Canadian VC Pleased with Q1

As principal cheerleader for the venture capital industry north of the U.S. border, the Canadian Venture Capital Association (CVCA) likes to point out good news about the industry.

Last week, the CVCA was applauding that VC firms in the Great White North invested about $294 million in Canadian companies during the first quarter of 2004, a rise of 23% from the first quarter of 2003 when venture investments totaled about $235 million.

The report was prepared for CVCA by researcher Macdonald & Associates.

“We have begun the investment year on a positive note and remain hopeful that the investment trend of the first quarter will continue throughout 2004,” says Robin Louis president of the CVCA as well as Ventures West Management.

Louis cites several reasons to be optimistic about the Q1 report. Life sciences attracted the largest amount of capital with $128 million or about 45% of the total deals closed. Also, foreign investors accounted for a larger share of investors, investing 41% of capital during the first quarter, compared to 19% for all of 2003.

While more than half of the Canadian VC deals during the quarter were comprised of 10 large deals, Louis says he would like to see the average deal size of Canadian VC deals rise. His hope is to have Canadian companies funded to last long enough to go public. Canadian companies have more of a tendency to be quickly acquired, he noted. But larger VC rounds would help companies stick it out before exiting via an acquisition.

The up-tick in venture investing comes at an opportune time for Canada. Earlier this year the CVCA announced its final report on the state of Canadian venture investment for 2003. The report found that Canadian venture investments for all of 2003 totaled $1 billion, a drop of 41% from activity in 2002.

During the same time period, U.S. venture capital disbursements declined 15%, according to Thomson Venture Economics (publisher of PE Week).

“I think what happened was that the decline bottomed out a couple of quarters earlier in the U.S. than it did in Canada,” Louis says. “The increase started a couple of quarters later in Canada.”

Nonetheless, the black spot in Q1 figures revolved around how fund-raising trickled into the country.

Canadian VCs raised $431 million during the quarter, down 42% from $736 million in funds raised in Q1 2003.

In noting the decline, Louis says he’s hopeful the trend will be reversed in future quarters.