Preqin, a source of data and intelligence on alternative assets, claims that for American VCs, the best place to look is north.
According to Preqin, which is used by 24,000 professionals across the world, a third of US-based venture capital firms invested in foreign markets in 2015, and Canada took the biggest share with 10 percent of these investments. Software companies were the most popular investment as it accounted for 23 percent of deals.
A third of US-based venture capital firms invested in foreign markets in 2015, and Canada took the biggest share with 10 percent.
“I’d imagine the reasoning behind this would be the proximity to the US marketplace,” said Felice Egidio, head of venture capital at Preqin. “Logistically, and culturally, it’s much easier for US VCs to make investments into Canadian companies as opposed to other regions that would demand a foreign office presence, which few firms are able to accommodate.”
Preqin’s report notes that 2015 has seen a continued decrease in both the number and aggregate value of US venture capital exits; the first three-quarters of 2015 in the US had 414 exits generate an aggregate value of $28.8 billion, while the same period in 2014 saw 527 exits with a total value of $62.2 billion — though the latter is inflated by a huge spike of $35.4 billion in Q1 2014.
“The exit environment for the US venture capital industry has been very challenging in recent quarters. A renewed focus from corporate investors on direct early stage investment, as well as high-profile IPO difficulties for some companies, have meant that many businesses have preferred to stay private and raise later stage funding rounds,” said Edigio.
As startups and investors gear up for 2016, Edigio said that the trend for US-based VCs to look to Canada for investment will likely continue. “US VC dry powder is at a very high level, so the competition for deals are pushing people to find the most compelling opportunities,” said Edigio. “Deal activity for the last five years has hovered between the 8 percent to ten percent for Canadian portfolio companies, therefore it is likely that VCs will continue to expand their horizons with Canada becoming more of a consideration for active firms in 2016.”