Blogs & Comment

Bad news in Canadian venture capital, but worse still to come

The Canadian Venture Capital Associationjust releasedits Q3 2008 results, and they’re not good: $372 million invested, down 26% from the same period in ’07, with just 123 companies getting money, 17 fewer year-over-year. For the first nine months of 2008, financing is down 33%, and Canadian companies got “less than 40% of the VC amounts going to firms in the United States.”
The press release doesn’t reflect the sentiment now, however, and in case you haven’t noticed, the economic crisis has worsened since the end of September.
Just yesterday I met with a Toronto-based privately held software company and its CEO made clear that financing has completely dried up. According to him, the now-infamous Sequoia Capital “R.I.P. Good Times” slide presentationin October single-handedly changed the landscape, sending chills through Silicon Valley and the venture community. The Jack Frost of VCs, as it were.
None of this is reflected in the CVCA’s release, of course, which only refers to what happened from July through September, nor does it suggest the trend during those months as the global financial system degraded.
In fact, the release doesn’t address the financial crisis at all.
The quote from Gregory Smith, CVCA president and president of Macquarie Capital Funds Canada Ltd.:

These investment numbers, which ultimately reflect the availability of capital in the venture capital industry, are worrisome in that they further confirm Canadas ongoing weakness in driving innovation. The CVCA has developed a four-point commercialization support program to help address these VC industry trends and to increase the availability of venture capital for high-growth small businesses.

For the record, the commercialization support program calls for the federal government to establish a fund of funds structure, make improvements to the SR&ED tax credit program, improve the incentives for corporations to invest in venture capital funds and actively promote investment in Canadian venture capital funds as part of the offset agreements that are negotiated with major government contractors.
All of which sounds good, but I wonder really how much that would do in the face of the current economic turmoil.
The software CEO I spoke to put it this way: 2009 is going to be Darwinian, with a record rate of bankuptcies.