No wonder the Canadian venture capital industry has been adrift in a sea of inactivity this year. According to Rebecca Buckman of the Wall Street Journal, the venture cap industry as a whole is a big loser. Paradoxically, the problem is due in large part to the vast amounts of capital looking for worthwhile investments as well as a "skittish" stock market.

Why is a big pool of investment capital bad for the VC industry? It turns out that increased competition for deals drives up valuations which in turn increases the pressure for bigger returns. With little interest in IPOs, investors look to acquisitions as their primary exit strategy. The profit on acquisitions relative to IPOs makes such sales far less lucrative.

Don't worry too much for iconic firms like Perkins Caufield & Byers. It turns out that they are doing just fine thanks because they are able to find good companies to invest in. They complain though that "one in two" venture-backed companies will fail. I'm sure Canadian VCs would be delighted to have that kind of success rate.