Q-News

March 2011

Year-End Summary and some positive developments

Posted in Mike's Commentary

February turned out to be a month of more of the same in terms of both financings and M&A transactions, but there was positive news from a number of organizations:

Birchhill Equity Partners announced the close of its fourth private equity fund, raising $1.04 billion from a group of Canadian and international investors.  When one includes Clairvest’s January announcement of the close of its 4th private equity fund at $467 million, it’s a great start to the year. I know we’re comparing apples and oranges here but these announcements are particularly positive in light of the fact that the total Canadian VC fund raising for 2010 came in at $819 million.

BlackBerry Partner Fund announced that Research in Motion was making a lead commitment to BlackBerry Partners Fund II, a fund targeted at raising $150 million focused exclusively on mobile computing.

Chrysalix Energy Venture Capital achieved a first place ranking by Cleantech Group alongside Draper Fisher Jurvetson as most active global venture capital investors in 2010 with 16 completed rounds.  Headquartered in Vancouver, Chrysalix has approximately $300 million in assets under management in four funds across two continents, has actively invested in 25 companies and has over 20 international blue-chip industrial and financial limited partners.

SecureKey Technologies Inc. received an investment from Intel Capital.  While the amount and terms of the investment were not disclosed, this transaction follows closely on the heals of Intel’s acquisition of Cognovision in November 2010.  SecureKey’s CEO is serial entrepreneur Greg Wolfond, founder of both Footprint Software (sold to IBM in 1995) and 724 Solutions.  Greg is also an investor in Polar Mobile, one of Toronto’s fast growing app developers.

While certainly not positive from a Canadian VC industry perspective, VentureLink Innovation fund announced that CEO John Varghese is resigning from VL Advisors Inc., the Manager and Investment Advisor of the Fund.  Geoff Horton will assume the role of CEO and continue to manage the fund along with long-time industry expert Jim Whitaker.  John has been an active and outspoken spokesman on behalf of the Canadian venture capital industry and will be sorely missed.

For those of you who haven’t had an opportunity to review the comprehensive presentation published by Thomson Reuters summarizing 2010 Canadian venture capital results here are some of the more salient points:

  • Total Canadian venture capital investment increased by 10% in 2010 to $1.1 billion versus $1.0 billion in 2009. This was the first per-annum increase in investment levels since 2007.  Nonetheless, these levels continue to rank significantly below the $1.4 billion invested in 2008.
  • Canadian VCs accounted for $811 million or 71% of invested capital while US VCs accounted for the remaining 29%, or $331 million.  Despite the Section 116 amendments, this amount represented a modest 6% increase in year-over-year investing levels from US VCs.
  • In 2010, 354 firms received investment capital versus 337 in 2009.  Compare these numbers to the top five US VCs (ranked by the number of US investments made in 2010) which completed a total of 325 deals in 2010 and in the 4th quarter alone the top 30 US VCs (again ranked by deals) invested in a total of 349 deals.
  • Average deal size was $3.2 million versus $3.1 the previous year.  Canadian companies received only 39% of the approximately US$8 million per investment going to comparable US firms.
  • Canadian VCs invested $313 million internationally, representing an increase of 64% over 2009’s $191 million invested abroad.
  • Ontario led the way in dollars invested with $424 million versus 2009 levels of $296 million.  Quebec followed with $391 million invested, a 9% increase over 2009 levels of $429 million.  BC placed third with a 35% increase in funding to $216 million versus $160 million in 2009 while Alberta’s investment levels increased by 8% to $67 million.
  • A total of $484 million was invested in 126 ICT firms representing 42% of all disbursements.  This amount represented a 3% decline in investment levels year-over-year.  Sectors attracting investment included software ($141 million), telecom ($135 million) and internet-focused businesses ($130 million).
  • The biopharmaceutical and life sciences sector experienced a 38% increase in capital invested to $299 million versus $216 million the previous year.  This represented 26% of all capital invested.
  • Cleantech activity represented 17% of total invested capital, increasing by 58% with $192 million going to 28 companies versus a total of $122 million invested in 2009.
  • Exit levels continued to be modest with 30 VC-backed firms being acquired by primarily strategic investors while only one company completed an initial public market offering.
  • VC fund-raising activity experienced a significant decline of 24%, falling to $819 million versus $1.1 billion in 2009.  This level was the lowest experienced in 16 years. These funding levels certainly indicate that the currently challenged VC environment will be prolonged.
  • Surprisingly, despite decreasing tax incentives, retail funds still accounted for $369 million in funds raised versus $350 raised by private funds.
  • In a ranking of the top 20 North American states or provinces by disbursement levels, Ontario, Quebec and BC ranked 11th, 12, and 16th, respectively.  For comparison purposes, Ontario disbursement levels of $424 million represented 4% of the $10.4 billion invested in California.

For comparison purposes we have included a summary of US results as laid out in the PWC MoneyTree Report Q4 2010/Full-year 2010:

  • For the year, a total of US$21.8 billion was invested, representing an increase of 19% over 2009 investment levels of US$18.3 billion.
  • 3,277 companies received capital, an increase of 12% over 2009 levels.
  • Similar to Canada, the increase in investment levels represented the first annual increase since 2007.
  • Software companies led the way with $4.0 billion invested in 835 deals for an average of US$4.8 million per company. Biotechnology funding represented $3.7 billion to 460 deals for an average of US$8 million per deal; medical device companies received $2.3 million for 324 deals (average US$7.0 million); Clean-tech deals represented US$3.7 billion for 267 deals (US$13.9 million); while Internet-specific companies received US$3.78 billion invested in 729 deals (US$5.2 billion). 
  • Industry sectors experiencing some of the biggest dollar increases in 2010 included: IT services (44%); telecommunications (77%); and media and entertainment (18%).
  • Investments in seed stage companies decreased 2% in dollar terms but increased 4% in terms of deals, with US$1.7 billion going into 363 companies (average US$4.7 million).
  • Early stage investment levels increased 15% in dollars and 25% in deals with US$5.3 billion invested in 1,147 companies (average US$4.7 billion)
  • Expansion stage investments increased by 47% in dollars and 21% in deals with US$8.5 billion invested in 1,021 deals (average US$8.3 billion)
  • Later stage investments increased 3% in dollar terms and decreased by 9% in the number of deals to US$6.3 billion to 746 companies (average US$8.4 million).
  • First-time financings increased 29% in 2010 in both dollar and deal terms to US$4.3 million invested in 999 companies.  Industries leading the charge from a dollar perspective were software, biotech, and industrial/energy and, from a deal perspective, software, biotech and media/entertainment.
  • 51% of first-time deals were in early stage companies while 24% were in seed stage.
  • In terms of exits, 420 venture-backed M&A deals were completed for a total disclosed value of $18.3 billion (average US$43.6 million) while venture-backed IPOs represented US$7.0 billion for 72 companies.

 

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