Yesterday and today I’ve been trying to make sense of two different data points that came out on the Canadian business scene.
One data point confirms that we are having a banner year across Canada. Check out the numbers:
* Q2 private equity deals worth C$5.7 bln in Q2
* Total deal value more than in all of 2010
* Deal volumes up 40 percent over Q2 2010
(Side nostalgic note, I love that Berkshire bought Husky, it was actually my first co-op job and I have always had huge respect for Robert Schad – a giant amongst Canadian entrepreneurs)
So, this means that we are returning capital on investments made into companies in Canada, right? Which means, since there is a healthy market for exits, folks should be willing to supply funds to VCs to start companies…. right?
Well, according to CVCA, it looks like VC fundraising fell flat on its face.
Smith said slow fundraising by venture capital funds was undermining deal-making, with new commitments sliding to C$132 million in the quarter, from C$308 million last year.
“VC investment, which has historically been the catalyst for knowledge-based economic growth, cannot effectively do this job until we take determined steps to ensure more stability,” Smith said.
Falling fundraising is part of a continuing trend.
In 2010, new commitments fell 24 percent from the previous year to their lowest level in 16 years. They fell further in the first three months of 2011 against the first quarter last year.
WTF!?!?! Did VCs forget to cut cheques to their LPs? Are the companies getting bought out not VC funded? Something feels out of whack here. Are there simply not enough fund-makers ala Radian6 to make a reliable return on investment? We are doing some digging to get to the bottom of this. It does resonate that entrepreneurs should focus less on VCs for funding and need to be looking towards angels & incu-ellerators for their early stage funding needs.
UPDATE: This article from the Globe really outlines how VC funds have been in long decline.
Year VC invested/Companies Financed
These numbers tell something interesting – apparently in Canada its gotten more expensive to start companies??? In 1998 $1.5mm resulted in 807 companies getting financed, while in 2008 $1.4mm results in 388 companies getting invested. What gives?