Venture capital investment across Canada in the first quarter of 2007 showed very strong growth on a year-over-year as well as a quarter-over quarter basis, totaling $598 million, according to the industry’s quarterly statistical report released today by the CVCA and research partner Thomson Financial.

This represents a 62% increase over the $370 million invested during Q1 2006, and is also 16% above the $517 million invested in the previous quarter (Q4 2006).

Venture capital investment in Canadian companies from foreign (principally U.S.) VC funds reached an all-time record share of 51% of all invested capital, amounting to $304 million. This represents an increase of 134% over the $130 million invested by foreign VCs during Q1 2006. U.S. venture investment into Canadian firms has been growing significantly during the past several quarters, rising from its historical average in the 25% range through 2005, to 32% during 2006, to now represent a majority of the invested capital.

“The real story this quarter is the increasing dominance of U.S. investors in the Canadian venture capital market,” said Rick Nathan, president of the CVCA and managing director of Kensington Capital Partners, in a news release. “While we welcome foreign investment, it is absolutely vital that we also develop stronger Canadian based investors if we want to build strong Canadian companies.”

U.S. investors were particularly dominant in the larger transactions at the later stage of the technology growth cycle. A total of 7 large venture capital transactions, defined as investments in excess of $20 million, were completed during the quarter, with U.S. firms providing 82% of the capital committed to these deals. These large investments were the main driver of overall growth in the quarter – during the full year periods of 2006 and 2005, a total of only 16 and 12 venture capital investments in Canada exceeded this $20 million mark.

“A healthy venture capital market in Canada would see Canadian investors partnering with foreign capital at each stage. But the data clearly shows that the U.S. investors are dominating the later stage – when the most promising companies are on the home stretch to success – without meaningful Canadian participation. And the reason is very simple, the Canadian venture capital community just does not have the financial capacity take our best emerging companies all the way to the finish line,” added Nathan.