Archive for the ‘ Private Equity ’ Category

Looking for excellent investment opportunities and superior returns? Look no further than the Great White North

Looking for excellent investment opportunities and superior returns? Look no further than the Great White North

Written by Pascal Tremblay, Managing Partner Novacap Technologies for Private Capital Magazine Summer 2012

In today’s business world, institutional investors are looking to outperform the foreseeable long period of low returns of the public and fixed incomesecurity markets caused by the economic turmoil of the last few years. They are looking to invest in alternative vehicles such as venture capital and private equity firms that benefit from demonstrable competitive advantages in territories where they invest which, in turn, provide unfair advantages to the companies they are investing in against their global competition.

Moreover, as we now know, the world has become a small oyster. Venture capital and private equity backed companies can no longer focus only on their home market, whether they are based in Canada, in the U.S., in Europe or in Asia. Factors

such as the growth of the digital infrastructure and of distributed computing architectures (think cloud computing), access to all information anywhere and anytime, and the creation of low-cost manufacturing and distribution have significantly reduced the traditional barriers to entry for out-of-market competitors. As a result, companies need to think globally for all aspects of their operations and not only for their sales and marketing, as has traditionally been the case.

Venture capital and private equity investors seek to create value the following way: harvest creativity by driving capital efficient innovation and growth; improve operating margins and obtain multiple expansion at exit. As it happens, building a leading global business goes a long way in achieving these value creation drivers.  Although these lessons are not new, there is a new way for investors to employ this formula: Think Canada!

Today, Canada presents an excellent environment in which venture capital and private equity investors can invest and create superior returns for their limited partners. Why is this market now so appealing, especially in the face of the attention being paid to emerging markets around the world such as Brazil, China, India and Russia?

1. Depth of talent

In many industries such as technology, new media, telecommunications, natural resources and energy, to name a few, Canada possesses an extensive pool of talent. This pool provides a mix of entrepreneurial spirit coupled with the maturity of managers who have “been there and done that.”  This combination provides investors with an employee base that will always seek innovation and growth, but with recognition to turn such innovation into value for the company’s stakeholders.

Likewise, because Canadian companies needed to learn long ago how to access the U.S. market in  cost-efficient manner, there is a large supply of experienced executives and professionals whose talents can be applied to building distribution on a global basis. Moreover, most leading Canadian venture capital and private equity firms have developed extensive international contact networks that give them access to key resources when needed.

2. Affordable labour costs

For venture capital and private equity investors, labour costs always receive a lot of attention. This is for good reason, as it is one of the largest line items on the profit and loss statement for most companies. The prevailing environment for wages in Canada is typically far less than that in the U.S. and Europe. This has much to do with the cost of living and historical compensation expectations in Canada, which typically trail the other developed countries.

Another contributing factor to the reduced labour costs is the existence of numerous tax credits a company can obtain for R&D and other development conducted in Canada. As a result, the combination of reduced labour costs and tax credits allows for a more efficient cost structure to drive greater innovation and profitability.

3. Proximity to and free trade with the U.S.

Canada is the largest trading partner of the U.S. and vice versa. The U.S. is the most important market for the success of the vast majority of Canadian companies. It is the largest market for many products and services, and its capital markets remain among the largest and most liquid in the world. Changes to regulations over the last few decades (e.g., the North American Free Trade Agreement) in both Canada and the U.S. permit easy access to U.S. capital markets and the free trade of goods and services between the two countries.

4. Canadian commercial banking industry

Essential for the growth of business is a stable commercial banking industry. An active and stable lending market allows for access to less expensive capital to drive growth. In addition, a stable market allows for predictable behaviour during turbulent markets, allowing for a more constructive dialogue between lender and borrower during such times.  The major leading commercial banks in Canada have historically been active lenders to growth companies in Canada. Even during the recent global economic turmoil, these banks remained active due to the strength of their balance sheets and business practices.

