by Mark McQueen, Wellington Financial LP – originally posted on July 8, 2010

For fear that the Business Development Bank of Canada hasn’t tasked their management consulting team at McKinsey with stakeholder meetings in relation to the “BDC Venture Capital” strategic review currently underway (see prior post “Playing catch-up” July 7-10), David Crow asked me to share my simple suggestion with all of you.

I warn you: the idea isn’t all that novel. HSBC did it when they recenly spun out their six global private equity arms to the local management team. TD Bank did it when they handed TD Capital Private Equity Partners to the Toronto-based group that now goes by NorthLeaf Capital Partners. Quebec’s FTQ did it in 2008 with their 35 early stage venture capital investments. It’s not very complicated.

If BDC CEO Jean-Rene Halde is concerned about the 5% of his total assets (yes, sadly just 5%) that are tied up in money-losing VC deals, my suggestion is simple, and it works for everyone: Spin out the BDC Venture Capital arm to its management team.

Overnight, BDC VC would become Canada’s…

(please check out full post here)

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By Gregory Smith, President of the CVCA

CVCA – Canada’s Venture Capital and Private Equity Association welcomed the arrival of a significant new fund of funds that was put together by the Government of Québec, the Caisse de Dépôt and the Fonds de Solidarité. CVCA Press Release. Caisse de dépôt et placement du Québec full Press Release.

“This $700 million fund of funds first closing, called Teralys Capital, is a shining example of the positive impact that close public sector-private sector collaboration can bring about,“ said Gregory Smith, President of the CVCA. “The venture capital industry in Canada sorely needs more capital and more sources of capital supply in order to fund the industries of tomorrow upon which our future depends,” added Mr. Smith.

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%.

“This worrisome situation must be halted and reversed,” said Mr. Smith. “Objective research recently conducted by the CVCA with the financial participation of several provincial governments including Québec, Ontario, Alberta and British Columbia as well as the federal government shows the positive ‘snowball effects’ that venture capital has on economic development and job growth. Evidence reveals that venture capital investment has resulted in close to 150,000 direct and indirect jobs in Canada and added $14.5 billion to GDP.”

The CVCA also welcomed the nomination of Mr. Jacques Bernier as President of the new fund of funds.

“Mr. Bernier has a long, positive track record in the venture capital industry and we wish him every success,” commented Mr. Smith.

CVCA

The CVCA – Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 1600 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters.

To arrange an interview with Gregory Smith, President of the CVCA, contact Iris Roesler, 416 607-5166.

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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:

Ontario:

• $250 million Emerging Technologies Fund which will match private investments in IT, cleantech and life sciences startups

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!

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