Archive for March, 2009

‘Lost generation’ of technology threatens Canada: official

Source: The Canadian Press

Mar 31, 2009. updated April, 2009

By Julian Beltrame

OTTAWA  - The ability of Canada to develop the new technologies of the future is in jeopardy because entrepreneurs can’t get financing to see them through the recession, the Business Development Bank of Canada warns.

The Crown corporation which helps finance Canadian businesses says the disappearance of venture capital in the country will snuff out hundreds of innovative small companies in infancy and their technology with them.

“It breaks my heart because if we let go of these technology companies, once this recession is over you will have lost all this (new) technology, you will have lost a decade,” Edmee Metivier, the development bank’s executive vice president of financing, told a House of Commons subcommittee Tuesday.

Metivier said the BDC is a shareholder in about 150 technology firms, but in the future the corporation will only be able to help finance a much smaller portion of startups. 

But she says there are hundreds more such companies across the country that can’t find capital to fund research and get new products to the markets. And the BDC can only do so much because it needs partners to finance entrepreneurs.

“They are all at risk, there is no money for them on the marketplace at the moment,” she said.

In a later interview, Metivier said the focus of governments has been on the survival of mature companies, but in doing so they risk losing the companies that represent Canada’s technological future.

“Canada has to think through what it has to do with this sector,” she said.

Before the committee, Metivier and Benoit Daignault of Export Development Canada laid out the difficulties faced by Canada’s small and medium sized companies in obtaining sufficient credit to operate and grow during the recession.

While Canada enjoys a sound banking system, the collapse of many other non-bank lenders _ representing about 30 per cent of loans _ has created a tight market for credit in Canada.

As a result, many companies are being denied loans or are being charged exorbitant interest, they said.

”The difficulties facing Canadian businesses have increased in 2009, so it is difficult to find low-cost financing in these circumstances,” said Daignault.

The Business Development Bank has come under criticism from Liberal finance critic John McCallum in recent weeks for moving slowly in implementing several budget measures intended to free up credit for both businesses and consumers, particularly the auto leasing sector.

Metivier was not confronted by the charges in the subcommittee, but said she had been prepared to respond.

She said she expects the Crown corporation to double the rate of the annual increase in loans this year, and said $750 million had already gone out the door in the first three months.

Any delays on the $12 billion credit facility to increase credit in the auto leasing sector, and loan guarantees for companies were due to the fact the corporation, which operates on a commercial basis, had never engaged in either activity in the past and needed to do due diligence, she explained. 

The loan guarantee facility first announced in December will be in operation starting Wednesday, she said, whereas the measure on auto leasing will likely be up and running by the end of May.

“It would have been humanly impossible to kick start (either) any sooner,” she said. 

Copyright © 2009 The Canadian Press. All rights reserved.

Unfair Advantage

Repost from Startup CFO Mark MacLeod


Not all VCs are created equal. The top 5 – 10% of the industry enjoys the bulk of the industry’s returns.
The same imbalances exist on the startup side. Be it through a great team, technology, partnership, etc the best startups have one or more aspects to their story that gives them an unfair advantage over the competition. This is why market share is so skewed in each technology market segment. The. Top 2 or 3 players control the market. Nobody else matters.

When VCs are looking at a potential investment they think a lot about unfair advantage: if they invest can this startup be in the top 3 in its market? Can the VC fund help get them there?

Forrester’s Jeremiah Owyang posted on VC value add last week. Value add is how VCs look to generate unfair advantage. If you have a great new web app and Sequoia backs you, well it’s a lot easier to get on Google’s radar screen.

The entire Silicon Valley is built around the concept of unfair advantage. The top VCs get the best deals. Even before a deal gets to them thePaypal mafia vets these deals and gives them their 1st funding.

This is all good, but I find entrepreneurs don’t spend enough time figuring out how their startup can generate an unfair advantage.

Getting Sequoia as an investor can’t be your strategy. You won’t get them unless you have such an advantage already.

