The revitalization of the Canadian Venture Capital sector

by on January 14, 2013

It was a good news day for Canadian entrepreneurs today. The Prime Minister of Canada, the Right Honourable Stephen Harper, and Minister of Finance, the honourable Jim Flaherty, were in Montreal to announce the “Venture Capital Action Plan”.

Under this plan, the federal Government will put $400M to work under the leadership of private sector fund of funds and venture capital funds. (picture courtesy of Techvibes)

In a nutshell, the Venture Capital Action Plan will make available:

* $250 million to establish two new, large private sector-led national funds of funds (a funds of funds portfolio consists of investments in several venture capital funds) in partnership with institutional and corporate strategic investors, as well as interested provinces;

*$100 million to recapitalize existing large private sector-led funds of funds, in partnership with willing provinces; and,

*An aggregate investment of up to $50 million in three to five existing high-performing venture capital funds in Canada.

Doing the quick math (and looking at past decade’s stats) shows that this $400M injection should enable well over $1B of fresh available capital for Canadian entrepreneurs. The monies will transit via specialized private venture capital funds across the country. Furthermore, because of the existing positive track records of a certain number of venture capital fund managers, it is expected that part of these monies will be deployed quickly. That means a portion of the funds should get into the hands of some of Canada’s most promising entrepreneurs later this year.

I applaud this initiative in great part because the federal Government acted quickly (Sam Duboc played a key role here) and decided to be a true catalyst to the venture capital industry. This is a very similar approach to what the Quebec Government has been doing over the last 10 years with the Fond de solidarité FTQ, la Caisse de depot, Investissement Québec, and most importantly, launching the country’s largest Fund of funds, Teralys Capital in 2009. I actually wrote an interesting blog post that year titled: “$5 billion to end up in the hands of Canadian entrepreneurs, as a result of Québec’s support of Venture Capital initiatives nothing less!

Four years down the road, it looks like we are very close to that $5B of capital to back our best and most ambitious tech entrepreneurs in the fields of IT, Life Sciences and Cleantech. When you add up the numbers, the impact starts to show. Teralys Capital is a fine example of this, having committed $390M towards leading VC fund managers across Canada. These fund managers have attracted over $1.3B in total Fund commitments.

A friend and venture capital colleague, Scott MacDonald, Co-founder of McRock Capital, mentioned today the following: ” This program is somewhat analogous to the US Government’s Small Business Investment Company (SBIC) program started in 1958 that was largely responsible for kick starting private sector participation in risk capital.  This drove the creation of many legendary Silicon Valley venture capital funds such as Mayfield Fund and Sequoia Capital and subsequently led to the creation of many of the world’s largest tech companies.” Well said!

So what does all of this mean for Canadian entrepreneurs? It means more local capital to better support the most innovative and promising opportunities across the country. It means giving emerging tech category leaders the resources to grow well beyond $100M in revenue while growing and remaining in our own backyard. It means having the ability to attract the right foreign co-investors for continued global expansion. It means that the proposed $400-million federal initiative will reinvigorate and further support venture capital in Canada. It means that anyone involved in the entrepreneurial ecosystem in the country should have a smile on their face today!

As an active board member of the CVCA (the Canadian Venture Capital Association), I’m appreciative of the pro active consultative role taken by the federal Government to date. After addressing Section 116 relief for non-resident investors, the announcement of the $400M Venture Capital Action Plan is the most significant commitment I know towards supporting our Canadian entrepreneurs. I applaud them for their foresight, and look forward to working with them on this initiative and others over the coming years.