CVCA and Industry Canada Release Groundbreaking Study on the Performance of Venture Capital-backed Firms

TORONTO, Oct. 30, 2013 /CNW/ - Canada's Venture Capital and Private Equity Association (the "CVCA") in partnership with Industry Canada and Statistics Canada, today released a groundbreaking report that highlights the positive impact of venture capital investment on the performance of Canadian firms.  The positive impact was evident in many key aspects of these firms including: stronger revenue growth, greater employee growth, greater creation of high value employment, more investment in research and development and higher long term survival rates.

The study was conducted based on data provided by Thomson Reuters, Statistics Canada, and the National Research Council of Canada. The results conclusively underscored that venture capital investment both as a function of the capital provided and the value added role of venture capital investors, plays an important role in supporting the rapid growth of the firms they partner with.

"This report clearly demonstrates the profoundly important role of venture capital in terms of key performance metrics for innovation centric growth companies, including revenue growth, high quality job growth, investments in research and development, and overall value creation.  These results are very much in line with similar studies in markets such as the US and it is exciting to see the hard evidence with respect to the role of venture in Canada," said Peter van der Velden, President of the CVCA, and Managing General Partner of Lumira Capital Corp.

Key findings of the report include:

• Higher levels of research and development (R&D) intensity: VC-backed firms had higher R&D intensity (expenditures relative to revenues) when compared to all other firms that conduct R&D;
• Higher average wages: More high value job creation was evident in all sectors of the venture capital funding ecosystem but particularly so in the IT sector;
• Higher survival rates: At the five year mark VC-backed firms had survival rates higher than all firms in the professional, scientific, manufacturing and technical groups and higher than all small and medium enterprises earning over $30,000;
• Stronger revenue growth, sales growth, employee growth, and asset growth - Cumulatively over periods of one, three and five years, VC-backed firms had stronger revenue growth, sales growth, employee growth, and asset growth;
• Higher cumulative wage growth - Over time wage growth for employees in VC-backed firms was higher than in non-VC backed firms suggesting that these firms do create more high value-added employment than non-VC-backed firms.
  
  

"Our Government understands the importance of venture capital and its impact on the economy. This study shows that Venture Capital backed firms are able to grow their businesses by creating jobs and bringing in revenue at a stronger pace than those who are not backed," said the Honourable James Moore, Minister of Industry. "Through the Venture Capital Action Plan, the Government of Canada is investing in venture capital and working to attract new private sector investments to the Canadian venture capital market to ensure Canada's high-potential firms have the resources they need to succeed." 

"We are delighted with the results published in this study. They highlight the continued importance of a vibrant venture capital ecosystem and the many advantages for Canadian venture-backed entrepreneurs," said Jérôme Nycz, Executive Vice President of Subordinate Financing and Venture Capital at the Business Development Bank of Canada.  "Reports such as the one released today allow us to regularly check the pulse of the venture capital industry in Canada, and further calibrate our efforts with partners in providing tangible, positive impacts for Canadian businesses."

Based on the empirical analysis performed in this study, the conclusion is that venture capital investment is strongly correlated with better outcomes in terms of growth, job creation and value creation for all stakeholders. These results are consistent with earlier studies that measured the impacts of venture capital in Canada, such as a survey-based report published by CVCA in 2009, reports of studies in other countries by industry associations similar to CVCA, and academic research papers addressing the same questions with respect to the role of venture capital.

"The results of this study highlight the value-added role of venture capital on the growth of Canadian firms and its importance in the innovation ecosystem", said Peter van der Velden, "Given the challenges in new capital formation in the Canadian venture capital ecosystem, the report also highlights the importance and timeliness of the federal government's Venture Capital Action Plan (VCAP) which is currently being implemented to enhance the development of the venture capital industry in Canada, support and enhance the growth of entrepreneurial businesses in Canada and, in so doing, put Canada on a trajectory to faster, more economically diverse and higher value growth than might otherwise would be the case".

CVCA

Canada's Venture Capital & Private Equity Association, represents Canada's venture capital and private equity industry both in terms of the direct investors and the stakeholders that support and facilitate success in the ecosystem. The CVCA's 2000 members and their firms and organizations manage the majority of Canada's private equity capital.  The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters.
www.cvca.ca

SOURCE: CVCA - Canada's Venture Capital & Private Equity Association