Venture investment in small Canadian firms rises

VANCOUVER, British Columbia, Nov 13 (Reuters) - Investment in Canada's venture capital sector rose in the third quarter as U.S. investors sank more money into start-up Internet-focused companies, an industry body said on Tuesday.

Investors pumped C$512 million ($528 million) into new, small businesses across Canada in the three months to the end of September, a 47 percent increase on the same period a year earlier, Canada's Venture Capital & Private Equity Association said.

"U.S. investor interest in Canadian companies has grown dramatically in the past few years and is now at record levels, representing a majority of all venture funding in Ontario," said Rick Nathan, association president and managing director of Kensington Capital Partners.

Year to date, Canadian venture capital investment activity stands at C$1.6 billion, 30 percent up on the same period in 2006, but still sharply down on amounts that were closer to C$6 billion at the height of the technology sector bubble in 2000.

The association said third-quarter figures were boosted by two large transactions, namely the C$100 million financing of OANDA Corp and the C$40 million financing of Enobia Pharma.

"This continues a trend from recent quarters, with a handful of very large transactions having a growing impact on the total results," it said.

Other than the information technology sector, companies working on biopharmaceuticals and other life sciences also received sizable amounts of funding.

Fund-raising by Canadian venture capital firms remained sluggish in the third quarter, however, as it has been for several quarters, with only C$113 million in new capital committed to them.

($1=$0.97 Canadian)

(Reporting by Nicole Mordant; Editing by Peter Galloway)