The bulls are back running among Canada’s venture capitalists.
Optimism among investors has surged to a new peak, with the worst of SARS, mad-cow disease and the war in Iraq left behind, says the seventh Canadian Venture Capital Confidence Survey.
More than half (58 per cent) of Canadian venture capitalists (VCs) expect the overall economic climate to improve in coming months. This is the highest level of optimism expressed by Canadian VCs in the past two years and represents an impressive leap in confidence compared to the low of 25 per cent the previous quarter, says the survey.
South of the border, optimism among American VCs was more moderate, sitting just above 30 per cent.
The confidence survey was a joint study by professional services firm Deloitte & Touche and the Canadian Venture Capital Association (CVCA). The quarterly survey provides a snapshot of venture capital investors’ outlook in Canada for the next six months and acts as an indicator of changing expectations of economic and market climate, deal activity and investment focus.
The rejuvenated bullish stance is also demonstrated through increased competition for new investments anticipated by the VCs. More than a third (39 per cent) of respondents indicated they are planning to spend the majority of their time on new investments, compared to 37 per cent in the first quarter of 2003 and 35 per cent in the fourth quarter of 2002.
“The second quarter of 2003 was one of the toughest periods the Canadian venture capital industry endured,” said Michael Badham of Deloitte & Touche. “Diseases outbreaks, unstable global economic and political conditions were only a few of the factors which derailed investment levels to a seven-year low. With these obstacles out of the way, Canadian VCs are looking to a brighter future which unfolds greater investment opportunities and higher valuations.”
The recent rally in financial markets and initial signs of increased spending in some technology markets is encouraging some VCs to gear up and pursue new investments and business opportunities, said Robin Louis, president, CVCA.
According to survey findings, more than half (56 per cent) of VCs allocate a greater portion (between 25 per cent to more than 50 per cent) of their current funds for new investments, compared to 49 per cent the previous quarter.
The computer software and related technology sector is likely to be the biggest beneficiary of the renaissance in VC investments, as the number of respondents expecting increased activity in this sector in coming months has more than doubled to 44 per cent (from 21 per cent in the first quarter of 2003) and now exceeds all other sectors.
On the other hand, a declining number of VCs foresee the same scenario occurring in the manufacturing and biotechnology sectors (42 per cent and 36 per cent compared to 44 per cent and 41 per cent respectively in the previous quarter).
The seventh edition of the quarterly Canadian Venture Capital Confidence Survey was conducted between July 3 and August 18, and surveyed over 500 professionals in venture capital and private equity firms across Canada.
The CVCA is the trade association that represents the venture capital industry. It consists of venture capital firms and organizations that manage pools of risk-equity capital for investment in small and medium-sized growth businesses in Canada.
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