Venture capital activity in Quebec increased in 2006, with $603 million invested, up 9% from the $552 million invested in 2005, despite fewer deals being carried out.

Réseau Capital today announced the results for Quebec’s venture capital (VC) industry for 2006, as compiled by Thomson Financial.

With fewer deals carried out, the average amount invested in Quebec companies rose from $2.1 million in 2005 to $3.4 million in 2006.

Activity in Quebec benefited to a substantial degree from growth in the final three months of the year. Disbursements in fourth quarter totalled $246 million, up 33% from the $185 million registered in Q4 2005. In fact, capital invested in the fourth quarter accounted for 41% of the overall amount in Quebec last year.

Life sciences activity drove Quebec VC trends in 2006, as $263 million was invested in 35 companies, up 42% from the year before, and resulting in a 44% share of all disbursements. IT-related activity took second spot, as 57 companies attracted $217 million, or slightly less than the overall amount in 2005, giving related sectors 36% of total capital invested

Activity in non-technology sectors in Quebec also had less momentum in 2006, as 66 firms secured $86 million, or 16% less than the $103 million of 2005, and accounted for only 14% of total capital invested versus 19% previously.

U.S. venture capital funds and other foreign investors were key to trends in Quebec, disbursing $185 million, up 63% from 2005 and the highest level since 2000. Foreign activity consequently accounted for 31% of all disbursements in 2006.

Labour sponsored venture capital funds and other retail funds took second spot, with $146 million invested, although this amount is down 18% from one year ago. With $80 million invested in 2006, private fund activity in Quebec grew 4% versus 2005.

The Canadian VC industry raised $1.6 billion of new funds in 2006, for a year-over-year decline of 26%. VC funds based in Quebec secured almost two-thirds of the national aggregate, including 46% of new capital commitments to private funds. The levels of new commitments to LSVCC and other retail funds were down across Canada and in Quebec in 2006, although Quebec continued to see by far the largest share of these.

According to Charles Cazabon, President of Réseau Capital and vp of venture capital at BDC, “The general increase in activity in Quebec and the fact that companies are receiving larger amounts on average are positive signs for companies seeking capital. Moreover, the greater presence of foreign investors, who are often well capitalized, and the success of private fund activity in 2006 mean a greater diversity of funds for Quebec entrepreneurs.”

Montréal was once again out in front of VC activity in Quebec, securing 72% of total capital invested in 2006. Gatineau obtained a 10% share, and Quebec City a 7% share, with the remainder spread across various other Quebec regions.

Réseau Capital, the Quebec Venture Capital and Private Equity Association, was founded In 1989 and has more than 525 members who represent public and private venture capital companies, as well as firms of professionals serving the industry.