5. Size of deal market

By most measures, the Canadian economy (in terms of GDP) is typically 10 per cent of that in the U.S.  Although there are some variances based on industry verticals, this is a good general rule of thumb. Since most economic statistics generally exist in a similar ratio, one would assume that Canadian venture capital and private equity deal activity would represent 10 per cent of the U.S. deal activity from a volume and size perspective. Based on data from Thompson Reuters, however, Canadian venture capital and private equity deal activity is only 4 per cent of that in the U.S.  The significance of this ratio is that purchase price multiples or pre-money valuations are typically 10 to 25 per cent lower in Canada versus that in the U.S.  As companies grow and become more global, these valuations move closer to U.S. valuation benchmarks, allowing for multiple expansion at exit for the investors in those companies.

In light of these factors, among many others, Canada represents an exceptional opportunity for investment. Companies across sectors have access to capital and talented management to help drive cost-efficient innovation and strong growth. As these companies build up in size, low cost labour and its close proximity to the U.S. allow for lower operating costs and drive superior operating margins. Lower investment entry valuations provide for better returns for both private equity and venture capital.

Finally, if becoming global is a pre-condition for success in today’s business climate, Canada offers an inviting environment to achieve this. Therefore, if investors are looking to outperform public and fixed income security markets, look no further than Canada.

CVCA to provide Conference participants with an enhanced mobile experience

Attendees to Receive BlackBerry PlayBook Tablets Preloaded with Conference App

The CVCA – Canada’s Venture Capital & Private Equity Association has chosen Montreal to hold its 2012 Annual Conference (May 23-25), one of the largest gatherings of the private capital industry in North America. Confirming its role as a leading source of advocacy, networking, information and professional development, CVCA is giving each attendee a BlackBerry® PlayBook™ tablet from Research In Motion (RIM) preinstalled with an app designed for the conference. CVCA is the first association to give PlayBook tablets to all conference attendees as the primary source of conference materials along with an official conference mobile app.

The official conference app will contain the conference agenda, speaker bios and other conference information, and will allow the participants to ask questions of moderators and interact with other conference attendees through social media.

“We are proud to work with RIM to offer our conference participants a one-of-a kind mobile experience. This innovative approach aims at enhancing networking opportunities, and the dissemination of information about issues, industry trends and deal flow,” states Chris Arsenault, 2012 Conference Co-Chair and Managing Partner, iNovia Capital.

“The BlackBerry PlayBook combines powerful web browsing, multimedia and multitasking capabilities with top of the line communication features and productivity enhancements. It also provides users with access to a diverse and rapidly growing portfolio of apps spanning enterprise, gaming, publishing, multimedia and social,” said Alec Saunders, Vice President, Developer Relations and Ecosystems Development at RIM. “We are happy to work together with CVCA to enrich the conference experience with the powerful and ultra portable BlackBerry PlayBook.”

The CVCA Annual Conference is the premiere networking and professional development event for Canada’s venture capital and private equity industry and repeatedly sells out with over 650 industry professionals and influencers from across Canada and around the world. This year’s theme is “Venture Capital & Private Equity: Outperforming the Markets”. For more information the program and confirmed speakers, please visit www.cvca.ca.

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 1900 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.

The BlackBerry and RIM families of related marks, images and symbols are the exclusive properties and trademarks of Research In Motion Limited. RIM assumes no obligations or liability and makes no representation, warranty, endorsement or guarantee in relation to any aspect of any third party products or services.

L’Association offrira une expérience mobile unique en son genre aux participants de sa Conférence Annuelle

Les participants recevront des tablettes mobiles BlackBerry PlayBook qui incluent l’application de la conférence

L’Association canadienne du capital de risque et d’investissement (l’ACCR) a choisi Montréal pour tenir sa conférence annuelle 2012 (23-25 mai), l’un des plus importants événements de l’industrie du capital d’investissement en Amérique du Nord. En tant que chef de file en défense des intérêts de l’industrie et fournisseur d’occasion de réseautage, d’éducation et de développement professionnel pour ses membres, l’Association remettra à chaque participant une tablette mobile BlackBerry® PlayBookMC de Research In Motion (RIM), sur laquelle sera téléchargée l’application officielle de la conférence. L’ACCR est la première association à offrir des tablettes mobiles PlayBook et une application officielle à l’ensemble de ses participants comme première source d’information pour la conférence.

