Québec's venture capital results for Q1 2008 - Venture capital activity declines as private funds take the lead

    MONTREAL, May 13 /CNW Telbec/ - Réseau Capital today announced the
results for Québec's venture capital industry for the first quarter (Q1) of
2008, as compiled by Thomson Reuters. Venture capital (VC) market activity in
Québec declined in Q1 2008 in relation to the previous year. A total of
$86 million was invested, or roughly half of the $171 million invested in
Q1 2007. The number of Québec-based companies financed with VC was also down
on an annual and a quarterly basis. A total of 41 companies were financed from
January to March, versus 54 in Q1 2007 and 56 in Q4 2007.
    The slower pace of activity in Québec and across Canada was due in part
to fewer large VC transactions. In Québec, the average amount invested per
company was $2.1 million between January and March, versus $3.2 million during
the same period last year.
    Lower levels of deal activity in Québec appear to be part of a North
American trend. Across Canada, VC disbursements totalled $323 million in the
first three months, or 47% below the $610 million during the same period of
2007. The United States also saw a decline, with US$7.4 billion invested in
946 companies, down slightly from the US$7.5 billion of Q1 2007.

    Breakdown by investor type

    Private-independent funds have been capturing a comparatively greater
proportion of market activity in Québec in recent years, as evidenced by their
15% share in 2007. Until 2005, private funds often averaged about 10% or less.
    In the first three months of 2008, private funds established a milestone
by leading VC activity in Québec, with 23% of all disbursements. This
translated into $19 million invested in 13 companies, which is almost
unchanged from the year before. The activity of other major VC funds, however,
was down in real and relative terms. This included LSVCC and other retail
funds, which contributed $16 million to Québec deals in Q1 2008, as well as
foreign investors, which contributed $14 million. One year ago, these
investors accounted for $52 million and $76 million, respectively.
    According to Charles Cazabon, President of Réseau Capital and
Vice-President of Venture Capital at BDC, "The reduction in the amount
invested in Quebec and in Canada can be explained by a fewer number of large
transactions in 2008 and by the difficult economic and capital market
conditions facing North America."

    ACTIVITY BY STAGE

    VC trends in Québec in the first quarter continued to prefer expansions
and other late-stage deals. Indeed, late-stage activity consumed two-thirds of
all disbursements in Québec, which is consistent with its above-average take
for last year as a whole.
    As in 2007, expansion activity stood out with its share of funds in
Q1 2008, as $49 million was invested in 21 companies, or 56% of the Québec
total. In real terms, however, expanding firms received 25% less than in
Q1 2007, when $65 million was invested.
    Early-stage activity in Québec registered a substantial year-over-year
drop, with $29 million going to 16 companies in Q1 2008, or less than
one-third of the previous $102 million of 2007. One bright spot in early-stage
trends in Québec between January and March was found in startup activity.
Company startups, totalling 11, absorbed $23 million, or almost three times
the $8 million of Q1 2007. In contrast, seed activity was down, with just over
$1 million invested.
    According to Charles Cazabon, President of Réseau Capital and
Vice-President of Venture Capital at BDC, "The large reduction in early stage
investing and first time activity in Q1 2008 compared to the previous year is
explained by the market conditions not currently being favorable to
divestiture, fund managers must support portfolio companies longer and need to
reserve funds to this end. Also, in the current environment, companies
offering a shorter path to liquidity are favored."

    Investment by sector

    In contrast with recent VC trends in Québec, IT-related activity was in
the forefront in the first three months. Indeed, levels of activity in IT
sectors proved to be the only major source of year-over-year growth this time.
A total of $44 million flowed to about a dozen IT companies, or 82% more than
the $24 million invested in the same number of companies in Q1 2007. Given the
decrease in activity involving other Québec industry sectors, this increase
afforded IT a disproportionately large share of total activity in Q1 2008 -
51% of all disbursements. In the whole of last year, this share was 32%.
    As a consequence, life sciences activity accounted for about one-quarter
of all disbursements in Québec in Q1 2008. This is a significant decrease from
the near 40% share that life sciences sectors have been averaging since the
market renewal of 2004.
    Other technology sectors in Québec also reflected lower VC activity in
the first quarter. This decline included the energy and environmental
technology sectors, which saw four companies secure $12 million, down
one-third from the $18 million of the year before.
    In addition, non-technology sectors witnessed significantly reduced
activity, with $8 million invested in 13 companies, or less than half of the
$19 million invested in 22 companies during the same period of 2007.

    About Réseau Capital

    Réseau Capital - the Québec Venture Capital and Private Equity
Association - was founded In 1989 and has more than 525 members who represent
public and private venture capital companies, as well as firms of
professionals serving the industry. Its mission is to foster the growth of the
industry and the professional development of its members.

For further information: Robert Pierre Venne, Director, Media Relations,
Réseau Capital, (514) 993-6260, robert-pierre@reseaucapital.com,
www.reseaucapital.com; Source: Charles Cazabon, President Réseau Capital,
Vice-President, BDC - Venture Capital