Deal activity in Quebec’s venture capital market during the third quarter continued to reflect the slower pace apparent since the start of the year, according to results released Tuesday by Réseau Capital.

$110 million was invested during the third quarter, down 11% from the $124 million invested one year ago. Still, the amount invested was the highest so far in 2008, up 58% from the second quarter and up 28% from the first quarter, Réseau Capital said.

In addition, the number of Quebec firms securing venture capital was greater on both a year-over-year and a quarter-over-quarter basis. The number of companies financed totalled 58 in Q3 2008, or 5% more than the 55 companies financed one year ago. The average amount invested per firm was $1.9 million in Q3 2008, versus an average of $2.2 million one year ago.

Despite several improved venture captial indicators, Quebec activity continued to form part of a broad pattern of cyclical downturn in North American and global markets, Réseau Capital said. The decline was evident across the Canadian market in the third quarter, when $372 million was invested, down 26% from the $501 million of the year before.

Quebec-based labour-sponsored and other retail funds were key drivers of activity in Q3 2008, increasing their dollars invested on a year-over-year basis to $55 million. Private funds were second, investing $26 million.

U.S. venture capital funds and other foreign investors continued to assume a smaller market presence in Quebec in the third quarter, bringing $16 million to deals, or less than half of the $37 million they brought at the same time last year. To date in 2008, cross-border activity has accounted for $45 million invested in Quebec, or 17% of disbursements. This figure is well shy of the $144 million and 32% share that foreign investors accounted for in the same nine-month period of 2007.

Since the beginning of 2008, early-stage venture capital activity has dropped sharply in Quebec. In the third quarter, however, activity at this end of the spectrum rose 14% year-over-year, going from $35 million invested to $40 million invested. Consequently, early-stage firms secured 36% of all disbursements, which is the same share they had in 2007 over all.

Commenting on the results, Charles Cazabon, president of Réseau Capital, stated “Three things stand out in the third quarter. First, the continuation of the cyclical slowdown is a phenomenon affecting not only Quebec but also North American and global markets. The second is the sharp decrease in the amount invested by foreign investors; fortunately, Quebec’s labour-sponsored and private funds took their place, so that the decline was limited to 11%, which is equivalent to the decrease recorded in the United States. Third, one positive sign is the increase in the level of new investment in startup and early-stage companies.”

The results for Quebec’s venture capital industry for the third quarter were compiled by Thomson Reuters. In the third quarter.

Réseau Capital, the Quebec Venture Capital and Private Equity Association, has more than 525 members who represent public and private venture capital companies.

IE