Q-News

August 2009

Drip, drip, drip

Posted in Mike's Commentary

Further evidence of the ongoing cyclical downturn in the Canadian Venture Capital market came from this week’s publication of second quarter results by the Canadian Venture Capital Association.  The second quarter saw the lowest level of investment in 14 years while the first six month investment levels have not been this low in 13 years.

 

VC activity in the second quarter came in at $179 million, representing a 42% decline from the $309 million invested in Q2/08 and 34% lower than the $272 million invested in the first quarter of this year.  Ominously, the average deal size has fallen to $1.9 million from the modest $2.9 million average reported in both the first quarter of 2009 and the second quarter of 2008.  Obviously, we’re seeing the impact of limited syndication partners as well as declining investment pools as VCs look to make their current capital resources stretch further. 

 

Canadian VC activity for the first six months at $452 million was 33% less than the $676 million invested in the first half of 2008, representing the weakest showing in 13 years.  Furthermore, US and other foreign investors invested only $26 million in Canadian companies, a far cry from the $112 million invested in the second quarter of 2008.

 

The US VC market is also being challenged but, unlike the Canadian experience, seed and early-stage companies continue to attract capital.  During the second quarter, US VCs invested $3.7 billion, or an average of just over $6 million, in 612 companies.  Similar to what we are seeing in Canada, while capital invested represented a 15% increase over Q1/09 numbers, the NVCA stated that based on the $6.9 billion invested in the first six months of the year, the annual investment total may end up in a range not seen since 1996 and 1997 where investment levels were between $11 billion and $14 billion.  Importantly, there was a resurgence in interest in seed and early-stage investing in the quarter with a 67% increase over first quarter investment activity represented by $1.5 billion being invested in 221 companies.  The average seed investment was $9.5 million while the average early-stage investment was $5.6 million versus Canada’s average of $1.9 million for all stages of company maturity.  The category representing companies receiving financing for the first time experienced an increase of 9% in total dollars invested in 133 companies.  Unfortunately, this number represented the lowest number of first-time companies receiving investment capital since 1994.

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