General VC Deals Rise in Canada in Q2

Venture capital investing in Canada rose during the second quarter, but the slow fund-raising pace worries industry leaders. VCs invested $514 million in Canadian startups in Q2, up from $267 million in the first quarter and a 53% jump from the $335 million invested in Q2 2004, according to the Canadian Venture Capital Association (CVCA) and research firm Thomson Macdonald (a division of Thomson Venture Economics, publisher of PE Week).

Foreign investors provided $179 million, comprising 35% of all venture capital funding invested in the quarter. Funding from these foreign sources, which mostly stem from the United States, was its lightest level in two years. But the increasing share of U.S.-based investors leaves some Canadian VCs ill at ease.

“Getting part of it from U.S. investors is good up to a point,” says Robin Louis, president of Ventures West Management and the CVCA. “What I would hate to see is that our local investments go down and U.S. investors take over. I wouldn’t want to see the U.S. funds end up being three quarters of the industry here.”

Life science companies raised more than $123 million during Q2 in the Great White North, after sinking to a new post-2000 quarterly low in Q1 with less than $41 million. Two of the three largest venture rounds of the quarter were for life science companies. Ottawa-based Zelos Therapeutics Inc., a drug discovery company, raised $42.5 million in Series B funding. U.S.-based Alta Partners led the round.

Celator Pharmaceuticals Inc., a Vancouver-based drug development company, raised $40 million in VC funding. Backers included Domain Associates, Quaker BioVentures, TL Ventures, and Ventures West Management.

The largest round of Q2 came from Meriton Networks Inc., an Ottawa-based provider of optical networking foundations, which raised $54 million in Series C funding. VantagePoint Venture Partners and Nomura International co-led the investment.

While investments rose, venture fund-raising in the first half of 2005 declined. New venture funds raised $983 million for the first six months of the year, compared to $1.3 billion in funds raised during the same period in 2004.

Louis points out that a steady decline in labor-sponsored funds has contributed to the fund-raising drop. He adds that the CVCA and others are trying to foster the greater development of private venture capital funds by spurring traditional limited partners in Canada to become more active investors.