The country's venture capital industry is in the dumps, and it's a troubling sign for the future of the knowledge economy in the country.
It's the same story as in the private equity industry, no money and an aversion to risk, but the venture capital business has a special place in the economic ecosystem of this country.
Private equity types will tell you they provide a social good by whipping underperforming companies into shape, but just as often of late they took pretty good companies and larded them with so much debt that they are in trouble now as the economy slows (Masonite International Inc. is a pretty good example of that).
Venture capitalists are another story. Those are the folks that go out on a limb, often way out, betting on early-stage companies and technologies. Without them, some of the better companies in this country wouldn't have gotten going. Sure, the VCs are looking for a big financial score, too, but we can't hold that against them in a capitalist system.
That's why it's so problematic that this country's VC sector, already stunted by some measures, is in no mood to invest. According to the Canadian Venture Capital and Private Equity Association, third-quarter VC investment was down 26 per cent from a year earlier to $372-million. For the year to date, about $1-billion has been invested in 296 companies, down by 33 per cent in dollar value from a year earlier. Companies are getting an average of $3.5-million apiece, down from $4.6-million in 2007.
"These investment numbers, which ultimately reflect the availability of capital in the venture capital industry, are worrisome in that they further confirm Canada's ongoing weakness in driving innovation," said Gregory Smith, president of the CVCA and president of Macquarie Capital Funds Canada Ltd.