RPT-BAY STREET-Canada venture capital drawing big-name investors

(Repeats June 6 column without changes)

* Google, Microsoft, RIM in recent deals

* Cloud computing, smartphones, social media lead

* Venture capital could be at start of new growth phase

By Pav Jordan

TORONTO, June 6 (BestGrowthStock) – Bay Street take note: Canada’s
venture capital industry is neither dead nor dying.

Major U.S. and Canadian companies are catching on to what
some are already calling a sea change in Canada, where
transactions were quietly announced in recent weeks by
powerhouses like Google (GOOG.O: ), Microsoft (MSFT.O: ) and
Canada’s own Research In Motion (RIM.TO: ).

“I think we are really kick-starting a new cycle, and it’s
refreshing,” Chris Arsenault, managing partner and chief
operating officer at iNovia Capital Inc, said at the Canadian
Venture Capital and Private Equity conference last week.

The venture capital sector, which typically invests in
small start-up or developing private companies with the aim of
taking them public, turned in some of its lowest investment
figures ever in Canada in the past two years.

According to data compiled by the Canadian Venture Capital
and Private Equity Association (CVCA) and Thomson Reuters, only
C$276 million ($267 million) was invested in the sector in the
first three months of the year, lower even than last year, when
venture capital investing was at its lowest since 1996.

The drop has been squarely blamed on the global financial
crisis, which choked off the market for initial public
offerings and triggered a broader retreat from risk investing.

Yet venture capitalists, buoyed by growing Canadian
government support for the sector, say the figures are
misleading, hiding the potential for huge success.

Arsenault said a changing of the guard among investors and
investment managers is adding momentum and bringing new
strategies to the sector in Canada, where venture capital
activity has historically been well below U.S. levels.

“We are right in the phase now where the older guys are
retiring from the business while the new guys are going for
deeper domain expertise, instead of trying to be one for all
and just jump on any opportunity,” said Arsenault, whose C$112
million ($106 million) iNovia II fund is invested mostly in
digital media, mobile Internet and communications.

The fund did nine deals last year, four in the year to date
and is expecting to close on four more by December.

HIGH PROFILE ATTENTION

Industry veterans say publicly traded companies who scaled
back on research and development during the global financial
crisis are increasingly looking at Canadian companies to
jump-start new venues for growth.

“Similar to the last recession, companies cut innovation
spending in the crisis,” said Chris Albinson, a Canadian native
and the managing director of Panorama Capital, a Silicon Valley
investor in venture capital. “The problem for those companies
… is they don’t have anything to drive future growth.”

Just days ago the Swedish meditech company Elekta
(EKTAb.ST: ), active in cancer care and neurosurgery, bought
Montreal-based Resonant Medical Inc, which makes ultrasound
imaging technology for treating cancer, for C$30 million.

Google bought Toronto-based start-up Bumptop, which makes a
3D application that changes the way people interact with
computers by making screens look more like an actual desk.

Research In Motion, which invented the BlackBerry
smartphone thanks in part to venture capital, recently bought
software developer Viigo, also a Toronto-based start-up
technology firm.

And Microsoft recently bought Toronto’s Opalis Software.

These were just the latest in a series of deals that,
though small, show bustling activity amid Canadian start-ups
ready to take the next step from having an idea to having a
product ready for market.

NEW CYCLE

Canadian venture capitalists say the new cycle is changing
the industry from head to toe, from the way start-up
technologies are born to the kinds of investors they attract.

Change is driven by the economic adversity of the recession
— forcing inventors to do more with less — and by the hope
that comes with recovery and the innovation of post-recession
economies again focused on growth, rather than survival.

“I love it, I am very bullish right now,” said Rob
Chaplinsky, a Canadian venture capital investor based in
Silicon Valley whose firm, Bridgescale Partners, provides
equity to high growth information technology companies.

“I’d say we’re in the best growth cycle in information
technology in 12 years.”

Chaplinsky points to three areas of technology as the
drivers of innovation: cloud, or Internet-based computing that
allows all applications to be handled via a Web browser instead
of in-house; the widespread adoption and growth of smartphones;
and social media applications in consumer and corporate
environments.

“Entrepreneurs are not sitting around in a grumpy mood.
They are excited. They are building leaner companies,” said
Chaplinsky, likening the capital-starved industry to vineyards
in time of drought.

“These roots are going to be deeper, stronger, and should
create a great vintage for start-ups from this era.”

Investing Research

($1=$1.06 Canadian)
(Additional reporting by Susan Taylor in Ottawa; editing by
Jeffrey Hodgson and Rob Wilson)

RPT-BAY STREET-Canada venture capital drawing big-name investors