The Canadian Venture Capital & Private Equity Association (CVCA) announced record levels of private equity deployed and funds raised in the past year, but digging deeper into the results reveals that foreign capital played a major role in bulking up those numbers. US and other foreign buyout firms took advantage of the investment opportunities inside Canada, while Canada-based firms constituted less than a third of deal activity within the country. Canada's venture capitalists lagged their later-stage brethren, with investment levels at the same level as 2005, though with notable changes in how the capital was deployed.
According to the CVCA, in 2006 the total value of disclosed buyout investments within Canada's borders totaled $10.9 billion across 91 deals, more than double the $4.5 billion of investments recorded in 2005. Canadian buyout firms raised $5.5 billion in commitments, more than four times the $1.2 billion raised the year before. In light of the fact that top tier private equity firms in the US raise two to three times that much for their latest vehicles alone, Canada's dramatic growth seems less notable beyond its borders.
“In Canada, we are growing as fast as we can, but we are just barely keeping up with the global market,” said Rick Nathan, CVCA president and managing director of Kensington Capital Partners.
Canadian firms were responsible for investing only $3.0 billion, or 27 percent, of that $10.9 billion, with the US deploying $4.1 billion in capital, and the remaining $3.9 billion coming from firms based elsewhere around the world. Capital is flowing both ways however, with Canada's buyout shops increasing commitments to global private equity markets. In 2006, Canadian firms committed $13.4 billion in the global private equity markets, up from just $5.4 billion in the previous year. Canadian firms have been increasing their exposure to global markets exponentially – in 2005 these firms invested $5.4 billion abroad, up from $2.4 billion invested abroad in 2004.
Traditional early stage VC remained flat at $1.69 billion, matching 2005's $1.68 billion. While the numbers remained static, the deployments did not. The number of Canadian companies to receive venture funding was significantly lower at 404, down 28 percent from the 560 companies that received capital the year before. But as the total amount of venture capital deployed was the same, the individual investments were much larger, revealing larger gambles on fewer enterprises.