Innovance Networks Inc. said yesterday that it has raised $88-million in venture capital from a group of investors that includes JDS Uniphase Corp. and Corning Inc.

Ottawa-based Innovance, which is developing photonic networking technology that will help telecommunications carriers route and deliver data more efficiently, said the money will be used to launch its products commercially later this year.

The financing deal seems to offer more evidence that a major theme within the Canadian venture capital business is that big is better. Among this year's larger agreements are those of Catena Networks Inc., which raised US$75-million, and Hyperchip Inc., which raised $70-million -- companies involved in developing telecommunications technology.

The size of these deals stands in stark contrast to the startup market where funding is nearly non-existent. With the dot-com meltdown still a fresh memory, many investors appear to be more comfortable supporting companies already developing new technology attractive to large customers.

A snapshot of Canada's VC market will be provided today when the Canadian Venture Capital Association releases its fourth-quarter and year-end numbers. During the first nine months of last year, venture capital fell to $3.8-billion from $4.4-billion in 2000. The number of deals dropped 27% to 809 from 1,107.

Peter Allen, Innovance's president and chief executive, said the company was able to raise another round of capital because its leading-edge technology will be needed by telecommunications carriers whose networks are running out of capacity.

Innovance, he said, will fill a growing need by providing technology that routes traffic more efficiently, allowing carriers to boost capacity. While it is a market with plenty of potential, there is intense competition from such established players as Nortel Networks Corp. and such startups as Corvis Corp. and Ottawa-based Ceyba Inc., which raised US$93-million in venture capital last May.

Mr. Allen, who headed Nortel's opto-electronics group before founding Innovance in 2000, said the company has a competitive edge because its technology is more flexible, and it has an experienced team that understands the needs of carriers.

Even if Innovance's technology proves to be superior, the company still faces the challenge of soft demand for telecommunications equipment. Many carriers have slashed their capital spending to cut costs. IDC Canada Ltd., for example, estimates Canadian carriers will spend 39% less this year than during 2001.

Mr. Allen said there are signs the market could become more active in the latter half of this year and in 2003. This rebound, he said, will be led by network capacity issues and the development of technology that will let carriers reduce their capital spending and operating costs while still providing improved service.

Innovance, which has 310 employees, is conducting technical trials with carriers and hopes to close a deal by year-end.

Mr. Allen said a contract would be worth $15-million to $200-million, depending on whether a carrier decides to implement its technology route by route or does an entire network.

The investors in Innovance's latest VC round include Advanced Technology Partners, Morgenthaler, Thomas Weisel Capital Partners, Azure Capital, Banc of America Securities LLC, KPL Ventures and Archery Capital.