What does it mean to be unfair? 


1. Not fair; not conforming to approved standards, as of justice, honesty, or ethics: an unfair law; an unfair wage policy.


2. disproportionate; undue; beyond what is proper or fitting: an unfair share.


It’s all about getting more. A “disproportionate” share of the market and the rewards.

If you really focus just where you have an unfair advantage you’ll end up with a much clearer + smaller problem you’re trying to solve. This can be very advantageous for you:

- You will be much closer to the problem

- You will know who your users are and can engage them

- You can get to market quicker + spend less money

- You will grow faster

Facebook, as an example, started out just serving Harvard students. Now, it’s true they likely did not sit down in the dorm for a strategy session on unfair advantage. They started with Harvard because they were there already (which by the way gave them an advantage – they literally knew their users). They also didn’t have the capital to take on a bigger market, which may have helped them.

Sometimes it’s good to be broke…

Not having a bunch of funny money (aka – VC) lying around forces extreme focus on startups. I find startups that were subjected to such focus are almost always better than their funded peers.

Now starvation does not equal unfair advantage and my post is about this advantage. My point is that extreme focus, brought on by lack of resources or deep strategic planning or both, will often help you figure out where and how you can generate an unfair advantage in your market.

It’s all about finding your best niche + growing one niche at a time. So, as Guy would say: niche thyself. Start where you have an obscenely unfair advantage. Capture it. And grow from there. If you are expanding after capturing unfair advantage in one segment, its easier to pick your next segment because your market position will create more opportunity for unfair advantage.

Who says life is fair?


Ont. Gov’t As A VC: In with a Whimper, Not a Bang

Reposted from Venture Law Lines25 Mar 2009
By Suzanne Dingwall

As budget day approaches, the usual flurry of press releases is trickling out, including one in which the Ontario’s Fund of Funds (the OVCF) at long last announces an investment in a investment fund. You can read Mark McQueen’s take on it over here. 

The principals behind Georgian Capital are the former operators of DWL, a Toronto software firm that was backed by local VCs and New York’s Insight Venture Partners. Mark speculates that Georgian Capital may also be receiving backing from Insight in the future, (welcome news; Insight has been a long time shopper here in Canada – in Eftia, Airborne, Platespin among others), in which case OVCF’s commitment to invest “up to $15 million” may be one that never closes, unless Insight or some other LPs also invests in Georgian. No reason to get too excited, although the fact that Georgian Capital has now leased out space in a Rosedale office building (Patachou croissant, anyone?) likely means it is here to stay, regardless.

The issue I have with all of this is about the press releases which OVCF has not issued. As Mark points out, those of us in the industry are well aware of the rumoured deals being considered by OVCF. (Ordinarily, the fund of funds world is a private one whose managers operate outside of the public disclosure light. Which funds they support, and the terms of their investments, are rarely announced.) 

Many private FOFs are sitting out the current market, and in one sense, it’s hard to fault OVCF’s managers for taking the same prudent approach as they appear to be doing. But this is not a private fund of funds, and the Ontario government did not form it for the sole purpose of generating capital gains. The OVCF exists to support the Ontario venture capital industry and to create Ontario jobs. Don’t listen to me – check out John Wikinson’s 2007 press release if you’re uncertain.

Given the mandate of the OVCF, is waiting out the market appropriate? And when our tax dollars are being managed, should there not be greater transparency? 

Why should we care? In the current market, with few options for limited partners, the OVCF in effect holds a monopoly over the venture capital industry in Ontario and, in turn, over the future of Ontario’s venture-backed companies. The decisions OVCF’s managers make in the near term will determine whether any local venture capital funds survive, and who will receive the lion’s share of the profits resulting from any Ontario innovation. 

If the majority of OVCF funds go to foreign VCs, then investing in Ontario’s future becomes a one-cycle event. The amount of capital gains that recycles into our economy from successful start-ups will be significantly diminished. If that is a decision that is being made by OVCF, we are entitled to understand why it’s the right tradeoff for Ontario.(Me, I think it’s a question of proportion – equal parts local and foreign, in case you’re asking.)