L’application officielle de la conférence contiendra le programme de la conférence, les biographies des conférenciers et d’autres renseignements sur la conférence. Elle permettra aux participants de poser des questions aux modérateurs et d’interagir avec les autres participants présents à la conférence par le biais des médias sociaux.

« Nous sommes fiers de collaborer avec RIM pour offrir aux participants de la conférence une expérience mobile unique en son genre. Cette approche novatrice vise à améliorer les possibilités de réseautage et la diffusion de l’information sur les enjeux, les tendances de l’industrie et les flux d’affaires », a déclaré Chris Arsenault, co-président de la conférence de 2012 et associé directeur d’iNovia Capital.

« La tablette BlackBerry® PlayBookMC combine une navigation sur le Web de haute performance, des capacités multimédia et multitâches et les meilleures caractéristiques de communication et d’amélioration de la productivité. La tablette permet également aux utilisateurs d’avoir accès à un portefeuille diversifié et en croissance rapide d’applications en tous genres, qu’il s’agisse d’applications pour les affaires, de jeux, de publications, ou de multimédia et réseaux sociaux », a déclaré Alec Saunders, vice-président des relations développeurs et du développement de l’écosystème de RIM. « Nous sommes heureux de collaborer avec l’ACCR afin d’enrichir l’expérience des participants de la conférence avec notre puissante et pratique tablette mobile BlackBerry® PlayBookMC. »

La conférence annuelle de l’ACCR est le premier événement de réseautage de développement professionnel pour l’industrie canadienne du capital de risque et d’investissement. Dans le passé, la conférence annuelle s’est maintes fois vendue à guichet fermé auprès de plus de 650 professionnels de l’industrie et d’influenceurs à travers le Canada et partout dans le monde. Le thème de cette année est « Le capital de risque et le capital-investissement – plus performants que le marché capital de risque et investissement privé : surperformer les marchés ». Pour plus de renseignements sur le programme et les conférenciers confirmés, veuillez visitez le www.cvca.ca.

ACCR

L’ACCR – L’Association canadienne du capital de risque et d’investissement a été fondée en 1974 et représente l’industrie canadienne du capital de risque et d’investissement privé. Elle compte au-delà de 1900 membres, soit des sociétés et des organisations qui gèrent la majorité des capitaux canadiens mis en commun et destinés aux investissements en capital de risque et en capitaux propres. L’ACCR favorise le perfectionnement professionnel, le réseautage, la communication, la recherche et l’éducation au sein du secteur du capital de risque et d’investissement et représente l’industrie dans le cadre de dossiers de politiques publiques.

Les familles de marques, d’images et de symboles associées de BlackBerry et RIM sont des propriétés exclusives et des marques commerciales de Research In Motion Limited. RIM n’assume aucune obligation ou responsabilité et ne fait aucune représentation, caution ou garantie par rapport à n’importe quel aspect de tous les produits ou services de tiers.

CVCA APPLAUDS FEDERAL GOVERNMENT FOR ITS SUPPORT OF INNOVATION IN BUDGET 2012


CVCA – Canada’s Venture Capital and Private Equity Association today congratulated the federal government for its support of the innovation ecosystem in its 2012 budget.

“In particular, we were pleased to see that the federal government has taken decisive action to address the acute shortage of venture capital by committing $500 million to the industry.” said Gregory Smith, President of the CVCA and Managing Partner of Brookfield Financial, “We look forward to working with the federal government in determining how best to structure its support in the months ahead.” added Mr. Smith.

In a broader sense, the CVCA also noted other aspects of the budget that will help grow the leading-edge technology sectors of the economy, including:

  • The Western Innovation Program
  • The Canadian Innovation Commercialization Program
  • The Forest Innovation Program
  • The doubling of IRAP’s allocated capital
  • The College-Industry Innovation Fund.

