Q2 2009 VC funding lowest in 14 years
Not that the figures will surprise you, but Canadian innovation companies continue to suffer in the fundraising sphere. And it isn’t just domestic VC firms that are caught up in the crunch; foreign investors represented just 15% of dollars invested. Not that long ago, U.S. funds accounted for 42% of capital invested in some Canadian Provinces.
This from the CVCA:
The pace of venture capital deal activity in Canada continued to slow in the second quarter of 2009, with $179 million invested in total nationwide, down 42% from the $309 million invested at the same time last year. Activity also contracted 34% as compared to Q1 2009, when $272 million was invested.
In nominal dollars, Q2 2009 saw the lowest per quarter result in 14 years. Domestic venture activity at the end of the first six months was also well below historical par. To date in 2009, $452 million has been invested, or 33% less than the $676 million invested between January and June in 2008, and the weakest first half showing in 13 years. In Clean-Tech a mere $9 million went to 4 companies in the second quarter, or roughly one-quarter of the $34 million invested last time around. As a result, clean-tech sectors captured only 5% of total activity, in contrast with their 14% share in the whole of last year.
“The data conclusively demonstrates that there is a venture capital crisis in Canada,” said Gregory Smith, President of the CVCA. “we have a structural problem and this means Canada’s ability to drive innovation will weaken and we will see the overall economy suffer.”
These trends point to the greater influence of small venture capital deal sizes in the current market environment. The average amount invested per firm was $1.9 million between April and June, which represents a substantial drop from the $2.9 million average of both Q2 2008 and Q1 2009. Consequently, firms in Canada are now capturing only 38% of the dollars going to similar firms in the United States.
Reduced venture capital activity was generally across-the-board in Q2 2009, applying to the majority of key investor groups in the Canadian market. An especially sharp decline was registered by American venture capital funds and other foreign investors, which brought only $26 million to deals, or 76% less than the $112 million they contributed in Q2 2008. Foreign investors had not invested so little into Canadian companies since Q2 2003.In fact, cross-border activity in Canada between April and June was at its lowest quarterly level in six years. Foreign investors accounted for a mere 15% of all disbursements, which is at some distance from the 32% share they have averaged in recent years. This trend placed considerable downward pressure on deal sizes.
MRM
(disclosure – I’m on the Board of the CVCA)
As you say Mark, no surprise on the Canadian side. We can count on one hand the Canadian funds that are doing new deals. Hope that will change over the next few quarters (I expect it will Teralys starts deploying capital).
The US numbers are alarming though because on the surface this speaks not to an absence of capital, but a lack of interest in our companies. Hope that trend reverses, because for B rounds and up, we need US funding sources.