Canadian venture capitalists' confidence up. (News and Views).

Investors have a renewed sense of optimism with nearly half (47%) of Canadian venture capitalists (VCs) anticipating an improvement in the economic climate in the upcoming months, signalling a return to early 2002 levels after a low of 29% in the third quarter of 2002. This stands in stark contrast to the U.S. where the majority of VCs have a gloomy outlook, with less than 20% expecting an improvement in the economy. The results are drawn from the Q4, 2002 Canadian Venture Capital Confidence Survey, a joint study released by Deloitte & Touche and the Canadian Venture Capital Association (CVCA) in late January. The survey provides a comprehensive snapshot of venture capital investors' outlook in Canada for the next six months and acts as an indicator of changing confidence levels and expectations of economic and market climate, as well as deal activity and investment focus.

The growing number of respondents expecting higher valuations in the first half of 2003 also reflects a restored sense of optimism among Canadian VCs. According to the survey's results, 28% and 44% of respondents expect exit and portfolio valuations to increase, compared to 9% and 32%, respectively, in the previous quarter. The improved outlook suggests that venture capital valuations have bottomed out.

"A positive shift in confidence is in sight", said Michael Badham, Partner, Deloitte & Touche. "We expect that fundraising by VCs and higher valuations will drive future investment and deal activity."

The renewed bullish stance of Canadian VCs is supported by the fact that more than half (53%) of the respondents expect to invest all current funds in less than two years. The number of VCs looking at raising new funds nearly tripled (21%), up from a low of 8% in the third quarter of 2002. However, fewer indicate earmarking funds for follow-on investments, as nearly two-thirds (65%) of VCs responded that less than half of their funds are available, compared to 53% the previous quarter. These findings could signal an impending upswing in investment activity this year.

According to the VCs surveyed, the most important factor in recoveries in investment levels is an increase in technology spending (52%), versus a recovery of the public market (38%). This finding is a complete switch from the prior survey when the comparative responses were 31% and 53% respectively. Nearly three-quarters (72%) of respondents also expect that a recovery in IT spending will contribute significantly to the recovery of VC markets in the short term, compared to 54% in the third quarter of 2002. However, technology-related sectors such as communications, Internet and semi-conductors, continue to lag behind manufacturing (48%) and consumer business (41%) as VCs see growth in these sectors for investments in the short-run.

The fifth edition of the quarterly Canadian Venture Capital Confidence Survey was conducted between December 4 and December 30, 2002 and surveyed over 800 professionals from venture capital and private equity firms across Canada.

For more information visit www.deloitte.ca.