Finally, the CVCA noted with deep interest the proposed changes to the SR & ED tax credit program. “We are pleased that the federal government has opted to keep the structure of the SR & ED program largely intact. We do support making the program more effective and will be examining the proposed modifications closely.” said Mr. Smith.

Gregory Smith, President of the CVCA and Managing Partner, Brookfield Financial

You are invited

LINK TO CONFERENCE WEB SITE

Dear friends,

The CVCA annual conference is the premiere gathering for relationship-building and insight into the current state of Canada’s venture capital and private equity industry. With over 600 limited partners, fund managers, and industry influencers from across Canada, the U.S. and around the world in attendance – the CVCA Annual Conference is one of the largest gatherings of the private capital industry in North America.

The CVCA Annual Conference sells out in advance every year – register early to guarantee your participation.

LINK TO ON LINE REGISTRATION

The Theme

This year’s theme is “Venture Capital & Private Equity: Outperforming the Markets”. Since the beginning of time, investors have focused on stocks and bonds, shifting their allocations between these traditional asset classes with the times. Alternative assets like private equity and venture capital were rarely considered and poorly understood, since the traditional assets were considered safe and reliable. But the world has changed: major equity markets have traded sideways with growing volatility through the past several years, and fixed income investments are near zero real returns. The traditional model is broken as investors rethink the risk/reward equation and look for alternatives.

Private equity and venture capital can provide exactly what investors are looking for today: strong returns and companies that will take a leadership position in an increasingly competitive global economy. This is the opportunity to create new companies and transform existing ones. Active management by highly skilled private investors is the secret sauce. These investors jump right into their portfolio companies, working alongside management to truly transform these businesses. How do they do it? The 2012 CVCA Annual Conference will show you! How do they do it? The 2012 CVCA Annual Conference will show you!

The Agenda explores the timely topics that are central to driving forward in Canada’s venture and private equity industry.  Plenary sessions, and dedicated break-out PE and VC sessions, will dive into the challenges, changes, and opportunities in the current fundraising, investing, and exit environments.

Networking is important to you.  Our conference offers abundant networking opportunities beginning with a welcome cocktail event our first evening, a Networking Lounge throughout the conference to meet up with your industry colleagues, plus the conference mobile app makes connecting with other attendees and speakers easy. Thursday’s programme will conclude with a Gala dinner featuring CVCA’s “Entrepreneur of the Year” Award presentation, followed by our popular scotch-tasting event.

Attendees return year after year for the invaluable benefits of networking with key industry leaders and for the topical issues presented and discussed. Participants and sponsors at this prestigious event include the following: Private Equity Investors ● Venture Capitalists ● Limited Partners ● Institutional & Corporate Investors ● Investment Bankers/Intermediaries ● Placement Agents ● Security Exchanges ● Government & Academic Institutions ● Specialized Service Providers: Legal, Accounting, Financial, Insurance & Executive Search Advisors.

REGISTER TODAY! LINK TO CONFERENCE WEB SITE

I hope you will join us in Montreal!

Sincerely,

Chris Arsenault                                                                   Pascal Tremblay
Managing Partner, iNovia Capital                                Managing Partner, Novacap
Co-Chair, CVCA 2012                                                       Co-Chair, CVCA 2012
CVCA – Canada’s Venture Capital & Private Equity Association
416-487-0519 (tel)
416-487-5899 (fax)
[email protected]
www.cvca.ca
@CVCAcanada

Vous êtes invités

Cher collègues,

Nous sommes heureux de vous informer que vous avez le privilège de profiter du taux des membres de CVCA pour le colloque annuel 2012 de CVCA qui aura lieu à Montréal du 23 au 25 mai 2012.

