Canadian VCs stay close to home

CMA Management, Oct, 2006

Canadian venture capitalists continue to stick close to home, with more than half (58%) of Canadian respondents to Deloitte's 2006 Global Venture Capital Survey citing they have no plans to expand investments outside the country over the next five years, compared to 47% of U.S.-based VCs and 44% of investors overall globally. 'Adequate deal flow in existing markets' was cited by Canadian VCs as the primary reason for not pursuing global investments (33%), followed by 'contractual' and 'legal restrictions' (22% each). The Canadian component of the global survey, conducted jointly by Deloitte and the CVCA--Canada's Venture Capital & Private Equity Association--measured attitudes, intentions and investment focus of more than 500 venture capitalists worldwide.

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"Canadian VCs appear to take a more focused approach to investment compared to their global peers. The combination of a Canadian focus and the strong rally of the local economy over the past few years has fuelled the VCs' domestic focus, Canadian VCs and private equity groups have chosen to focus on North America and have not developed their expertise in emerging markets," says Mike Badham, partner, Deloitte. "As the VC industry around the world continues to move towards global investing networks, Canadian VCs should start re-evaluating their strategies to capitalize on international opportunities. As Canadian technology and manufacturing companies become more global, they will look to their VC and private equity sponsor to become more global as well."

On the other end of the spectrum, of those Canadian VCs who do plan to expand investments beyond the border, the U.S. (27%), followed by China (23%) and the U.K. (20%), were cited as the top three investment destinations. 'Higher quality of deal flow' and 'access to quality entrepreneurs' were quoted by two-thirds (67% each) of respondents as the primary reasons for investing in the United States. For Canadian VCs pursuing investments in China, 'emergence of entrepreneurial environment in non-traditional locations' (100%), 'access to foreign markets' (50%) and 'higher quality of deal flow' (33%) were cited as the key investment drivers.

Currently, nearly half (48%) of Canadian respondents invest in Canadian companies with key operations outside the country. In particular, the U.S. houses key operations of their portfolio companies, including R & D (53%), engineering (44%) and manufacturing (42%) operations. Following the U.S. are India (18% R & D, 25% manufacturing) and China (22% engineering).

For more information visit www.deloitte.com.