In the first quarter of 2012, Canadian buyout and private equity market activity maintained a “steady course,” with “moderate” year-over-year growth in deal-making. But Canadian venture capital investment began the year at a much slower pace, according to a new report by Canada’s Venture Capital & Private Equity Association.
“Private equity investment appears to be holding onto the solid impetus developed in 2011 and, in so doing, is playing a key role in priming Canada’s economic engine,” said Gregory Smith, President of the CVCA and Managing Partner of Brookfield Financial. “Importantly, deal sponsors and investors are focusing on the economy’s sizeable population of mid-market firms, and especially those that are seeking to expand operations and undertake M&A strategies, and those that are emerging as spinouts from large corporations.”
According to the report, VC deal-making in Canada slowed in the first three months of 2012, with a total of $263 million invested, down 34% from the year before. And the number of innovative Canadian companies financed with VC, totaling 113 in this period, decreased 10% year-over-year.
The report found amounts invested per company averaged $2.3 million in Q1 2012, down from $3.2 million in Q1 2011. Consequently, innovative firms in Canada garnered only 31% of the dollars going to counterpart firms located in the United States between January and March.
“Perhaps the biggest single obstacle facing high-growth Canadian technology firms is difficulty accessing adequate value-added risk financing, in general and relative to competitors in the global economy,” said Mr. Smith. “Even in 2011, when disbursements in the domestic market grew 37%, we did not see the needle move appreciably with respect to deal capitalization levels. The disappointing results of the first quarter of 2012 underscore the importance of taking steps to address this formidable challenge.”
VC investment between January and March was led in IT sectors, which absorbed $115 million, or 44% of the total, though down 31% from the year before.