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Q1 Capital – Canada’s tech capital sector continues to languish.

Q1 Capital Partners publishes an online newsletter / blog titled Q-News.  Comparing the state of Canada’s venture sector to our disappointing Olympic medal count, Managing Director Mike Middleton writes:

Rather than blather on about the dire state of the Canadian venture capital universe I’ll just let the numbers speak for themselves.

  • CVCA reports Q2 2008 as lowest level of VC activity in almost three years
  • Canadian investment levels decline 31% year-over-year and 10% compared to Q1
  • US VC investment levels equal Q2 2007 and decline 1% compared to Q1
  • US Internet-related investment at $1.5 billion reaches highest quarterly level since 2001
  • Canadian Internet-related investment declines 44% to $27 million versus $49 million in Q2 2007
  • US investment in Canada at $106 million declines 14% year-over-year for Q2/08 while increasing from $81 million in Q1
  • Year-to-date, US VCs have invested $979 million in 81 China-based companies, $846 million in 80 India-based companies and a total of $187 million in Canada

What a striking contrast.  As US VC’s become more confident, investment levels south of the border are reaching their highest levels since the end of the internet bubble.  Yet here, venture investment levels are shriveling and withering, and inexorably choking off our entire tech sector.

Moreover, US investors are investing in the future of their technology sector with generous early stage and seed deals.

Compared to Canada where the average deal size across all deals was $2.87 million, U.S. first-time investee companies received an average of $5.3 million with Seed/Early stage companies receiving the bulk of first-time investments with 55% of the dollars ($880 million) and 69% of the deals (207 companies). U.S. investors continue to see opportunities in Seed/Early stage companies, investing $1.6 billion in 351 companies, accounting for 35% of the total deal volume for the second quarter. The average Seed deal was $3.8 million while the average Early Stage deal was $5.4 million.

Ironically, it’s the US economy that has been in trouble for the last two years, while the Canadian economy has roared on the back of our abundant natural resources.  What will we see next?  Former tech entrepreneurs heading to the oil patch?  Are we destined to forever to be hewers of wood and drawers of water?

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{ 1 comment… add one }

  • Leo August 19, 2008, 12:11 pm

    The numbers demonstrate beyond any doubt that the problem with the Canadian venture capital climate is the VCs themselves. They just don't have the guts to take the necessary risks, or even take a chance on a reasonable risk. Are the wounds still so tender from the tech bust? This is one industry in dire need of foreign takeovers. Get a few of our homegrown VC firms snapped up by U.S. concerns eager to expand their portfolios north of the border would make one hell of a difference. Of course, a U.S. VC would only make such a move if its Canadian counterpart had a promising portfolio of investee companies to be acquired. That would mean the Canadian VC would have to be so bold as to actually open the purse strings. What's it going to take?

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