LIEN VERS LE SITE DU COLLOQUE

Le colloque annuel de CVCA constitue une réunion de première importance pour renforcer les liens dans l’industrie du capital de risque et du capital-investissement, ainsi qu’être au courant de ses plus récents développements. Rassemblant plus de 600 bailleurs de fonds, gestionnaires de fonds et personnes influentes dans l’industrie de partout au Canada, des États-Unis et de partout au monde, le colloque annuel de CVCA est l’une des plus grandes réunions de l’industrie de l’investissement en Amérique du Nord.

Chaque année, le colloque annuel de CVCA fait salle comble : réservez tôt pour vous assurer de pouvoir participer.

LIEN VERS L’INSCRIPTION EN LIGNE

Thème du colloque

Cette année, le colloque a pour thème « Le capital de risque et le capital-investissement : plus performants que le marché ». Depuis toujours, les investisseurs ont mis l’accent sur le capital-actions et les obligations, variant la répartition de leurs investissements entre ces catégories traditionnelles d’actifs selon le moment. On tenait peu compte des autres actifs, comme le capital de risque et le capital-investissement, qui étaient peu compris, puisqu’on croyait les actifs traditionnels sécuritaires et fiables. Le monde a changé depuis : au cours des dernières années, les principaux marchés boursiers n’ont pas montré de réelle tendance si ce n’est une volatilité accrue, et les investissements à revenu fixe ont offert des rendements s’approchant de zéro. Le modèle traditionnel est brisé, et les investisseurs réévaluent l’équation entre le risque et le rendement en cherchant des solutions de rechange.

Le capital-investissement et le capital de risque peuvent offrir précisément ce que cherchent les investisseurs aujourd’hui : des rendements solides et des entreprises qui deviendront des meneuses dans une économie mondiale de plus en plus concurrentielle. C’est là l’occasion de créer de nouvelles entreprises et de transformer celles qui existent. Le secret repose dans une gestion dynamique par des investisseurs privés hautement qualifiés. Ces investisseurs jouent immédiatement un rôle actif au sein des entreprises de leur portefeuille : ils collaborent avec les équipes de direction pour véritablement transformer les sociétés. Comment le font-ils ? Vous le verrez lors du colloque annuel 2012 de CVCA !

Le programme explore les sujets qui sont aujourd’hui au cœur de la force motrice de l’industrie canadienne du capital-investissement et du capital de risque. Lors de séances plénières et de séances dédiées au capital-investissement et au capital de risque, nous explorerons les défis, les évolutions et les occasions des environnements actuels du financement, de l’investissement et des sorties.

Le réseautage est crucial pour vous. Notre colloque offrira de nombreuses occasions de réseautage : après le cocktail de bienvenue de la première soirée, un salon de réseautage sera à votre disposition pour rencontrer vos collègues tout au long du colloque. L’application mobile du colloque facilitera les rencontres avec les autres participants et les conférenciers. Le programme du jeudi se terminera par un dîner de gala lors duquel sera décerné le prix de « L’entrepreneur de l’année » CVCA, qui sera lui-même suivi de notre populaire événement de dégustation de Scotch.

Les participants reviennent d’année en année pour profiter des avantages précieux du réseautage avec les meneurs de l’industrie ainsi que pour les sujets présentés qui font ensuite l’objet de discussions. Les participants et les commanditaires de cet événement prestigieux comprennent : des investisseurs de capital-investissement ● des investisseurs de capital de risque ● des commanditaires ● des investisseurs institutionnels et d’entreprise ● des banquiers d’investissement ● des agents de placement ● des représentants des bourses ● des institutions gouvernementales et d’enseignements ● des fournisseurs de services spécialisés : services juridiques, comptables, financiers, d’assurance et conseillers en recrutement.

INSCRIVEZ-VOUS DÈS AUJOURD’HUI ! LIEN VERS LE SITE DU COLLOQUE

Au plaisir de vous voir à Montréal !

Cordialement,

Chris Arsenault                                                               Pascal Tremblay
Associé directeur, iNovia Capital                                Associé directeur, Novacap
Co-président, CVCA 2012                                            Co-président, CVCA 2012

CVCA – Association canadienne du capital de risque et d’investissement
Tél. : 416 487-0519
Téléc. : 416 487-5899
[email protected]
www.cvca.ca
@CVCAcanada

Canada is back, and it needs to stay back in a big way!

