Canadian VC hit four-year high in 2011 but new fundraising slows

Canadian venture capital investments hit a four-year high in 2011, but a weak fundraising market could be cause for concern about future VC supply, according to year-end figures from the Canadian Venture Capital and Private Equity Association.

A total of $1.5 billion in VC was disbursed to Canadian startups lastyear, up 34 per cent from 2010. That was the highest level since 2008,though far short of the $2.1 billion pumped into emerging companies in2007.

In all, 444 Canadian companies received VC funding last year, up 24 percent from 2010. IT firms led the way, receiving $692 million in VC (up41 per cent from the year before). Clean tech was the breakoutcategorywith a 43-per cent rise in VC to a total of $245 million, a recordamount for that sector. Life sciences firms also saw strong gains withVC up 15 per cent to $343 million.

In addition to a growing global market for Canadian clean techinitiatives,2011 VC trends were also fuelled by “rising levels of entrepreneurship,the activity of business incubators, and R&Dincentives,notably the Scientific Research and Experimental Development(SR&ED) program,” saidCVCA president Gregory Smith in a newsrelease announcing the VC numbers.

Though dollar figures disbursed to startups were robust, the samecouldn’t be said for efforts to raise new venture capital. New fundsraised for VC purposes hit $1 billion in 2011, up just 2 per cent from2010. That’s a striking contrast to the U.S. where VC raised jumped 32per cent in 2011 from a year earlier. And no money was raised forCanadian VC purposes from foreign limited partners (LPs), even thoughsuch transactions made up 16 per cent of all new funds raised in 2010.The lack of foreign LP fundraising activity is particularly worrisome,Smith noted in the release.

“Great concern”
“The absence of foreign LPs in Canadian fundraising last year is asource of great concern. Improved fundraising trends that foster moresustainable VC investment levels in Canada depend in part on ourability to attract non-resident capital to top-tier domestic fundmanagers.”

The year-end statistics confirmed reports that Canadian startups areincreasingly looking outside of Canada for financing:U.S. VCsinvested $430 million in Canadian companies last year, a 38 jump from2010 and another four-year high.

The appetite for initial public offerings as astartup exit strategyremained subdued in 2011, with only IPOs registered during that year.

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