Venture capitalism invested in the second quarter of 2011 totalled $328 million, down 2% from the same quarter last year, according to a report by Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters.
Less cash was invested in more firms, with VC-financed companies down 11% year-over-year.
Even the tech sector, which is snagging nearly half of all VC money invested, isn’t experiencing any growth.
“After a period of steady expansion in VC invested, it is very concerning to see weaker dollar flows at this point,” said Gregory Smith, President of the CVCA and Managing Partner, Brookfield Financial. “Clearly there is demand coming from young, entrepreneurial businesses—a fact that is borne out by year-over-year growth in company financings—but this demand is not being met by an adequate supply of value-added risk capital.”
Local companies are getting just one-third of the VC investment dollars that U.S. counterparts are getting, another worrying sign.
“To date in 2011, domestic firms have captured only 36% of the dollars going to counterpart firms in the United States, which is even lower than the 38% averaged in 2010,” said Gregory. “The fund-raising situation continues to undermine deal-making, and impedes our capacity to draw out the natural strengths inherent in Canada’s emerging technology sectors and entrepreneurial managers.” He added, “VC investment, which has historically been the catalyst for knowledge-based economic growth, cannot effectively do this job until we take determined steps to ensure more stable supply.”
However, despite waning venture capitalism activity, exits are still going strong. Still, with an uncertain economy, weak investment is a bad omen.
“Given the demonstrably large contribution of VC-backed companies to Canadian growth rates, exports, and levels of R&D expenditure, a strong and well-capitalized VC fund management industry is even more important as the global economy enters a new period of uncertainty and potential contraction,” noted Greg.