The buyout market in Canada is booming, with fund-raising reaching $6.4 billion through the first three quarters, up more than four and a half times the full-year total of 2005, according to a survey expected to be released today by Thomson Financial (publisher of PE Week) and Canada’s Venture Capital & Private Equity Association (CVCA).
“What’s driving the growth is returns,” says Rick Nathan, president of the CVCA and a managing director at Kensington Capital Partners. “Our buyout sector as a whole has been doing great. It’s averaging something like 20% for the industry.”
However, the growth in buyout funds—which mirrors what’s happening in the U.S. market—comes as venture activity in the Great White North slows. Venture firms in Canada raised just $1.3 billion through the first three quarters of the year, down about 15% from the $1.5 billion raised during the same period last year. If not for foreign investors, VC fund-raising in Canada would have been worse. Non-Canadian LPs contributed about one-third of the total raised from January through September, up from a historical average that’s closer to 25 percent.
Meanwhile, Canadian startups attracted just $331 million in VC funding during the third quarter. Though it was up slightly from the $292 million invested during the third quarter of 2005, the quarter was the third slowest since the dot-com boom.
“That’s a really disappointing result for us,” Nathan says. “It’s too soon to know if it’s it a real problem or just a quarterly blip.”
Also of concern is that the government of Ontario announced last year it would begin to phase out a 30% tax credit it had offered to individuals who invested in retail venture funds. Although the credit is still in place, Nathan says it has contributed to market uncertainty and an investment slowdown by those funds as they face poor prospects for raising more money. Ontario’s retail funds have historically accounted for about one-third of that region’s venture financing.
“Canadian VCs tend to invest in too many companies and under-fund them,” Nathan says. “We’re focusing our attention more, it’s a real trend.” The average amount raised by a Canadian startup was $3.8 million during the first nine months of the year, an increase over the $2.9 million average for the same period in 2005. Nathan says this should improve performance.
The largest venture deal in the quarter was SiGe Semiconductor, which raised $19.5 million in its Series D from 3i Technology Partners, GrowthWorks, Hunt Ventures, Prism Venture Partners, RWI Ventures, TD Capital Ventures, VenGrowth and Vista Ventures.