Venture capitalists stay on sidelines

(August 12, 2003) Canadian venture capitalists remained cautious in the second quarter of 2003, according to a report from the Canadian Venture Capital Association and Macdonald & Associates Limited.

Total dollars invested in venture funding dropped 33% to $212 million between April and June, from $314 million in the first quarter.

Disbursement totals were sliced in half from $458 million in the same quarter in 2002. The number of financings declined as well, but only by 18%, indicating that smaller deals are being made. The number of Canadian companies receiving financing dropped from 218 to 179.

“The Canadian venture capital (VC) industry resisted the downdraft for several quarters after activity started to decline in the U.S.,” according to Mary Macdonald, president of Macdonald & Associates. “However, Canadian investors couldn’t avoid it forever, particularly given the extent to which the telecom sector has been hit over the past two years.”

But there are signs of hope south of the border, as VC investment grew by $300 million to $4.3 billion in the second quarter. That’s the first quarter of growth in three years.

“With activity in the U.S. turning up in Q2 for the first time in three years, we will hopefully quickly follow suit,” said MacDonald.

Conspicuously absent from the quarter were the so-called “mega-deals” which funnel $20 to $100 million into start-ups, usually in the technology field. There were only seven deals that even topped the $10 million mark, about half the number from the same quarter in 2002.

Is venture capital investing going to come back any time soon? Or is this slump here to stay for the foreseeable future? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca