In a crowded global market, Canadian AI startups’ fundraising results stand out

Private money, public money, universities fueling the boom

It’s boom times for startups building with or atop AI functionality: The Exchange explored the rise in venture capital dollars for AI startups last week, noting that investment into the business niche set all-time records in Q4 2020, and then successively in quarters one, two and three in 2021.

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Given how heated the overall venture capital market is proving to be, those data points were only so surprising. What did shock us a little, however, was how active the Canadian AI startup market has been this year.

Perhaps it shouldn’t have. Matt Cohen, a managing partner at Ripple Ventures, told The Exchange that “while investment in Canadian startups of all varieties has ramped up lately, AI-enabled startups are certainly leading the pack.”

We’re behind, it turns out. But not so far behind that we cannot catch up on the Canadian AI startup story. Our questions are simple: Why are Canadian startups seeing their fundraising fortunes rise so sharply, what parts of the AI stack are being attacked, what role does public money play in the rising investment totals and what impact do local universities have on artificial intelligence work in Canada?

To help us, we parsed a data set from CB Insights and have clarifying notes from Ripple’s Cohen along with Ali Zahid, an investor at Ramen Ventures, Shawn Chance, a partner at OMERS, Bruno Morency, the managing director at Techstars Montréal AI, and Louis Fischer, a CB Insights intelligence analyst.

We’ll start with data, and then talk about what’s pushing up the numbers.

From the land of milk in a bag, rising AI investment

Let’s start from a yearly perspective. Funding for Canadian AI startups rose to record heights in 2019 before seeing declines in 2020 to just $488 million in total funding. But 2021 is proving to be more than a return to form for Canadian AI startups, with some $1.5 billion raised through the third quarter.

The results are a bit uneven, to be fair. Canada saw $895 million across 21 deals in Q2 2021 AI funding, and just $446 million in the third quarter, albeit from a slightly higher deal count of 24. But as the Q3 2021 dollar result for the country is nearly on par with its full-year 2020 total, it’s hard to be too bearish.

The evolution of Canadian AI funding as a portion of all venture capital funding in the country is impressive. AI companies raised 16% of known venture capital funds in 2021 thus far, a huge gain on the mere 2% that they were worth of total dollar volume in 2016.