According to CVCA (Canada’s Venture Capital & Private Equity Association) statistical report, Canada’s venture capital market has shown a decline on both annual and quarterly parameters. The research was conducted in partnership with Thomson Reuters.

The report states that the factors responsible for the decline were comparatively smaller deal sizes and reduced cross-border activity. For the first quarter period of 2007, the total investment was $610 million. However, for the first quarter of 2008 the total amount invested across the country has come down to $323 million. This indicates a drop of 47% against the 2007 first quarter investment figures. Still, the companies receiving venture funding almost remained the same, with 128 companies receiving such funding in the first quarter of 2008. In 2007, this figure was of 131 companies received venture capital funding.

Large venture capital deals were not seen in the first quarter, as the only biggest funding amounted to just $28.8 million. This led to a decline in the average financing size, which as of now stands at $2.5 million as against the figure of Q1 2007, which was $4.7 million.

As Rick Nathan (President, CVCA) said, “These quarterly investment numbers point to the pressing need to strengthen the Canadian venture capital industry. New sources of risk capital are required if we are to develop a stable supply of venture capital funding for the entrepreneurs and high growth companies that are critical to Canada’s future economic prosperity."

North American Context:

In the United States, only a marginal decline was noted in the venture capital funding. Same as last year, about US $7.1 billion were invested in 922 companies. However, the sharp decline in Canada, led to a drop in the rankings of major Canadian provinces relative to U.S. states. After the Q1 2008 results, the provincial rankings among 60 Canadian and American states are as follows:

1. Ontario ranked at 10^th.

2. Quebec ranked at 15^th

3. Alberta ranked at 20^th

Canadian Venture Capital Trends by Investor Type:

The limited presence of American and other international venture capital funds led to the decline that showed in the Q1 2008 results. In all, only $76 million were invested by American firms into Canadian companies, as against the massive investment of $303 million in 2007. For Q1 2008, only 23% foreign investment was recorded in Canada. However, the domestic private-independent funds kept the wagon moving. In all, Canadian domestic investments accounted to $82 million. However, it was still 15% less than what was last year. For 2007, domestic venture funding amounted to $97 million.

Canadian Venture Capital Trends by Region :

On an annual basis, Ontario leads the way in the least venture capital activity for Q1 2008. There was just $130 million invested in 41 companies for the first quarter as compared to an investment of $310 million for Q1 2007. It showed a 60% decline in the venture capital funding for the region.

Quebec received a funding of just $86 million in 41 companies for the first quarter as compared to $171 million for the same period in 2007. It managed to get only 27% of all disbursements.

For Q1 2008, British Columbia, recorded a venture capital investment of just $39 million invested in 15 companies. On the other hand for Q1 2007, it had received $63 million.

Alberta on the other hand faired better for Q1 2008, with an investment of $46 million compared to $18 million for Q1 2007.

Canadian Venture Capital Trends by Sector :

Among all sector categories, clean tech activity was the one that experienced annual growth in terms of venture investment. For Q1 2008, a total of $56 million were invested in 9 companies, which is an increase of 45% as compared to the 2007 Q1 investment of $39 million. IT sector also witnessed an increase in venture investment with $164 million invested in 62 companies.

Trends in Canadian Venture Capital Fund-Raising :

For Q1 2008, new commitments towards Canadian venture capital funds continued to show a decline. In 2007, $467 million were raised as venture capital for the first quarter. However, this year it slumped to $334 million, which depicts a decrease of 28%.

Quebec based businesses saw the bulk of venture capital investment. For 2008 Q1, it raised a total of $196 million, which accounted to 59% of commitments all throughout Canada.

This entry was posted on Thursday, May 22nd, 2008 at 6:34 am and is filed under Venture Capital Funding. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.