Small Business

The vencap comeback

Written by Allan Brittnell

In the dot-com glory days, venture capital, initial public offerings and angel investors were all vibrant, viable funding options. But which avenue is the most promising for 2005? PROFIT asked industry insiders to don their soothsayers’ caps and provide their predictions for the coming year. The big surprise: venture-capital investing could be making a long-awaited comeback.

Initial public offerings: The number and value of IPOs seemed to be on the post-bubble rebound earlier this year. According to PricewaterhouseCoopers’ semi-annual tally of Canadian IPOs, the first half of 2004 was the best for IPOs since the 2000 bust. But the market started slowing in March, and never regained momentum over the summer. According to PricewaterhouseCoopers’ IPO services leader, Eric Slavens, rising interest rates-the bane of income trust offerings-are spooking IPO investors in general. Heading into next year, he says, “There’s a downward trend.” One area for optimism is the mining sector, which produced 15 IPOs valued at $514 million in the first half of 2004-a 75-fold increase over the same period last year.

Venture capital: Based on the turnaround of the past three quarters, says Robin Louis, president of the Canadian Venture Capital Association, “I would expect a gradual increase in the amount of [VC] money being invested to continue for the foreseeable future.” In the first nine months of 2004, total VC investments in Canada rose to $1.28 billion from $1 billion over the same period in 2003, marking the first upswing since late 2000. The biotech and IT sectors have attracted the most VC attention lately. Also, a highly competitive market at home is making Canadian companies more attractive to American investors, who are significantly increasing their spending north of the border.

Angel investors: Many angels had their wings singed in the dot-com bust and turned their halos in for good. Those that remain are hard to pin down. “We’re past the worst, in terms of recovering from the dot-com meltdown, [but] it’s not like angel investors are flooding the marketplace,” says National Angel Organization founder Henry Vehovec. Anecdotal evidence suggests green energy concepts-including wind and geothermal power projects-are of particular interest to angel investors.

© 2004 Allan Britnell

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