Archive for April 28th, 2009

Teralys a $700M Fund of Funds: A turning point for VC fund raising in Canada?

Re-post by Chris Arsenault, Managing Partner & COO at iNovia Capital

Definitely, this is great news for the Canadian VC industry and for tech entrepreneurs alike. Today, Teralys Capital was born, with at its helm Mr. Jacques Bernier (an experienced entrepreneur, executive and investor), and with $700 million in capital (as a first closing), making it the largest Fund of Funds of its kind in Canada.

The Caisse de dépôt et placement du Québec (CDP), the Fonds de solidarité FTQ (the Fond), and the Québec government (via Investissement Québec), announced the creation of Teralys Capital, a new Quebec based Canadian Fund of Funds, which will invest in private venture capital funds (VC Funds) that in turn will invest in technology companies in sectors that include Infotech, Cleantech and Life Sciences. CDP announcement here (link).

The Caisse de dépôt et placement du Québec and the Fonds de solidarité each contributed $250 million and Investissement Québec contributed $200 million to Teralys Capital, all as part of the Fund’s first closing. Mr. Bernier expect to raise an additional $125 million from other institutional and private investors, bringing the first fund size up to $825 million.

The Government versus the role of the VC Fund in funding entrepreneurs.

I don’t believe in having our governments involved in every aspect of our businesses and especially not calling the shots on who should receive funding and who shouldn’t. And I don’t believe in bailouts per say. I believe in intelligent investments that can generate strong returns by enabling and by levering, knowledge, networks and expertise.

We live in a very competitive technology driven environment that requires our best entrepreneurs to not only have the best ideas, the best innovations but also the best business models and a unique competitive edge that is, more often than less, far from obvious to the venture capital firm looking to invest. Canada needs a strong community of privately driven VC Funds with industry expertise and broad networks of partners and co-investors to provide the insight and support our Canadian entrepreneurs need to succeed. These VC Funds need capital (just like entrepreneurs do) and today’s announcement will somewhat facilitate, for the few, their fund raising efforts and will hopefully create more awareness and interest towards this investment class.

Over the last 12 months, many provincial governments (British Columbia, Alberta, Ontario) and even some cities (Ottawa) announced their intent to actively support the Canadian venture capital industry by playing a direct or indirect role as an investor or co-investor in existing and upcoming VC Funds.  It was refreshing to start hearing about their concrete investment commitments into VC Funds, and not just read about it in the budgets! You can read more about the positive impact of these initiatives in an article ported on the Montreal Tech Watch blog (link).

But today’s joint announcement from the CDP, the Fond and the Government of Québec I believe is setting new standards in Canada by all means. And I think they are calling it right!

  • First, they put together a substantial amount of cash for this type of activity to be effective;
  • second they named an experienced management team, making the fund privately managed in its self, that can lead    the investment process without the direct involvement of the government  (and I expect this to be the first of many  Funds to come under Teralys Capital’s management);
  • And finally, they acted fast (within 2 months from the Government of Québec 2009 budget).

So with this announcement, we can expect Teralys Capital to announce its first commitments into VC funds within the two quarters. This is great, but let’s not forget that these VC Funds managers will likely be required to attract further capital from other Fund of Funds, Pension Funds, Institutional and Private investors before  themselves start investing into tech companies. Therefore, we should see the first few $ in the hands of promising technology companies and entrepreneurs by this time next year.

Now, we haven’t seen any traction from the Federal Government front yet, nor do we see enough traction for this class of investment from Canadian and Foreign institutional investors. The CVCA also welcomed the Quebec Fund of Fund initiative today, but highlighted the situation our industry in their press release (link), stating: The Canadian venture capital industry has endured several years of declining fundraising. Thus, the industry raised $1,718 billion in 2005 and only $1,028 billion in 2008, a precipitous drop of 41%. So allot still needs to be done.

Yet, I applaud today’s announcement and welcome the path of action taken by the Government of Québec, by not trying to substitute itself for a VC Fund manager, but instead, by acting quickly, partnering up and leveraging the expertise and knowledge of industry leaders in order to have a more substantial impact.

Expect to hear more at this year’s CVCA Annual Conference, to be held in Calgary on May 27-29th, where the likes of Jacques Bernier – CEO of Teralys Capital, Ian Carew – Vice President, TD Capital Private Equity Investors and other Fund of Funds managers and VC Fund managers will share their thoughts, vision and action plans.  LINK TO CONFERENCE PAGE

Other related posts:

$5 billion to end up in the hands of Canadian entrepreneurs, nothing less!

CVCA’s Comprehensive Study on The Impact of Venture Capital in Canada on Economy, Jobs and Innovation

CVCA English press release  Communiqué en Français ci-joint

Caisse de dépôt et placement du Québec press release