What Up, Canada?

Are U.S.-based investors finding assets made cheaper by the global recession in Canada?

Yesterday, Bridgescale Partners, a Menlo Park, Calif.-based growth equity firm, announced it is expanding its focus and operations to include the Eastern United States and Canada. As part of this expansion, Bridgescale plans to open an office in Toronto this summer, and it is recruiting bodies for that office now.

“We view Canada as an area rich in attractive investment opportunities. With the support from the Canadian investment community, we intend to quickly duplicate the success we have had in Silicon Valley,” Robert Chaplinsky, managing director of Bridgescale, said in a prepared release.

Meanwhile, earlier today, Toronto-based I Love Rewards, a provider of Web-based rewards and recognition programs, announced that the Ontario Venture Capital Fund invested $1.8 million in the company (which, by the way is the OVCF’s first direct co-investment made to any company). The funding brings the Series B round to $8.7 million, following a $6.9 million investment last month by Boston-based GrandBanks Capitaland others.

Interest in the Great White North is a good sign for the PE industry, especially though for Canadian startups.

Activity in Canada’s venture capital market fell to a 6-year low in the first quarter of 2009 as the weak economy killed the appetites of investors. Only $235 million was invested in Canada in Q1, down 25% from $325 million in the same period a year earlier, according to data from Canada’s Venture Capital & Private Equity Association and Thomson Reuters.

The number of companies securing VC funding in the quarter also fell from 136 to 102.

CVCA President Gregory Smith has acknowledged that the venture industry is struggling to attract new capital, even as the buyout industry is flush with cash.

So, in truth, I Love Rewards may become the exception, rather than the rule.