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Home > Research Reports > Risk Capital > Venture Capital > Canadian Venture Capital Activity: An Analysis of Trends and Gaps (1996-2002)

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Canadian Venture Capital Activity: An Analysis of Trends and Gaps (1996–2002)

Part II: Analysis of Venture Capital Activity and Trends 1996–2002

The development of effective policy must rest on a foundation of solid data and sound analysis. This is especially true when erecting a policy structure that will support a sustainable, independent Canadian venture capital (VC) industry that is capable of financing promising high-growth-potential and innovative firms across the country.

While the Canadian VC market is the subject of growing interest, the systematic collection of information about its performance began only recently. Macdonald & Associates Limited has published comprehensive VC industry reports since the mid-1980s. However, the data produced before 1995 were less detailed, and before 2002 there were no returns data on the performance of Canadian VC funds. This relative lack of information, combined with the relatively young Canadian VC industry and the highly cyclical and volatile nature of the industry, has hindered accurate analysis of the market for a number of economic cycles. Nevertheless, Part II will attempt to answer the following question:

  • What is the state of VC activity in Canada? What key trends, strengths and weaknesses characterize the Canadian VC industry?

This second part of the report provides a comprehensive overview of Canadian VC activity between 1996 and 2002, and examines key trends related to deal size, rounds of financings, the stage of development of investee firms, the sectors receiving VC investment, the regional distribution of activity, and the types of investors (domestic and foreign) that participate in the VC market.

Highlights

  • The Canadian VC market is dynamic, with:

    • An increase of 88 percent of new capital raised between 1996–2002, to reach $3.2 billion in 2002 (with a peak of $4.6 billion in 2001);
    • Growth of 217 percent of capital under management over the same period, to reach $22.5 billion in 2002;
    • An increase of 139 percent of amount invested, from $1 million to $2.5 million in 2002 (with a peak of $5.8 million in 2000); and
    • An increase of 71 percent of average deal size per firm, from $1.8 million to $3 million in 2002 (with a peak of $4.3 million in 2000).
  • Key drivers of VC growth are:

    • Information technology firms — with investment growth of 1063  percent between 1996 and 2002.
    • Foreign investment — with an increase of 2021 percent between 1996 and 2002.
    • Contrary to common belief, Canadian VC investments compared relatively well with those in the United States for most of the 1990s. While it has not experienced the same growth in 1999 and 2002, the Canadian VC market has been less volatile than the U.S. VC market, and has averaged comparable performance in terms of VC investment as a percentage of gross domestic product (GDP) between 1990 and 2001.
    • Canada ranked second among Organisation for Economic Development and Co-operation (OECD) countries in terms of early-stage and expansion investments as a percentage of GDP.

Based on VC trends since 1996, this part of the report will conclude with a section on the strengths and weaknesses of the Canadian VC market. As well, key policy issues and questions will be discussed as part of the analysis of gaps in Part IV. Subsequently, these results may be used by different private stakeholders and governments to develop a coordinated approach to these issues, and to sound policies that will support the Canadian VC industry and increase high-growth-potential small and medium-sized enterprises' (SMEs') access to VC.

Part II


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Date Modified: 2011-12-12

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