graph of questionable
investment rise

The headline in Wednesday’s Globe and Mail, “Venture capital investment doubles in Canadian firmsâ€?, is misleading in its optimism of Canada’s VC market.

The article text, by Keith Damsell from the Globe, reads:

Buyout funds and private equity firms sank a record $10.9-billion (U.S.) into Canadian companies last year, more than double the $4.5-billion reported in 2005, Canada’s Venture Capital and Private Equity Association reported yesterday. Fundraising by Canadian buyout funds also reached record levels, with $6.4-billion in new capital commitments, more than four times the $1.4-billion total raised in 2005. The interest in the asset class is being fuelled by strong returns, and increased investing opportunities as more firms choose to go private, said Rick Nathan, association president and managing director of Kensington Capital Partners.

Indeed investments are on the rise, but Venture Capital investments intended to fuel new innovation and commercialization of start-up companies is very different from the billions of dollars that private equity shops invest in acquiring and/or privatizing existing businesses. Private equity firms/buyout funds typically look to make a quick ROI through improved operations, or scale through M&A of combining existing enterprises. Canada’s lack of substantial Venture Capital funding is still an issue.

These two types of investments should be viewed quite separately to avoid muddling the insights/trends of two very different investment markets.

For the most recent data on the Canadian VC market, check out the Venture Capital Monitor for Q3.

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