Digging through the 2007 Venture stats

The CVCA put out the 2007 Q4 and full year venture capital flow data yesterday, and there was some good news. In 2007, dollars invested in VC transactions reached $2.1 billion, up from $1.7 billion in 2006. But let’s parse through the figures:

– the $400 million increase year over year is represented largely by two large U.S.-backed transactions: Geosign (US$160MM) and OANDA ($100MM). As many of you know, Geosign’s VC relationship is already over (see prior post “Has the deal of the year become a nightmare?” June 25-07); but that’s not the type of info this survey is designed to capture.
– of the $400 million increase, ~$300 million of it came from increased investment activity by U.S. VCs. In 2006, U.S. VCs invested $548 million in Canada, which rose to $836 million in 2007. These figures support the analysis in the previous point.
– The number of companies receiving VC funding remained flat at 411 companies (408 companies in 2006), well below prior years.
– 127 Canadian companies were funded by VC firms in Q4 2007, which is down from the 167 companies funded in Q4 2006.
– Labour-sponsored funds invested more in Canadian VC deals than private Canadian VC firms: “investments made by LSVCC’s amounted to $405 million in 2007, up 4% from the $391 million invested by this group in 2006, and accounting for 20% of all venture investment in Canada in 2007. Private independent venture funds invested $353 million in 2007, consistent with the $339 million of 2006 or 17% of all investment activity.”
– Let’s repeat that: traditional Canadian VC firms did just 17% of all deals in Canada last year. U.S. funds and the Labour-sponsored crowd did the balance.
– Canadian VC firms raised a total of $1.19 billion in new capital in 2007, which is down significantly from weak levels in 2006. LSVCC’s raised $741 million in 2007 down 18% from the $907 million raised in 2006. Canadian private independent funds raised $447 million in new commitments in 2007, a drop of 33% from the $666 million raised in 2006. The new venture capital fundraising for Canadian firms was concentrated in Quebec, which received $816 million, or nearly 70% of the national total. Ontario venture firms raised $267 million in new capital (I’m guessing $80 million of that subset went to Labour Funds), or 22% of the national total into the Province that represented 46% of all 2007 investment activity.

How does this compare to the U.S. experience of 2007? According to the National Venture Capital Association (according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on publicly released data from Thomson Financial):
– U.S. venture capitalists invested US$29.4 billion in 3,813 deals in 2007 — marking the highest yearly investment total since 2001 — The total invested in 2007 represents a 10.8 percent increase in dollars and a five percent increase in deal volume over 2006. Investments in the fourth quarter of 2007 totaled US$7.0 billion in 963 deals, marking the fourth straight quarter with investments totaling more than US$7 billion – a phenomenon not seen since 2001.
– First-time financings reached the highest levels since 2001, with 1,267 companies receiving US$7.2 billion in venture capital in 2007. This marks an increase of eight percent in the number of companies entering the venture-financed arena for the first time in 2007 versus 2006.
– U.S.-based venture capitalists invested US$1.1 billion in 91 deals in India and US$1.4 billion in 133 deals in China, representing all-time highs for US investments in each country.

Here are the takeaways:

1. U.S. funds are filling the hole left by a shrinking domestic VC market.
2. 70% on new capital for VC funds went to Quebec-based organizations.
3. Despite the headline “$400MM growth” figure, the number of individual firms receiving funding didn’t grow, year over year, and the growth is the result of a couple of big deals. One of which hit the wall within weeks.
4. American VCs just had their best year of the past six with US$29.4 billion invested in deals, while Canadian VCs (and their would-be portfolio companies) can look back at 2006 and 2007 as being the worst two years of the past six.
5. American VCs put substantially more money into VC deals in India in 2007 than Canada. Who says the plane ride up here is too far?
6. Based upon the size of our economy relative to the U.S., a US$29 billion investing year south of our border should equate to a $2.65 billion VC year in Canada. A far cry from the $2.1 billion reported.
7. With $1.19 billion raised by Canadian VC funds in 2007, and a notional four year investment horizon for that capital, that means the domestic investing pace trends can’t improve over the next few years.

MRM
(disclosure – I’m on the CVCA board)