Investment Activity Remain Below 2005 Levels

Toronto – August 15, 2006 – Investment activity in the Canadian venture capital market increased to $496 million in Q2 2006, up 34% from the $371 million recorded in the year’s first quarter, according to Canada’s Venture Capital and Private Equity Association (CVCA) and research partner Thomson Financial (formerly Thomson Macdonald). In spite of the quarterly growth, this total represented a decline of 25% from the comparable 2005 period, when $663 million was invested. Through the first half of 2006, venture investment activity amounted to $867 million, which is down 14% from the $1 billion invested in the first half of 2005.

Tighter Focus by Investors

Investors appear to be focusing their financial resources more tightly, as the number of companies receiving venture capital in the second quarter declined while the average financing amount increased. Investors funded a total of 129 companies in Q2 2006 with an average investment of $3.8 million, compared to 137 firms receiving an average of $2.7 million in Q1 2006, and 211 firms receiving an average of $3.1 million in Q2 2005.

“The tighter focus by Canadian venture capital investors in Q2 is a very positive sign,” noted Rick Nathan, President of the CVCA and Managing Director of Kensington Capital Partners, “Canadian companies must be sufficiently funded to successfully challenge their U.S. based competitors, who frequently have access to much higher levels of investment capital.”

The average investment of $3.8 million represents the highest quarterly average investment figure for the Canadian venture capital market in the past 5 years. However, it remains well below the average venture investment in the U.S. market of $8.9 million in the first half of 2006.

Regional Breakdown: British Columbia Investment Levels Up Strongly

The regional breakdown of investment activity across Canada showed a significant increase in British Columbia, where $131 million was invested, up 85% from the $71 million recorded in Q2 2005, and representing 26% of all Canadian venture capital investment, more than double the 12% share recorded through the full year 2005.

Ontario companies received a total of $210 million in Q2 2006, which led activity in all other provinces during the quarter with a 43% share, but represented a decline of 37% from the $334 million invested in Q2 2005. A total of $135 million was invested in Quebec during the quarter, representing a 27% share of Canadian activity and a decline of 38% from the $218 million invested in Q2 2005.

Within the overall North American venture capital market, activity levels in Ontario and Quebec fell to 9th and 12th place, respectively, with British Columbia moving up to 13th spot among all 60 states and provinces. Individual U.S. states receiving more venture capital investment than Ontario in Q2 2006 included Pennsylvania, New Jersey, Washington and Maryland, in addition to traditional leaders California, Massachusetts, Texas and New York.

Foreign Investment Takes a Higher Share

Venture capital investment into Canadian companies from foreign funds (primarily from the U.S.) amounted to $184 million in Q2 2006, or 37% of all activity in the Canadian market. For the first half of 2006, foreign investors accounted for approximately 36% of the Canadian venture capital market, a significant increase from their traditional level of roughly 25% recorded through the full year of 2005. However, this increased share during the quarter represented a 22% decline in total dollars invested compared to the $236 million invested by foreign investors in Q2 2005.

“Canada is becoming increasingly reliant on foreign investment for the financing of our most innovative new companies, as we see the proportionate share of Canadian venture capital investment taken up by foreign funds to be rising substantially,” Mr. Nathan added, “This reflects a shortage of risk capital available from Canadian domestic sources relative to the quality of available opportunities.”

Fundraising by VC Firms Remains Weak

Fund-raising activity in the Canadian industry declined substantially on a year-over-year basis, with new capital commitments during the first half of 2006 totaling $879 million, or only 73% of the $1.2 billion committed in the first half of 2005.

New Technology Sectors Getting Increased Attention

Venture capital investment into alternative energy, environmental technology and other emerging sectors showed significantly higher activity levels in Q2 2006, with $87 million invested in 18 companies. This total represented approximately 18% of all Canadian venture investment during the quarter, up dramatically from the 6% share recorded in the full year 2005.

The life sciences are attracting a more consistent level of Canadian venture capital investment, with Q2 2006 representing the third consecutive quarter (and fourth of the past five quarters) to exceed $100 million in funding. Information technology investment continued to lead all other sectors during the quarter, with $240 million invested in 71 companies representing 48% of all disbursements.

CVCA

The CVCA - Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 1100 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters.

Thomson Financial

Thomson Financial (formerly Thomson Macdonald) is recognized as the leading source of data, analysis and strategic market intelligence on the venture capital and private equity markets in Canada. Detailed transaction information is available in its online, proprietary database VCReporter™.

To arrange an interview with Rick Nathan, President of the CVCA, please contact Lauren Linton at 416.487.0519, llinton@cvca.ca

End