Foreign investors target Ottawa’s telecom sector as Canada posts strong year for VC

Increasing foreign investment, strong support for life sciences and the lure of Ottawa’s telecommunications cluster helped to characterize venture capital (VC) investment in 2001. The Canadian Venture Capital Association (CVCA) released its annual survey of the industry this week. It shows that Canada is .faring far better for VC investment than the US, which suffered from greater exposure to dot com ventures and the subsequent meltdown of the Internet sector. The 2001 total in Canada was $4.9 billion, 27% less than the historic high of $6.6 billion set in 2000 but far ahead of the $2.8 billion total registered for 1999.

The CVCA data were prepared once again by Macdonald and Associates Ltd, Canada’s premier source for VC investment patterns and trends, capturing the activity of 150 firms and their partners. The survey shows that foreign investment surged ahead in 2001, representing $1.6 billion or 34% of the annual total. The foreign share jumps to nearly half when the foreign players categorized as ‘Other’ are included.

“Foreign investment signifies a coming of age and shows that Canada has world class technologies and companies under development,” says John Eckert, CVCA’s president and managing partner of Toronto-based McLean Watson. “The bulk of foreign VC investment has gone to Ottawa which is the only true technology cluster Canada has.”

The ability of Ottawa-based firms to attract both foreign and domestic VC is arguably the year’s main highlight. Not only is the region home to six of the 10 largest deals of 2001, it captured a total of $1.1 billion or 55% of the Ontario total and 22.4% of the national total (see box).

“Ottawa attracted the largest portion in all of Canada,” says Eckert. “The survey shows that other clusters are emerging as well. They are a magnet for talent, money and entrepreneurship and once established it feeds on itself.”

Start-up and early stage firms in technology sectors captured an even larger share of VC investment in 2001, capturing 60% of the total compared to 47% in 2000. But the focus on early stage and start-up did not extend to seed financings, which fell from $232 million in 2000 to just $90 million last year. The increasing number of the early stage deals represents follow-on financings, reflecting the investment chill that fell over the technology sector in 2001.

Information technology (IT) firms continue to command the largest share of VC financings in 2001 ($3.2 billion or 65.6%), dominated by the remarkable growth of the fibre optics and photonics sectors in the Ottawa region.

Life sciences investment held firm in 2001 with $1.1 billion invested compared to $1.2 billion in 2000. Due to the overall drop in IT investment, life sciences’ share of the total rose from 18% to 22%.

In spite of the drop from 2000, VC investment in Canada had a stellar year compared to the US. South of the border, VC investment plummetted 65% from US$104 billion in 2000 to $36.5 billion last year. That helped increase Canada’s total to 9% of the US total, compared to just 4% in 2000.

For more details on VC investment in 2001, go to: www.cvca.ca.

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