Venture capital investment continues steep decline

Canadian venture capital investment fell to its lowest level in seven years between April and June with just $212 million injected into 179 firms. That’s down 33% from the first quarter of 2003 and is less than half of the $459 million invested in the same quarter last year. Follow-on financings accounted for 70% of total capital invested in Q1.

The sobering data were contained in the latest quarterly report on VC activity by Macdonald & Associates Ltd for the Canadian Venture Capital Association. The quarter was characterized by the near total lack of larger syndicated deals and the continuing drop in foreign investment (just $19 million). Foreign investment accounted for just 9% of the quarterly total, compared to 27% for all of 2002 when $2.7 billion was invested.

Industry observers hope that signs of increased VC investment in the US will trigger a rebound in Canada but it’s likely the recovery will be gradual. Q2 data from the US show that $US4.3 billion was invested in that three month period, up from $4 billion in Q1.

With the continuing slump of the telecom sector and lack of large deals in information technology, the life sciences sector remains the most active Canadian industry. The sector saw $51 million flow to 42 companies in Q2, down 35% from the $79 million invested in Q1. Information technology managed to attract $48 million.

Overall, $93 million or 44% of the Q2 total was invested in seed, start-up and early stage companies. Labour sponsored venture capital corporations invested $66 million or 31% of the total.

Quebec attracted the largest single portion of Q2 investments, securing $103 million or 49% of the total. The main beneficiaries were biopharmaceutical and life sciences firms. Ontario trailed with $82 million or 39% of the total, compared to its 52% share for all of 2002.

The bloom is also off venture capital fund raising, with just $162 million committed in Q2, compared to $907 million during the same period last year. Individual investors accounted for 80% of funds raised, with the remainder provided by pension funds.

FMI: www.canadavc.com

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