Of course, announcing investments in US funds just before delivering a budget would not be the most popular public relations move by a government. But was this press release an improvement? It underscores the fact that, more than a year after our tax dollars were handed over to OVCF’s managers, the chance of any Ontario company receiving funds is likely still months away. (Investment funds still need to be deployed to VCS before they can trickle down to investees.) Which is perhaps why John Wilkinson has created the recently announced investment matching program for “qualified” investors. 

There needs to be some kind of oversight or audit of this kind of government investing activity – call it an ombudsmen function if you want to make it catchy, I don’t care. But there is clearly a misalignment between public policy and private sector implementation of that policy and the two need to be reconciled. I am one of those who believes that in the current economy, careful government support of the venture ecosystem is absolutely necessary. How that support is provided needs to be monitored and adjusted.


Onwards, upwards VC fund commitments!

by Chris Arsenault

March 2009 will definitely be the month the Canadian Venture Capital Industry heard its “wake up” call. Fund of fund initiatives, new funds, follow on funds, co-investment fund, business funds. We got swamped with VC related initiatives and announcments and even withnessed some true initial traction. It was refreshing to read about the Québec Government Venture Capital initiative, done in close partnership with la Caisse de dépôt, the Fond de solidarité FTQ and Investissement Québec, with commitments toward the creation of: a $500M business growth fund, $125M for the creation of three seed stage funds as well as the creation of a $825M Fund of Fund. Now, the latest news comes from Ontario, where the Ontario Venture Capital fund announced, earlier today, that it had completed its first commitment to a private fund manager: Georgian Partners. Below an extract of the press release: 


Venture Capital Fund Invests In Jobs Of The Future

McGuinty Government Welcomes First Ontario-Based Commitment.

The Ontario Venture Capital Fund is committing up to $15

million inGeorgian Partners “Growth Fund I” to help support

innovative, high-growth businesses, including high-potential

companies in Ontario.

Georgian Partners (

is an Ontario-based venture capital firm investing in companies

in the information technology, information aggregation, and

enterprise software sectors.



Note that the Ontario Government first announced the creation of its Fund of Fund, in close collaboration with its partners (OMERS, RBC Capital Partners, Manulife Financial, BDC & TD Bank Financial Group) back in June 2008 (Link), a $205M Fund, and, at the time of its announcement, it was one of the biggest to-be active Canadian Fund of Fund  (the Ontario Government commitment was in the order of $90 million). We hadn’t heard much since then nor seen any activity until earlier this month when the Ontario government followed up with the announcement of a new $250M VC fund that would co-investing with other eligible fund managers in emerging technologies (Link). This announcement was quickly followed by other rumors about the first two investment commitments towards private funds by the Ontario Venture Fund (the Fund of Fund) which were rumored to be Kodiak Venture Partners and Mayfield (both US funds). I guess it was just rumors, because today they announced their first commitment, and its towards Ontario based venture capital Georgian Partners.

The level of energy and the willingness coming from large Canadian institutions and government to commit important amounts of capital to Venture Capital is well received by the community. The CVCA and many of its members, have been putting allot effort towards gathering support from large institutions as well as from our governments in order to help address the current lack of funding available to bridge the gap between research and development and the commercialization of promising technologies. If you haven’t yet, take a look at the recently released study on the economic impacts of venture capital: Why Venture Capital is Essential to the Canadian Economy (Link).

Even if all of this sounds really good, I still fear that in the current economic climate, as a VC fund manager, attracting funds from the non-government entities, such as: Pension funds, Insurance Companies, Banks, large corporations, endowment funds… will prove to be at the least extremely difficult.

But we will get there.. only by showing our Canadian existing and potential limited partners, that yes, Venture Capital Funds in Canada can provide strong returns (IRR)!

Onwards, upwards!

