The last two years or so have seen an ebbing of Canadian venture capital activity in the early-stage sector. Why is that? The reasons are varied and too detailed to explore in one posting -- just read back over Gagglescape's numerous postings on the subject.

The trend does seem to be influencing the entire sector and boils down to one basic principle: bigger deals generate bigger returns.

Venture Capital legend Apax Partners typifies the trend. This week the venerable VC institution closed its doors to new venture investments in its new 10 billion Euro private equity fund. Here is what VCRatings has to say about Apax:

The changing nature of the venture capital market is pushing some firms into a hybrid model. And the firms such as Apax that pursued the hybrid model are concentrating on private equity. The reason is to be found in the numbers. Apax's 4.3 billion 2005 fund has already returned 57%. No time to cultivate many, small deals when fewer, bigger ones are so lucrative.

Of course this could just be a mature firm expanding into new markets as its ability to compete in them grows. The fundamental market need for early-stage funding hasn't gone away. What has changed is that the mechanisms to generate return on a capital investment have become so efficient that lower return/higher-risk markets are not as appealing to investors.