Venture Capital investments in Canada are down sharply compared with the last few years. One theory is that the large pension funds, flush with cash from the boomers, were hungry for places to put their money. Venture funds were a good target. However, over the years, the performance of the venture funds was below expectations and, as the money invested has come due, the pension funds are not re-investing the money in the VC funds.
Another theory has to do with the reduction in the tax credits the pension funds receive when they invest in VC funds. The Ontario government reduced this tax credit with the assumption that large foreign investors would remain involved. However, with the local pension funds pulling out, the foreign investors are reluctant to get involved without significant local investment and are withdrawing from the market as well.
What ever the reason, the effect is a dramatic reduction in the number of start-up investments in 2008. I’ll try to gather some stats to strengthen the point.