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Canadian venture capital rises in third quarter of 2004

According to the CVCA and their research partner Macdonald & Associates, Canada’s venture capital industry invested a total of $498 million in the third quarter of 2004 or 21% more than the $411 million invested during the same period of 2003. This is the third consecutive quarter in 2004 where the investment numbers have been up relative to the same quarters in 2003.

“The continued upturn in investment activity confirms the end of the declines in investment activity in 2001, 2002 and 2003,” said Dr. Robin Louis, President of the CVCA, “These third quarter numbers continue the increases of the first and second quarters and it appears that we will see continued steady growth into 2005. It is also interesting that the investment in Canada by U.S. funds has continued to increase and accounted for one third of the dollars invested in the quarter.”

The information technology sector dominated in Q3 2004, as 72 firms captured $332 million, or two-thirds of disbursements, and up by 57% from the $211 million that flowed in this direction between April and June. Indeed, capital invested in IT this time around represents the most substantial injection of industry cash into such companies since Q4 2002.

A key variable in year-over-year growth in dollars invested was the greatly increased activity of US VC funds and other foreign investors. Non-residents brought $203 million to Canadian deals in the third quarter, or 41% of all disbursements, and more than 2.5 times the $80 million of one year ago. Indeed, this is highest level of foreign VC activity in Canada since Q1 2002.

Growth in Canadian industry disbursements contrasted with the situation in the United States, where activity was somewhat softer in the third quarter. According to Thomson Venture Economics, while the current US$4.3 billion invested in 601 companies approximates American industry activity of Q3 2003, it is well below the US$5.9 billion attained in the second quarter of 2004.

”This upswing in investment activity is encouraging, although the industry continues to be concerned about the intake of new capital from institutional and other sources. “ said Dr. Louis “The numbers we are seeing”, he added “ are reinforcing our determination to increase the attractiveness of our asset class to potential investors both in Canada and abroad.”

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