Over $1 billion in stimulus for Canadian startups

Repost from Flow Ventures

by Raymond Luk

This is a great time to be building startups in Canada. Ontario and Quebec have recently announced over a $1 billion in funding for new ventures through matching funds and fund-of-funds. There may be more good news when Ontario tables its budget on March 26.

Here’s a quick summary:


Quebec (link to budget):

  • $825 million for a fund-of-funds to invest in 15-20 VC funds ($700 million from the government, $125 million from the private sector)
  • $125 million for the creation of 3 seed funds ($100 from the government, $25 from the private sector)
  • 10-year provincial tax holiday for new ventures that commercialize research from a Quebec university or research centre

So how does this trickle down to startups?

  1. If you’re raising your first round it means there will be more seed funding sources and more money in existing funding sources. Private investors may be more willing to invest since the government is matching their dollars 1 to 1 or 2 to 1 in some cases.
  2. If you already have investment it means your investors may be more likely to top-up if they are on the receiving end of these funds.
  3. If you’re commercializing research, which Canada does a poor job of, you look a lot more attractive to investors. Not paying provincial corporate tax for 10 years has a huge effect on investor returns (assuming you’re planning on profitability).

The best part of these initiatives is that they support the existing investment ecosystem rather than trying to replace it with something government run. We already have the pleasure, privilege and intestinal fortitude to deal with the government for SRED and other subsidies. Best leave investment to experienced managers.

So is there any bad news? Timing will be an issue as nobody can deploy this much money quickly. It’ll be awhile before funds actually trickle down to companies. I personally don’t like any initiative with a geographical limitation. I understand the desire to create jobs in a particular place but technology companies can be spread out. In Canada, where we don’t have the density of markets and talent, an Ontario-only company doesn’t make sense.

But enough complaining. Does this mean that we at Flow are more likely to make investments in the near future? You bet!


A new $825M Fund for Venture Capital to be put in place by Quebec Government

Posted by Chris Arsenault

What do you think, can local Governments play leading roles in the Venture Capital Community?

Earlier today, the Quebec Finance Minister Monique Jérôme-Forget presented here budget in which she outlines the $15-billion stimulus package. Budget 2009-2010. I believe this is great news for Quebec, for Canada and the whole Venture Capital Community, will funds be managed by private fund managers? 

We find in this Budget many changes and numerous proposed solutions for critical sectors of the economy. But the two initiatives that captured my attention are 1) the creation of the new $825M Venture Capital Fund (or will it be a Fund of Fund?) and 2) a $500M emergency Fund for businesses. Of course we have yet to see the details and inter-workings of such a Fund, but I would guess that these monies will provide some level of continuity to Venture Capital Fund managers and potentially direct investments as well. So this is great news as long as the capital being put at work is done through proper management of such funds.

Over the last few years, The Solidarity Fund, the FondAction CSN, Desjardins Capital and the Caisse de Dépot have been hard at work figuring out ways to help entrepreneurs and business owners out. They have played a crucial/leading role in support of the Canadian Private Equity & Venture Capital industry.  Their efforts are now joined by a clear and strong commitment to Venture Capital by the Quebec Government. This news comes a day after the Ontario Budget and announcement of their own co-investment fund in the amount of $250M.

I look forward to soon be witnessing a revived Canadian Venture Capital Ecosystem through  (mostly) an indirect involvement by our governments into businesses through their direct commitment as limited partners into leading private venture capital fund managers across Canada.

Here are a few key highlights of 2009-2010 Quebec budget (as outlined by the Montreal Gazette):

- $15-billion economic stimulus package;

- $3.9-billion deficit budget;

- Quebec Stock Savings Plan, returns, tax deductions for stock market investments;

- Quebec sales tax will rise to 8.5 per cent in 2011;

- Indexing of fees, from birth certificates to driver’s licences, in 2011;

- $500 million more for job re-training;

- $1.5-billion more for health, $490 million more for education;

- A $500-million emergency fund, for businesses;

- A $825-million venture-capital fund, for businesses;

- $2,000 increase in tax credit for child-care expenses;

- Program to eliminate elder abuse;

- $1.6-billion more for Generations Fund over two years, to offset Quebec’s growing debt;

- Crack down on “aggressive tax planning” to curb tax evasion;

- 3,000 more low-cost housing units.


