Venture capitalists busy in third quarter

(November 16, 2004) The Canadian venture capital industry invested $498 million in the third quarter of 2004, 21% more than the $411 million in the same period of 2003, according to the quarterly report from Canada’s Venture Capital and Private Equity Association (CVCA).

“The continued upturn in investment activity confirms the end of the declines in investment activity in 2001, 2002 and 2003,” said Dr. Robin Louis, president of the CVCA. “These third-quarter numbers continue the increases of the first and second quarters and it appears that we will see continued steady growth into 2005. It is also interesting that the investment in Canada by U.S. funds has continued to increase and accounted for one-third of the dollars invested in the quarter.”

The surge in cash disbursements was largely due to increased foreign investment, as non-residents brought $203 million to Canadian deals, or 41% of all disbursements, a high not seen since the first quarter of 2002. In the same period last year, foreign investment accounted for only $80 million.

“This upswing in investment activity is encouraging, although the industry continues to be concerned about the intake of new capital from institutional and other sources,” Louis said. “The numbers we are seeing are reinforcing our determination to increase the attractiveness of our asset class to potential investors both in Canada and abroad.”

While Canadian venture investment was surging, activity south of the border was cooler, with US$4.3 billion invested in 601 companies, well below the US$5.9 billion disbursed in the second quarter.

Technology investments dominated the field, accounting for $332 million and 72 firms receiving financing. That’s the largest cash infusion into the industry since the fourth quarter of 2002 and marks a 57% increase in IT investment from the second quarter, when just $211 million was disbursed.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com