Q-News

February 2009

New Month, Same Story!

Posted in Mike's Commentary

Sorry folks, more of the same this month.  No real news for those of us who live and breathe this sector.  Year-end results simply confirm what we have all known for the past 18 months and, despite efforts by the CVCA and other parties to garner the interest of the government, most of the information and requests have fallen on deaf ears. 

 

Hey, I understand the importance of the Canadian auto industry to the CAW, auto parts suppliers and other stakeholders and their families, but at the end of the day do any of us really believe that the US automotive bigwigs begging for US government assistance really care about the long-term interest of Canadian workers or our economy?  Dollars talk and quality and productivity walk…off to Mexico.  Meanwhile, Canada’s latest budget does nothing to support research, innovation, or the companies struggling to take their ideas to market.  Yes, we have to do our part for the auto boys but maybe someone in government should begin to look a little further ahead than the next election and get off their rump to do more to support investments in Canada’s future.  It’s technology, stupid, not cars!

 

Yesterday the CVCA published 2008 year-end results that simply confirmed what most of us already knew…the Canadian venture capital industry is in a steep decline with no apparent signs of near term recovery.  According to the CVCA, deal activity reached its lowest level in 12 years with only $1.3 billion invested in 371 firms.  This represents a 36% decline in dollars invested when compared to 2007 ($2.1 billion) and a 10% decline in the number of firms receiving capital (412 in 2007). 

 

Consistent with the general capital market decline, the fourth quarter was particularly severe, experiencing a 43% decline to $302 million as compared to $526 million invested in the comparable period in 2007.  We should expect to see further declines in the first quarter of 2009 as most, if not all of the investments made in the fourth quarter were already in the pipeline before the September capital market meltdown and all indications are that venture capitalists are working feverishly on reviewing their portfolios and making decisions on which of their portfolio companies will or will not qualify for follow-on investments going forward. 

 

Of serious note is the fact that American VC funds and other foreign investors accounted for only $371 million or 28% of investments in 2008, a significant decline from the 41% share and $845 million contributed in 2007.

 

Here is the press release from the CVCA:

 

Buyout activity in Canada proved to be a little more resilient in 2008 but fourth quarter numbers point to a bit of a softening.  According to the CVCA, there were 112 completed or pending transactions in 2008 versus 104 in 2006.  Fourth quarter disclosed deal values of US$2.1 billion was up 16% when compared to the US$1.8 billion disclosed in Q4/07 but down significantly from the US$3.0 invested in the third quarter of 2008.  Importantly, Canadian buyout funds raised C$5.6 billion in 2008, representing an increase of 22% from the C$4.6 billion raised in 2007.

 

U.S. venture investment activity also declined in 2008 but at a much slower rate of 8% in dollars and a 4% decrease in deal volume year over year.  According to the NVCA, US VCs invested $28.3 billion in 3,808 deals in 2008, which represented the first yearly decline in total investments since 2003.  As expected, investment activity declined in the fourth quarter with $5.4 billion being invested in 818 deals, a 26% decline from third quarter investments of $7.3 billion.

 

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