The venture capital industry in Canada showed signs of a rebound in the fourth quarter of 2005, despite a slight investment decline in Ontario.
The fourth quarter for 2005 reported an increase of $228 million in VC after a slower third quarter, says the report on 150 venture capital investment firms released Tuesday by the Canadian Venture Capital and Private Equity Association (CVCA) and research partner Thomson Macdonald.
Disbursements reported in the fourth quarter amounted to $520 million, up strongly from the low of $292 million reported in Q3. This activity surpasses the level of Q4 2004 when $467 million was invested.
For all of 2005, the total reported venture capital investment reached $1.829 billion, on par with the $1.836 billion invested in 2004. In Ottawa, VC totaled $359.4 million in 2005 with 29 deals reported.
"It is encouraging to see a rebound in venture capital investment activity nationally in the fourth quarter," says Rick Nathan, president of the CVCA and managing director of Goodmans Venture Group. "However, it is important to look beneath the surface to identify the significant regional shifts taking place in our markets."
However, the report shows that the flat level of activity across Canada masks a significant regional shift in investment trends. For the second consecutive quarter, Quebec surpassed Ontario in overall reported venture capital disbursements by $205 million to $196 million. For the full year of 2005, Quebec companies received $710 million, representing 39 per cent of total venture capital investments in Canada, nearly matching Ontario firms' $751 million and its 41 per cent total.
By comparison, Ontario received investments of $826 million in 2004, significantly exceeding the Quebec level of 2004 level of $635 million. These figures represent a 12 per cent year-over-year growth in the Quebec market and a decline of nine per cent in Ontario.
"One key factor in the relative decline of Ontario investment would appear to be a slowdown by the Ontario retail investment funds (LSVCCs)," says Mr. Nathan. "These funds have traditionally demonstrated a strong seasonal increase in Q4 investment activity which did not occur in 2005."
The LSVCCs collectively invested $41 million in Ontario companies during Q4 2005 compared to $104 million in Q4 2004. This sharp decline follows the Ontario government's decision to phase out the tax credits available to retail investors in LSVCCs.
