Venture capital (VC) investment is showing the possible early signs of recovery after a disastrous second quarter this year. The latest data from Macdonald & Associates Ltd on behalf of the Canadian Venture Capital Association show that investment experienced a quarter-over-quarter increase of 7% to $475 million.

The latest quarter is still 46% below where VC investments were one year ago when $884 million was invested in 264 companies. For the first nine months of this year, $1.688 billion has been invested in 488 firms, compared to $3.1 billion for the first nine months of 2001.

Cautious optimism in the new numbers was reinforced by increased investment activity in the hard-hit telecommunications sector, which received $122 million, compared to just $63 million in the second quarter. The modest surge in telecommunications investment put telecom back in the lead again, capturing 26% of the total quarterly investment.

Other sectors such as software and computer products experienced slight quarter-over-quarter increases in investment, while life sciences and semiconductors, electronics and computer hardware saw further shrinkage. The latter sector received just $53 million for 16 firms, which the report says “was one of the least active periods for the sector in recent memory”. Life sciences fared better, but the $116 million investment in 48 companies was less than the second quarter when $131 million was invested. Within life sciences, biopharmaceutical firms were the most active.

Foreign content of VC investment was up slightly in the quarter to $101 million from $89 million, but was still far below Q3/01 when $244 million came from non-resident sources.

Seed, start-up and other early stage transactions accounted for $191 million or 40% of overall investment during the latest quarter. Start-up alone attracted $98 million with 45 firms benefitting.

On the fund raising side, limited partnerships continued to demonstrate strong growth, raising $139 million for a one-month total of $707 million. That’s up 46% from 2001 when these private-independents raised $483 million for the whole year. FMI: www.canadavc.com.

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