Copy of the CVCA Letter to Premier Dalton McGuinty regarding the critical situation facing Ontario’s venture capital industry.

 March 16, 2009

Premier Dalton McGuinty

Government of Ontario

Legislative Building, Queen’s Park

Toronto, Ontario

M7A 1A1


Dear Mr. Premier,


On behalf of Canada’s Venture Capital and Private Equity Association (CVCA), I would like to draw your attention to the critical situation facing Ontario’s venture capital industry.  The current severe economic downturn is further exacerbating an already difficult fund raising and investing environment and risks compromising our collective ability to fund the industries of tomorrow.


Venture capital (VC) firms generally focus on entrepreneurial and fast growing small businesses in the technology arena, including information and communications technology, life sciences and biotechnology, alternative energy and clean tech.  Perhaps the best known Canadian VC success story is Research in Motion, which has fundamentally changed the way we work and communicate while at once creating tens of thousands of jobs and serving as an engine for Canada’s economy.


The CVCA has recently released a study on the economic impacts of venture capital.  This study has been led by the CVCA with the financial support of Ontario, several other provincial governments and the federal government.  This study clearly shows that venture capital in Canada has resulted in the creation of close to 150,000 jobs and an additional 1% to Canada’s GDP.  In addition, according to the Information Technology Association of Canada (ITAC), 700,000 Canadians work in the broader information technology and communications technology sectors.


This record reflects the specialized business-building skills that Canada’s venture capital firms bring to their portfolio companies.  It is also a measure of our long-term focus, astute risk management and strong sense of corporate responsibility and accountability to stakeholders.


While the venture capital industry has been a key driver of Ontario’s prosperity, our members are currently facing significant challenges that we believe require government action.  At a time when our economy urgently needs new success stories like RIM, ATI, Open Text, Cognos and Corel, we believe that it is vital for the government to address the: 


Current lack of funding available to bridge the gap between research and development and the commercialization of promising technologies;


Existing obstacles to foreign investment


Each of these challenges is presented below along with a proposed approach to form the basis for a more detailed discussion.


Access to Funding

Given the current economic environment, fundraising in our sector reached new lows in 2008.  The ability of funds to raise new capital impacts their capacity as financial intermediaries to make investments into promising companies.  Because of the increasing difficulties in fundraising, between 2003 and 2008, venture capital investment in Ontario dropped to $99 million in Q 4, 2008, down precipitously from $177 million in Q 3, 2008 and from $217 million in Q 4, 2007.


The lack of capital available to venture capital investors reflects the broader market volatility and the new market realities.  Institutional investors such as pension funds have incurred considerable losses in their public equity portfolios, which in turn has resulted in a corresponding lower allocation to venture capital and private equity.  Additionally, individual investors are increasingly reticent to invest in publicly-traded vehicles such as Labour-Sponsored Venture Capital Corporations, for a variety of reasons, including the gradual withdrawal of tax incentives for investing in the asset class.


Simply, the lack of capital is putting Ontario’s innovation at risk.  Without funding, there is an increasing and very real risk that Ontario will not be able to fully capitalize on and benefit from its multi-billion dollar investment in research and development.


We note that the federal government has already taken significant steps towards improving SMEs’ access to credit.  However, the fastest-growing, most export intensive Canadian SMEs are disproportionately backed by equity infusions from venture capital funds.  The current economic environment is depriving venture capital funds of their ability to raise capital, thereby robbing our most promising SMEs of the opportunity to grow.


