Canada venture capital stagnated in first quarter

Tue May 18, 2010 5:00am EDT

Related Topics

* Q1 venture capital C$276 mln vs C$279 mln year ago

* Q1 private equity deals number 26 vs 20 year ago

TORONTO May 18 (Reuters) - Venture capital, the class of investment that gave birth to such Canadian technologies as the BlackBerry smartphone, languished in the first quarter as investors favored safer places to put their money.

According to data compiled by the Canadian Venture Capital and Private Equity Association (CVCA) and Thomson Reuters, a total of C$276 million ($267 million) was invested in the sector in the first three months of the year.

The figure is lower even than the C$279 million invested last year, when venture capital investing was at its lowest since 1996.

"While the rate of decline in Canada's venture industry seems to have declined, it is still very concerning," said CVCA President Gregory Smith, a managing partner with Brookfield Financial.

Venture capital is financing for small, high-risk businesses with growth potential, most typically in the technology sector.

The sector is credited with funding the birth of Research In Motion RIM.TO RIMM.O, the company that created the BlackBerry, the now-ubiquitous smartphone that hooked a generation of executives on secure wireless e-mailing.

These days, IT continues to guide most venture capital investing. Bets on the IT sector, most of them out of the French-speaking province of Quebec, dominated what investment there was in the first quarter.

IT accounted for 37 percent of all disbursements, and investment from Quebec-based venture capitalists accounted for 37 percent of all VC activity.

PRIVATE EQUITY BUYOUT

Canada's private equity buyout industry, which invests in established private or publicly listed firms, showed more life than the venture capital sector, where companies are unproven, recording an uptick in the volume of deals done.

The CVCA said the private equity buyout industry recorded some 26 completed and pending transactions in Canada in the first three months of the year. That compares to about 20 deals in the first quarter of 2009.

"The strong fund raising record of the last three years is now being deployed to take advantage of business opportunities at home and across the globe," said Smith.

Private equity funds stockpiled large amounts of cash during the global economic crisis, and are now eager to deploy the capital that long lay idle.

Among the most notable deals in the quarter was the $327 million investment by the Canada Pension Plan Investment Board (CPPIB) in Progress Energy Resources Corp to help the company to acquire gas properties in British Columbia. CPPIB invests funds from the Canada Pension Plan to which all working Canadians contribute.

($1=$1.03 Canadian)

(Reporting by Pav Jordan in Toronto; Editing by Frank McGurty)

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