British Columbia the hot spot for VC in Q2

VC investments in Canadian startups fell in the second quarter, compared to a year ago. But officials remain optimistic as larger amounts of funding went to fewer companies.

In the second quarter, VCs invested about $441 million in Canadian companies, compared to $590 million in the same quarter a year ago, according to a report by Thomson Financial (publisher of PE Week) and the Canadian Venture Capital and Private Equity Association (CVCA). In the first six months of 2006, VC activity totaled about $770 million, down 14% from the $889 million invested in the first half of 2005.

But the CVCA points out that investors appear to be focusing their financial resources more tightly as VCs backed fewer companies, while the average funding amount went up. Investors backed 129 companies in the second quarter, with an average investment of $3.4 million, compared to 211 firms receiving on average $2.8 million in the same period in 2005. In a prepared release, CVCA President Rick Nathan said the change in dollars raised per funding transaction was a positive sign. “Canadian companies must be sufficiently funded to successfully challenge their U.S. based competitors, who frequently have access to much higher levels of investment capital.”

Regionally, investment levels were up in British Columbia—where companies received more than one-fourth of all Canadian venture activity—and down in Ontario and Quebec. VC investments in British Coluumbia totaled $117 million, up 85% from the $63 million recorded in Q2 2005. Meanwhile, Ontario companies received $187million in Q2, a decline of from the $297 million invested in the second quarter last year. Quebec companies raised $120 million, compared to $193 million last year.

Similar to the United States, VCs invested in Canada are showing more interest in new technology sectors, such as alternative energy and environmental technology, with $77 million invested in 18 companies during the second quarter. —Alastair Goldfisher