A practical commercialization support program will ensure that more of Ontario’s enterprising companies are able to realize their full potential, which will help to strengthen Ontario’s competitiveness in the global, knowledge-based economy of the 21st century.  The CVCA recommends the following initiatives: 

  • Setting up a federal $300-million, third-party managed fund of funds similar to the fund recently-established by Ontario to help fuel the growth of vibrant, leading-edge companies;
  • Doubling the size of the Ontario venture fund through a direct injection of $200 million in government funding;
  • Improving the federal Scientific Research and Experimental Development program (SR&ED) so that for every $1 of approved claims,$1.50 is returned to the company, thereby stimulating its growth and development; Ontario’s support on this score would be welcome;
  • Enabling greater use of government procurement/offsets to encourage domestic as well as foreign multinational investment in domestic venture capital funds; and
  • Creating an incentive for large Ontario corporations to invest in domestic VC funds, where an investment in a VC fund would receive the same tax treatment that is currently available for in-house research and development.

 These measures would benefit Ontario’s technology firms as well as its venture capital funds in both the short and medium term and would improve our collective ability to achieve the longer-term innovation and productivity goals that are necessary to maintain the province’s competitiveness in the global economy.


Removing Remaining Obstacles to Foreign Investment


Foreign venture capital investment has historically been an important contributor to the success of emerging Canadian companies.   However, at the end of the fourth quarter of 2008, foreign venture capital investment in Canada fell 56% in 2008 relative to 2007, the lowest level in five years.  Moreover, this trend appears to be accelerating.


We encourage the government to examine ways to improve Ontario’s and Canada’s investment appeal.  The CVCA shares the analysis of the situation put forth by the recently-released federal Advisory Panel on Canada’s System of International Taxation, namely that the current Section 116 process “may negatively affect Canada’s ability to access foreign capital, particularly by private companies.” (p.91). The Advisory Panel’s Recommendation 7.4 that deals with this matter is, regrettably, insufficient to deal with the problems encountered by our members and by the foreign investors with whom they deal.


Canada currently defines taxable Canadian property to include shares of a private corporation resident in Canada.  At the same time, Canada’s tax treaties cede taxing jurisdiction to the country where the non-resident vendor is resident, provided the shares do not derive their value principally from real property.  Based on the large number of tax treaties Canada has concluded, it appears that Canada is prepared to exempt from taxation all gains realized by non-residents, other than the gains from the disposition of real property.


In light of this treaty policy, we believe that Canada should adopt a broader exemption in its domestic law to exempt gains realized by non-residents other than those arising from the disposition of real property.


We see little benefit in providing the exemption only on a bilateral basis.  The benefit of a broader exemption is that it would make Canada a more attractive destination for equity investments by non-residents and, in particular, venture capital and private equity funds.  A broader exemption would also reduce a significant compliance burden that acts as an impediment to foreign direct investment in Canada.  Unfortunately, recently enacted changes regarding the Section 116 clearance certificate process did not address the issue and are unlikely to reduce the number of situations involving arm’s length transactions in which clearance certificates are obtained.  We recommend amending the definition of taxable Canadian property so as not to include the shares of a private corporation resident in Canada other than when such shares derive their value principally from real property in Canada.


This proposed solution would put an end to the onerous Section 116 compliance requirements (except for real property), should not result in any significant tax revenue loss and would mirror the practices of most leading international jurisdictions.


We would strongly urge Ontario to continue to press the federal government to remove the Section 116 obstacles to foreign investment.


Encouraging Angel Investing

Although it is not within the CVCA’s mandate, we recognize the important role that Angel Investors play in our ecosystem.  Although the CVCA has not taken a formal position on the topic, I will note that one half of U.S. State governments have adopted some sort of “Angel Tax Credit” to stimulate the creation of start-ups.


In closing, the strength of our venture capital industry has a direct impact on Canada’s economic health as well as the financial well-being of millions of Ontarians.  At the CVCA, we take this responsibility very seriously. 


We would welcome the opportunity to meet with you to further discuss the opportunities and challenges that are outlined in this letter. I can be reached at 416-607-5150 while the CVCA’s Executive Director, Richard Rémillard, can be contacted at 613-744-8969.


