dollars for AI firms, observing that investment in the business area hit all-time highs in Q4 2020, and then in quarters one, two, and three of 2021, respectively. Those statistical numbers were only so shocking given how hot the broader venture capital market is proving to be. However, we surprised by how busy the Canadian AI startup industry has been this year.
Maybe it should not have happened. “While investment in Canadian businesses of all types has sped up recently, AI-enabled firms are undoubtedly leading the pack,” Matt Cohen, a managing partner at Ripple Ventures, told The Exchange.
It turns out that we are behind schedule, however, not so far behind that we cannot keep up with the tale of Canadian AI startups. Our questions are straightforward: why are Canadian businesses experiencing such a surge in funding, which elements of the AI stack are being targeted, what role does public funding play in the growing investment totals, and what influence do local institutions have on artificial intelligence research in Canada?
We used CB Insights data and received clarification from Ripple’s Cohen, Ali Zahid, a Ramen Ventures investor, Shawn Chance, a partner at OMERS, Bruno Morency, the managing director of Techstars Montréal AI, and Louis Fischer, a CB Insights intelligence analyst. We will start with the figures and then discuss what’s driving them up.
Let us start with a year’s worth of data. In 2019, financing for Canadian AI companies reached new highs, but by 2020, overall funding had dropped to just $488 million. However, with $1.5 billion funded through the third quarter, 2021 is proving to be more than a return to form for Canadian AI firms.
To be honest, the results are a little mixed. In the second quarter of 2021, Canada received $895 million in AI financing across 21 agreements, compared to $446 million in the third quarter, despite a slightly larger deal count of 24. Nevertheless, given that the country’s dollar result for Q3 2021 is roughly identical to its full-year 2020 total, it is difficult to be too pessimistic.
The growth of AI financing in Canada as a percentage of total venture capital funding is outstanding. AI startups have so far raised 16 percent of known venture capital funds in 2021, a substantial increase from the measly 2% of total dollar volume they were worth in 2016.
