While 48 per cent of the 900 venture professionals surveyed in October said they plan to spend most of their time managing their portfolios, 41 per cent said the bulk of their day will be looking at new investments.
They were narrowly divided on expectations for the economy over the near future, with 47 per cent seeing it getting worse, while 42 per cent thought it will stay the same. Eleven per cent think it will get better.
“The fact that the survey shows VCs are still doing business provides some level of inspiration for budding entrepreneurs to go out and actively seek financing,” said Allison Goldin, vice-president of Deloitte’s corporate finance group.
But a wide majority– 68 per cent — believed the VC industry’s strong results will drop in the next six months after good investment spending in the first half of this year.
Garner Bornstein, CEO of Montreal’s Airborne Entertainment, almost became a victim of those dropping expectations.
A year ago he was vacationing in Mexico when a VC offered the company, a pre-revenue creator and distributor of games for wireless devices, a term sheet a mere three months after it started looking for first rounding financing.
“I naively thought a term sheet is a done deal and had a very peaceful holiday,” he said. However, as market conditions deteriorated, that deal and a second offer from another VC were withdrawn.
It wasn’t until this month — 14 months after the search for money began — that Airborne announced $6.3 million in financing led by Bell Mobility Investments and Telesystem Ltd. And just in time. Airborne was a month away from running out of cash, he said.
It helped, said Bornstein, that Telesystem chairman Charles Sirois became a partner in the firm and helped lock up the financing.
The Deloitte survey, which was done in partnership with the Canadian Venture Capital Association, was the first quarterly survey of the VC industry in this country. It’s similar to quarterly questionnaires sent to VCs in the United States and Britain.
The contrast between Canada and Silicon Valley is striking, said the Deloitte report, where money-men and women “are exhibiting a high degree of investment paralysis.”
That is a relative term, however. Compared to the investment frenzy of 1999 and early 2000, US venture investing has collapsed. Yet a look at VentureWire, an online service that tracks the American industry noted that on Wednesday alone 10 startups pulled in $76 million.
According to Mary Macdonald of Macdonald and Associates, which tracks Canadian venture financing, Deloitte’s conclusions are consistent with the figures her firm collects. Third quarter activity on this side of the border totalled $1.3 billion, down slightly from $1.4 billion in the quarter before. The number of deals dropped 27 per cent in the first nine months of the year compared to 2000.
The Deloitte study also echoed another Macdonald and Associates finding, that funding in life sciences and biotechnology is increasing. In the third quarter that sector took 18 per cent of funds, the largest chunk.
Three-quarters of respondents said that over the next six months they expect funding to drop in information technology, while biotech and medical are viewed more positively.