Yours sincerely,


Gregory Smith




cc. Dwight Duncan

      Minister of Finance


     John Wilkinson

     Minister of Research and Innovation


Did the Ontario Venture Fund finally pull the trigger?

Re-posted from the Wellington Financial Blog.

The rumours have been churning for weeks that the Ontario Venture Capital Fund has made its first financial commitment to the space, some 18 months  after its launch. The figure isn’t known (US$5 or US$7.5 million perhaps), but most agree that Mayfield Fund  was the first to get the nod from TD Capital Private Equity Partners  on behalf of Ontario Premier Dalton McGuinty and Innovation Minister John Wilkinson.


Here’s the skinny on them:

We have over $2.8 billion under management and a team of ten investing professionals. Since our founding in 1969, we have raised 13 funds, invested in more than 500 companies, taken more than 100 public, and nearly 100 have merged or were acquired.


Mayfield has a truly great reputation, and one hears that they’ve agreed to open up a one-person office in Toronto as part of the deal. The brightside of all of this is that Toronto may have a new player in town with global links. Prior Mayfield successes include Broadvision, Citrix, Concur, Genentech, Nuance, Sandisk, etc.


500 investments over 40 years works out to be 12.5 per annum worldwide, counting both leads and syndicates. Which means, based upon the size of our tech economy relative to the rest of the world, Canadian entrepreneurs might imagine one incremental lead a year from their own backyard as a result of this new footprint.


The OVCF was designed to help arrest the death of the local start-up economy (see prior representative post “MRI Fund rumors come true” June 11-08). Critics will wonder why the first venture fund that the Ontario government invested in was an American group (particularly when the 2nd press release said that between “80% and 100%” of the capital would go into “Ontario-focused funds” ), but I find no fault with the concept.


The only valid criticism will be that none of this information is ever made public. 1) How can entrepreneurs tap into the Province’s capital if no one knows who is deploying the $205 million of capital and where to access it?; and 2) How can taxpayers track the performance of the strategy if Ontario doesn’t have a specific website dedicated to performance data, as one would find at CPPIB ?


Ontario politicians and officials have unwittingly learned two lessons over the past year. First, that it is hard to raise capital: even with the Premier himself making calls, only a few corporate and institutional LPs joined the OVCF (all of which were gov’t regulated). The second closing, which would take the $205 million figure higher, was “anticipated” to happen in 2008  — but never came to pass.


And second, when LPs go to commit new capital to the venture space, it is so much easier to “buy IBM” than to support a domestic VC team. This decision makes it a bit more difficult for provincial politicians to criticize the CPP Investment Board for cutting back so dramatically on their Canadian venture investments over the past few years (see prior representative posts “CPPIB general partner Q1 2007 performance numbers” August 26-07 and “Doubling Down on Private Equity at CPP Investment Board” February 20-09).


Welcome, Mayfield! The industry is glad to have you onboard. If the rumour that TD Capital Private Equity Partners’ second commitment is also to a U.S.-based venture fund is also true, then the notion that the OVCF was designed to help save the Ontario VC industry will start to unravel in no short order. But that’s no knock on Mayfield’s capabilities.


According to the Ontario government’s own stats, venture capital and follow-on financings in Ontario hit a 12 year low in 2008, the year after “first time” VC financings in Ontario reached a similar nadir.

Transplanting the U.S. venture industry to Ontario just isn’t feasible. We still need local managers if Ontario is ever to have an Innovation Economy, whether or not Chrysler’s 3 Ontario-based plants survive the next 36 months. Having almost killed the Labour-sponsored Fund Industry, and agreed that the OVCF isn’t the “silver bullet”, where’s the balance of the Ontario government’s strategy?




Why Venture Capital is essential to the Canadian Economy

By Gilles Duruflé

CVCA has just released its comprehensive study on the impact of venture capital in Canada on economy, jobs and innovation.

