Financing activity in Canada’s venture capital market dropped to its lowest level in 12 years last year, as the economic downturn choked the flow of funds to small startup companies, according to a report issued on Feb. 17.
In 2008, a total of C$1.3 billion ($1 billion) was invested, down 36% from C$2.1 billion ($1.7 billion) in 2007, according to the report by the Canadian Venture Capital Association (CVCA) and news and data company Thomson Reuters (publisher of VCJ). That was the lowest investment total since 1996, according to the CVCA.
Aside from the drop in value of financings, the number of companies that received capital was also lower, falling 10% to 371 from 412 in 2007.
“These statistics demonstrate the declining availability of capital in the venture capital industry, which has real repercussions for Canada’s ability to drive innovation and to develop the knowledge-based economy we need to compete effectively on the global stage,” CVCA President Gregory Smith said in a statement.
“The availability of [venture capital] dollars has been eroding for years, a trend that has been exacerbated by the sharp economic downturn.”
The availability of [venture] dollars has been eroding for years, a trend that has been exacerbated by the sharp economic downturn.
The report notes there was also a pronounced drop in cross-border activity in 2008, with U.S. venture capital funds and other foreign investors providing just C$371 million ($294.2 million), down from C$845 million ($670.1 million) in 2007.
It also points out that venture capital financings fell in the United States last year, but at a more moderate pace: $28.3 billion was invested, down from $30.9 billion in 2007.
Separately, the CVCA reports that commitments to Canadian VC funds also fell in 2008. Canadian venture funds raised C$1.2 billion ($952.5 million), about 2% less than they did in 2007.
The past two years of fund-raising by Canadian VCs have been the lowest on record since the mid-1990s, according to the CVCA. —Wojtek Dabrowski, Reuters