Venture capital hikes investment in small business | Entrepreneur ...

TORONTO ? Canada?s venture capital firms posted strong growth in small business financing in 2011, with 34% more money going to 24% more firms than the year before, the Canadian Venture Capital & Private Equity Association said Tuesday.

According to data compiled by Thomson Reuters, Canada?s venture capital firms invested $1.5-billion in 444 companies last year, the association said.

But Canada?s VC spending boom also faces an abrupt conclusion. The amount of money raised by Canadian VC firms in 2011 remained at about the $1-billion level achieved in 2010, suggesting the positive figures represent a lull in Canada?s otherwise ongoing startup financing crisis.

?There was a billion dollars raised this year and there was a billion dollars raised last year, so I guess the question is if we were in a crisis last year, we?re still stuck in neutral,? Gregory Smith, managing director of Brookfield Financial and CVCA president, said in an interview.

?People are being very innovative in how they fund this surging demand for venture capital, but the crisis is the limited supply of capital for investment next year.?

Last year?s spending bump still fell short of the $2.1-billion invested in 2007 and remains ?dramatically lower? than investment levels from 10 years ago, Mr. Smith said. The funding gap between Canadian firms and their counterparts in the United States also widened in 2011, with Canadians receiving just 37? for every dollar invested in a comparable U.S. firm last year compared with 39? the year before.

?Particularly disturbing? to Mr. Smith was the lack of any foreign investment in Canadian venture capital firms last year, despite funds from abroad accounting for 16% of VC fundraising in 2011.

Yet for the vast majority of small business owners in Canada, venture capital is already ?out of their reach,? said Ted Mallett, chief economist for the Canadian Federation of Independent Business. For them, groups of individual or ?angel? investors provide the small but vital sources of capital they need; and the tone from Canada?s angel community is decidedly more upbeat.

?Our 2011 looked like a very positive year,? said Bryan Watson, president of the National Angel Capital Organization, noting his group plans to release official figures for last year this spring. ?The climate seems to be getting better, we?ve still got a long way to go but I think it is a good time to be a Canadian company looking to secure capital.?

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Source: http://business.financialpost.com/2012/02/14/venture-capital-hikes-investment-in-small-business/

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