The report (i) explains what venture capital is and how it adds values, (ii) describes how the Canadian venture capital industry developed compared to the US industry and how it differs from the US, (iii) measures its impact on the Canadian economy in terms of jobs, economic growth, innovation and exports, (iv) through various success stories, illustrates its long term “snowball effect” generating a pool of business angels, entrepreneurs and managerial talent which benefit the next generation of technology start-ups and, finally, (v) underlines the present contraction of the Canadian venture capital industry and its growing gap with the US industry which is a major threat for the Canadian technology and innovation ecosystem.

Here are the major findings

Between 1996 and 2007, Venture Capital investors financed 2,175 technology companies in Canada. 1,740 of those are operating in Canada in 2008. In addition, prior to 1996, it financed 15 companies that are still operating and have sales larger than $ 50 million in 2008.

On average these 1,755 companies have sales of $ 10.5 million and employment of 47 direct jobs. They are a mix of small, medium and large companies.

In aggregate, they generate sales of $ 18.5 billion:

  • $ 15.4 billion in ICT,
  • $ 1.9 billion in Life Sciences,
  • $ 1.0 billion in Other Technologies.

They employ 63,955 people in Canada and 17,760 abroad.

In addition, they generate 83,549 indirect jobs in Canada for a total of 147,504 direct and indirect jobs generated in Canada which represents 1.3% of all private sector employees in Canada. Indirect jobs are jobs generated in other companies through the purchase of goods and services from these companies. They are calculated on the base of industry-weighted employment multipliers provided by Statistics Canada.

The 51,050 direct jobs in Canada in ICT venture capital-backed companies represent 8% of the total sector employment and the 5,069 direct jobs in venture capital-backed Biotechnology companies represent 34% of total employment in that sector (graph 12).

Gross domestic product (GDP) is the measure of total value created in the country during one year. In 2007, the contribution of venture capital-backed companies to the Canadian GDP was    $ 14.5 billion, 0.94% of total GDP: 0.54 % directly through compensation, profits and taxes paid by these companies and 0.40% indirectly through the activity generated in other companies and sectors in Canada due to the goods and services bought by these companies.

The impact of venture capital-backed companies on the Canadian economy is however quite significant: 150,000 jobs (1.3% of all private sector employees) and nearly 1% of GDP. The impact on growth is also important, since venture capital-backed companies which responded to the survey grow more than 5 times faster than the overall economy. Moreover, their impact on innovation (R&D and patents) and exports is very substantial.

There are additional major benefits beyond these economic measures. (i) Successful venture capital-backed companies generate wealth and talent which are reinvested in the next generation of technology start-ups; (ii) they create serial entrepreneurs; (iii) they allow investments by business angels, and (iv) they provide a source of experienced management talent. Alongside business angels, venture capital funds play a critical role in linking these pools of wealth and talent to new start-up companies. This is what we call the “snowball effect” and it is illustrated by the success stories of Q9 Networks, Axcan Pharma, Taleo, Creo and ALI technologies.

But the report makes clear that the picture is not all rosy.  While we know that Canada’s venture capital sector is younger than its American equivalent, the figures in this report demonstrate that venture capital investment in Canada has declined relative to foreign markets. 

In the period from 2003 to the third quarter of 2008, relative to the size of the economy, the investment pace in Canada has been 60% of what it was in the US and the gap is widening.  Between 2003 and the first 3 quarters of 2008:

  • Venture capital investment in the US increased by 17%, from 0.18% to 0.21% of GDP
  • Venture Capital investment in Canada meanwhile decreased by 35%, from 0.13% to 0.085% of GDP and investment by Canadian funds in Canada from 0.10% to 0.06% of GDP

This decline in investment is strongly related to the decline in fund raising by the industry.

Given the importance of venture capital’s impact on innovation and on the overall economy, the report concludes on a call to all parties – governments, investors, venture capital funds and entrepreneurs – to work together to build a strong, permanent, Canadian venture capital industry.

Link to full report ENGLISH FRENCH