TORONTO — Despite record American risk capital investment, the financial state of some young technology companies in this country is still shaky, according to the head of the Canadian Venture Capital Association.

“”There’s going to more

blood-letting,”” warned John Eckert, who is also managing partner at McLean Watson Capital Inc.

Some companies have run out of money they raised over a year ago and won’t be able to find more unless they slash jobs, he told the association’s annual conference in Toronto.

“”The big carnage”” of closings in the past two years is over and the industry isn’t in dire straits, he said later in an interview. But from talks with his colleagues he believes “”there’s still some to come.””

However, his outlook was challenged by Robin Louis, president of Vancouver-based Ventures West Capital Ltd.

“”My sense is Canada is not in that serious a position,”” he declared, listing the country’s low costs, access to U.S. markets, stable capital-raising environment and consistent levels of disbursements to investors. “”Canada’s time ought to be here.””

Still, few among the several hundred vencaps said their companies are actively looking for new investments — and Louis was one of the exceptions. Most, like Denzil Doyle, chair of Capital Alliance Ventures Inc., one of the nation’s biggest VCs, said they spend most of their time — and some of their money — supporting their existing portfolios of investees.

That caution by Canadians is reflected in first quarter venture investment figures. Almost half of the $785 million invested here in that period came from American sources. Without the Yanks, observed Richard Prytula, head of TechnoCap Inc., investment would have plunged.

Not that American vencaps don’t have their own troubles. Prytula described a VC conference he was at last week San Francisco as a “”sob-fest,”” as American money men moaned about the shape of their portfolios.

By contrast, at the Canadian conference attendees were bubbly. “”I don’t know what’s in the brownies,”” said Prytula, looking at a hospitality table. “”We still have more down to go.””

To be fair, those interviewed here believe they’ve pruned the worst performers from their portfolios, read the riot act to managers or replaced executives. Much is out of their hands: Investors aren’t anxious to put money into startups while stock markets are cold, because they only get it back when companies go public. Meanwhile information technology spending is also off.

There are some areas of interest. David Folk, managing general partner of Toronto’s Jefferson Partners, sees demand for communications and enterprise software applications that enhance the value of current corporate hardware.

“”I’m not pessimistic at all,”” he said in an interview. “”It’s a classic down cycle. You’ve got to be bold. You’ve got to be selective. You’ve got to be willing to wait for things to come around.””

Still, there’s the most recent survey of Canadian VC confidence by Deloitte and Touche, which found vencaps expect the investment climate will improve six months from now in the first quarter of 2003. The last time the survey was taken the firm said it would be better this month.


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