October 4, 2021Calculating...

Chapter 1: Emerging Companies in Canada: Data and Digital Technology and Life Sciences

The Next Wave of Innovation in Canada

In the last several years, the growth of Canada’s emerging company and tech sector has been on a path of acceleration. Last year, technology and life sciences companies accounted for more than 80% of all venture capital investment in Canada1 and we are also seeing increased foreign investment into the industry, particularly from the United States2.

As the industry grows, Canada is attracting tech entrepreneurs and talent: four of the top 20 cities in North America for technology talent were in Canada (Toronto is #3)3. The tech sector’s presence, once concentrated in key research and commercial centres, is now being felt across the country. Alberta, a resource- and talent-rich region in economic transition as it seeks new balance after a longstanding focus on oil and gas, had its best year on record in 2020 for venture capital investment, largely in startups and emerging tech companies4.

Areas to Watch

Nationwide expansion is accompanied by the increasing scope of the Canadian tech sector as it diversifies in extending its innovations across industries and segments of the economy. See Figure 1 for a sector breakdown of 2020 venture capital financings in emerging companies. This trend is also occurring as part of increasing integration of new technologies into more traditional industries, services, and assets.

Figure 1 - Deal activity by industry sector
Figure 1: Venture Capital M&A Sector Breakdown

Life sciences and biotech are other areas contributing to Canadian innovation and which have been growing for years, on everything from diagnostics to the personalization of healthcare. The pandemic has served as a catalyst for the building out of product portfolios and foundational platform work. The impact on M&A was the accelerated development of companies which have enjoyed ongoing premiums in pricing. A remarkable 84 initial public offerings for biotech companies in North America took place in 2020, raising a total of US$15 billion5. Persistent unmet clinical needs and an aging population will continue to be significant drivers for investment in the life sciences, and we will likely see more activity around AI and digital health, particularly in their application to drug development, patient identification and customized care6. The sector in Canada also continues to receive strong institutional support, including from the federal government through its Strategic Innovation Fund, which will provide up to $792 million to support, among other things, research and development, clinical trials and manufacturing of vaccines7.

The Growing Influence of Data Assets

The pervasive effects of data are one such area of importance. From a business perspective, we are seeing the data assets of a company as a foundational driver of innovation, growth and competitive differentiation—for virtually all types of organizations and industries. This trend has become even more urgent as consumer-facing companies pivot their digital strategies to accommodate stay-at-home customers and other effects of the pandemic8. The scope of regulatory and judicial involvement in privacy, cybersecurity and other data governance matters is reflective of the scale of data’s influence: a national privacy regime modernization in 20209, and rising privacy enforcement actions and class actions are a few examples. The federal government has dedicated policy work to assist in the shaping of a data governance framework in Canada, launching in 2019 its Canadian Data Governance Standardization Collaborative10 which has recently released its roadmap to a standardized data governance model with best practices around the many interrelated aspects of managing data.

Doing Deals and Investing

Seizing opportunities in emerging companies raises a number of considerations for both startups and investors, as dealmaking practices, IP and broader data governance strategies are evolving, both in Canada and beyond, particularly as privacy and cybersecurity present growing risk areas.


For startup targets of acquisitions, the early stages of incorporating and establishing governance best practices will be key considerations, especially in preparation for any future kind of exit. For startups for whom IP plays a critical role to the business model, having a clear IP strategy in place will also be essential. Strategic buyers in particular will look for robust IP, cybersecurity, privacy and overall data strategies so they can assess how aligned these strategies are with their own objectives and systems.

Private Equity and VC Investment

Private equity and venture capital have long seen the tech sector as an attractive destination for investment. In 2020, that interest grew even stronger in light of the spike in demand for technology solutions and services caused by the pandemic. Investors in these areas are finding creative ways to invest in technology and other emerging companies, and we are seeing deal practices and terms aligning more with U.S. dealmaking, especially as investors from the more mature American tech sector look north for new opportunities outside of the U.S.11. For more on deal practices in the emerging companies and venture capital ecosystem, read our full analysis in Torys Venture Financing Report.

Curbing Risk

While data assets are presenting new business opportunities and driving innovation across Canada’s emerging company and tech sector, there are also associated risks to consider.

Intellectual Property

Very few organizations have focused on commercialization of data to create new products and services. This is not surprising because: 1) there is no universal “data ownership right”; and 2) regulatory and legal regimes governing ownership rights in data are still in flux. Having a clear understanding of a target’s IP and usage rights and overarching strategy is crucial to various elements of a transaction, from valuation to due diligence.

Privacy, Cybersecurity and Data Governance

As we see more investor class actions in response to cybersecurity and privacy breaches in the U.S. emerge12, dealmakers looking to invest or make an acquisition should ensure adequate reporting, practices and oversight are in place—or are ready to be put in place post-closing—to mitigate operational, litigation, reputational and other business-critical risk. Careful analysis of a target’s privacy and cybersecurity compliance history at the early stages of a transaction can often help identify red flags.

Competition and Foreign Investment Review

We are now seeing privacy issues being addressed by competition regulators as leveraging user data is increasingly becoming a point of competitive advantage. This is another area where alignment between buyers and sellers in their data governance regimes and the way their underlying business models leverage data will be a major consideration for dealmakers.

  1. Canadian Venture Capital Market Overview, 2020 Year in Review. CVCA, available (PDF download) here.
  2. Venture Financing Report, available here.
  3. 2019 Scoring Tech Talent. CBRE research, available (PDF download) here.
  4. Venture Financing Report, available here.
  5. The rise and rise of biotech. Torys Quarterly: M&A Trends 2021, available here.
  6. Ibid.
  7. Fall Economic Statement 2020. Department of Finance, available (PDF download) here.
  8. Data management: turning risk into opportunity. Torys Quarterly: Strategy for accelerated change, available here.
  9. Privacy modernization with a northern touch: the proposed Digital Charter Implementation Act, available here
  10. Leading experts join SCC effort to transform data governance landscape, available here.
  11. Venture Financing Report, available here.
  12. Data governance and Canada’s c-suite: are directors and officers liable for cybersecurity failures? Litigation trends 2020, available here.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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