Venture capitalists and companies are emerging from survival mode and embarking on the next phase of growth, says a new survey.
The third Canadian Venture Capital Confidence Survey shows optimism among venture capitalists continues to highlight increased confidence in the economic climate, with 56 per cent expecting it to improve over the next six months and 59 per cent predicting current investment levels to increase by the fourth quarter or later.
“A shift in focus to new deals, raising new funds and evidence of some competition for deal flow are encouraging signs for companies seeking investment capital,” said Michael Badham of Deloitte & Touche, which conducted the survey jointly with the Canadian Venture Capital Association (CVCA).
“The confidence of Canadian venture capitalists (VCs) is consistent with that of their Silicon Valley counterparts.”
The quarterly survey provides a comprehensive snapshot of venture capital investors’ outlook in Canada for the next six months, and acts as an indicator of changing confidence levels and expectations of economic and market climate, deal activity, and investment focus.
The vast majority of VCs (95 per cent) see merger and acquisition transactions as the only viable exit alternative, with only two per cent of respondents expecting to exit their investment through initial public offerings, down from five per cent last quarter.
This indicates the window for IPOs will remain firmly shut in the near future.
The survey indicated that for the first time since 2000, VCs are shifting their attention to new deals and raising new funds.
Forty-five per cent of venture capitalists expect to spend more time cultivating new deals, and 16 per cent plan on raising new funds, compared to 10 per cent in the first quarter, suggesting VCs feel their portfolios are in a reasonable condition and capital markets are more conducive to fund-raising activity.
But VCs claim that compared to 2001, deals are taking longer to close, and slightly more than half expect the time frame will be even further extended in 2002.
This can be explained by a greater emphasis on due diligence and syndication of deals that is becoming the norm.
Biotechnology remains the most attractive sector for the third consecutive quarter, with more than two-thirds of VCs intending to increase or maintain the same volume of investments in this field.
Medical/health care (44 per cent), manufacturing (48 per cent) and computer software (38 per cent) are also areas poised to prosper according to the survey, with VCs planning to increase volume of investments in them over the next two quarters.
Communications remains the least attractive area, with 70 per cent of VCs planning to decrease or maintain momentum in the sector for the remainder of the year.
The quarterly Canadian Venture Capital Confidence Survey was conducted between May 9 - 23, and surveyed more than 800 members of the CVCA and Quebec Venture Capital Association.
Founded in July 1974, the CVCA is the member-based industry association consisting of venture capital firms and organizations that manage pools of risk equity capital to be invested in small and medium-sized growth businesses in Canada.
