Venture capital investment hammered

Investment activity by the Canadian venture capital (VC) industry crashed in flames during the second quarter of this year, shot down by the telecommunications meltdown, slumping public markets and shrinking foreign investment. Between April and June, VC investment was just $416 million, down a staggering 69% from the same period last year when $1.3 billion was invested.

Data released in August by Macdonald and Associates Ltd show that telecommunication and network investment was most severely impacted, although no technology sector was spared. The second quarter contraction comes after a relatively strong first quarter when $756 million was invested.

A significant contributor to the plunge in VC investment is the reduction in foreign investment flowing into Canada. Foreign VC invested only $79 million during the quarter, down 75% from $316 million during the same period in 2001. Foreign VC is traditionally strong in the telecommunications and networking sectors.

The province of Ontario and Ottawa in particular were hardest hit. Ontario accounted for $120 million or 29% of the quarterly total, down 57% from the same time last year. Investment in Ottawa firms was a paltry $28 million, down 91% from $321 million during the same period last year. Quebec firms experienced the largest infusion of VC, attracting $192 million or 46% of the quarterly total. The strong showing is attributed to the intensity of life sciences firms, which were not hit as hard as other technology sectors.

Amidst the doom and gloom, VC fund-raising was relatively robust, securing $2.1 billion in the first six months of 2002. Particularly strong were limited partnerships (LPs). These private-independent funds invested $567 million for the first six months of 2002, compared to $483 million for all of 2001. LPs were driven by the strong showings of MDS Capital Corp and Skypoint Capital Corp. FMI: www.canadavc.com

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