Tuesday, February 12, 2008
VENTURE CAPITAL INVESTMENT UP 21% ACROSS CANADA IN 2007
TORONTO: Venture capital investment across Canada in 2007 amounted to $2.1 billion, an
increase of 21% from the $1.7 billion invested in 2006 according to the industry's statistical report
released today by the CVCA and research partner Thomson Financial. In the fourth quarter, total
investment amounted to $500 million, which was roughly equal to Q3 2007 ($513 million) and to
activity in Q4 2006 ($504 million).U.S. Venture Firms Drive Canadian Market Growth The increase in investment levels across the market as a whole has been driven by the following
key trends: - Significant growth in investment activity by U.S. venture capital firms investing in Canadian
companies, who now represent 41% of all investment dollars across Canada and 53% of
all investment dollars in Ontario. This represents a new record high in the annual share
attributable to foreign investors. - In absolute dollars, the total amount invested by U.S. VC firms amounted to $836 million,
an increase of 53% from the total of $548 million recorded in 2006. The increased
participation of foreign investors accounted for 82% of the growth in total Canadian
investments. Investment activity by Canadian VC firms remained flat. "The growth in new investments into Canadian companies is good news for entrepreneurs," stated
Rick Nathan, President of the CVCA and Managing Director of Kensington Capital Partners Ltd.,
"however, a closer look at the data reveals continuing weakness in our Canadian venture capital
sector. Virtually all of the growth in our markets has been driven by the increased investments
made by U.S. venture firms extending their reach into Canada, demonstrating the high quality of
opportunities in our market and a complete absence of growth among our domestic firms. This is
particularly evident in Ontario, where U.S. investors now represent a majority of all venture
investment dollars - a historic high and roughly double their traditional market share." Industry Fundraising Declines Sharply As the share of U.S. investment in the Canadian market continues to grow, Canadian venture
firms continue to face challenges raising new capital. In contrast to the growth in investments
made, Canadian VC firms saw a continued decline in their own fundraising - the amount of new
capital raised for their own new investments (the fifth such decline in the past six years) - in sharp
contrast to continuing growth in U.S. venture firm fundraising levels. "The fundraising trend for Canadian VC firms is a serious concern," added Mr. Nathan, "as a
shortage of domestic capital may continue to drive the growth of our most innovative emerging
companies away from home, and into the U.S. where venture capital is more readily available." Canadian VC firms raised a total of $1.19 billion in new capital in 2007, which is down significantly
from the $1.64 billion in new capital raised in 2006. U.S VC firms, in contrast, raised $34.7 billion
in 2006, up from the $31.7 billion it raised in 2006.
The new venture capital fundraising for Canadian firms was concentrated in Quebec, which
received $816 million, or nearly 70% of the national total. Ontario venture firms raised $267
million in new capital, or 22% of the national total into the Province that represented 46% of all
2007 investment activity. Regional Trends Ontario represented the largest market for venture capital investment in Canada in 2007,
receiving a total of $937 million into 124 companies, up 35% from the $695 million invested in
2006 reversing two consecutive years of decline. Investments in Ontario amounted to 46% of all
activity in Canada. Quebec investment levels increased for the third consecutive year, with a total of $648 million
invested in 189 companies, or 8% more than the $600 million invested in 2006. Investments in
Quebec amounted to 31% of all activity in Canada, down slightly from its 35% share in 2006. Investment in British Columbia also increased, with $310 million invested in 49 firms in 2007, or
3% more than the $301 million invested in 2006 for a national market share of 15% of all
Canadian activity. Companies Funded and Deal Sizes The number of companies receiving venture capital funding across Canada has remained flat at
411 companies (408 companies in 2006), at levels significantly below prior years. 127 Canadian
companies were funded by VC firms in Q4 2007, which is down from the 167 companies funded
in Q4 2006. The relative stability in the number of companies funded against the reported increase in the total
capital invested led to substantial growth in the average amount invested per company, a positive
trend. The average VC investment per Canadian company in 2007 was $5.0 million, up 19% from
the $4.2 million average in 2006. While this growth is a positive trend, it still represents only half
of the average investment amounts into U.S. companies. North American Context The CVCA has released data showing where the major Canadian markets rank in reported
venture capital investment relative to activity in individual U.S. states. Ontario, Quebec and
British Columbia finished 2006 in 6th, 10th and 19th place, respectively, compared to 2006
standings of 10th,11th and 18th place. Investor Type Among Canadian investors, investments made by LSVCC's amounted to $405 million in 2007, up
4% from the $391 million invested by this group in 2006, and accounting for 20% of all venture
investment in Canada in 2007. Private independent venture funds invested $353 million in 2007,
consistent with the $339 million of 2006 or 17% of all investment activity. Investment by Sector Activity in the Information Technology sectors continued to drive industry investment in 2007, with
$1.1 billion invested into 194 companies representing 52% of all disbursements (compared to
$888 million in 2006). Within the IT sector, Internet based businesses received $411 million in
2007 - a dramatic increase over the $92 million for this sub-sector in 2006 as a result of two
significant transactions. Software firms followed with $266 million ($300 million in 2006), followed
by communications and networking with $240 million ($230 million in 2006), and electronics and
semiconductors at $126 million (compared to $221 million in 2006). Biopharmaceutical and other life science investments increased in 2007 with $633 million
invested in 70 companies, up 23% from the $514 million in 2006. Venture capital investment in the Cleantech sector hit a new high driven mainly by one significant
transaction of $63.5 million in Q4, amounting to a total of $169 million into 29 companies through
2007, an increase of 40% over the $120 million invested in 2006. VC Industry Sector Fundraising As noted above, Canadian VC firms raised a total of $1.19 billion in new capital in 2007, which is
down significantly from 2006 levels. LSVCC?s raised $741 million in 2007 down 18% from the
$907 million raised in 2006. Canadian private independent funds raised $447 million in new
commitments in 2007, a drop of 33% from the $666 million raised in 2006. CVCA The CVCA - Canada's Venture Capital & Private Equity Association, was founded in 1974 and is
the association that represents Canada's venture capital and private equity industry. Its over 1400
members are firms and organizations which manage the majority of Canada's pools of capital
designated to be committed to venture capital and private equity investments. The CVCA fosters
professional development, networking, communication, research and education within the venture
capital and private equity sector and represents the industry in public policy matters. Thomson Financial Thomson Financial is a provider of information and technology solutions to the worldwide financial
community. Thomson Financial is part of The Thomson Corporation (www.thomson.com), a global
leader in providing essential electronic workflow solutions to business and professional
customers. With operational headquarters in Stamford, Conn., Thomson provides value-added
information, software tools and applications to professionals in the fields of law, tax, accounting,
financial services, scientific research and healthcare. To arrange an interview with Rick Nathan, President of the CVCA and Managing Director of
Kensington Capital Partners, please contact Lauren Linton 416 487-4299 llinton@cvca.ca
End
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