On the eve of CVCA’s annual conference, the ‘rebirth’ of the country’s PE and VC markets draws attention from around the globe

First published on the nextMontreal blog and in the Spring 2012 Private Capital Privé magazine

In October 2010, the CVCA released a report entitled “Think Canada (Again).” It is obvious that the PE and VC markets were paying attention, and have spent the past 18 months heeding the call. Call it a reawakening, rebirth or revolution – call it whatever you want, but the story is simple: Canada is back, and back in a big way.

In the world of venture capital, the most noticeable sign of change has been the influx of U.S. investors seeking out early stage opportunities and backing Canadian category leaders in pursuing aggressive growth strategies. The launch of organizations such as the C100 kick-started this trend, helping secure over $400 million in cross-border venture capital since inception. These Canadian deals included industry titans such as Sequoia Capital, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Accel Partners, Greylock Partners, Bessemer Venture Partners, and Union Square Ventures (amongst others), all of whom made significant investments in Canadian start-ups in 2011.

In fact, over 30 high profile Canadian companies capitalized on this trend in the past year, numbers not approached since the heady days of the dotcom boom years. Montreal-based Beyond the Rack, Toronto-based Fixmo and Ottawa-based Shopify made the largest splashes at the end of 2011 by raising almost $80 million between them (post). However, unlike some of their turn of the century counterparts, these companies raised capital on the basis of quickly rising revenue growth curves and extremely profitable business models. There are no signs of this foreign interest abating, as strong Canadian companies looking to accelerate their path to market leadership continue to attract the attention of investors eager to back the best and brightest entrepreneurial teams, regardless of location.

” For more insights, don’t miss hearing about what the main actors have to say at the CVCA Annual Conference in Montreal, May 23 to 25.”

Early bets
Of course, it’s not just U.S. VCs who are taking advantage of the dynamic growth of the Canadian startup ecosystem. Early bets on talented entrepreneurs by CVCA members have provided the bulk of early stage financing for Canadian companies raising follow-on capital from foreign funds. Local funds have profited handsomely from this renaissance in Canadian tech startups that saw nearly $2 billion in early-stage exits in 2011 alone.
A whole new generation of talented founders is now being mentored by experienced advisors and investors through incubator/accelerators such as Vancouver’s GrowLab, Montreal’s FounderFuel and Toronto’s Extreme Startups. Events such as the Canadian Innovation Exchange (CIX) and the GROW Conference are cementing the bonds between the Canadian entrepreneurial and investment communities, as well as providing a showcase for the talented and experienced leaders who are at the forefront of each. The foundations are now in place for an explosion of value creation over the coming few years, the rewards of which will flow back into supporting the growth of future Canadian success stories.

Canadian private equity funds have also been hard at work, reasserting their standing amongst the world’s best investors and operators in the buyout industry. Canadian firms were buoyed in 2011 by the rebound of the broader M&A market. According to data compiled by PwC’s Deals Team, Canadian deals represented 10 per cent of the global M&A market in 2011, up from seven per cent at the 2007 market peak. The overall value of Canadian acquisitions into the U.S. outpaced the value of U.S.-led deals in Canada in for the first time ever. Domestic funds were still very active in Canada, with involvement in 215 deals worth $52 billion. This represented 28 per cent of all Canadian M&A activity, measured by value, up from market share in each of the three years prior. Unlike their foreign counterparts, Canadian PE buys outpaced sales by $7 billion, signalling a robust appetite for continued growth.

Headline making deals such as CPPIB’s active participation in the $8.5-billion sale of Skype to Microsoft and OMERS Private Equity teaming up with Berkshire Partners to buy Onex Corp.’s Husky Injection Molding Systems for $2.1 billion were just a few of the transactions that propelled the Canadian PE industry to the forefront of the international stage. Low debt yields, government austerity measures, public market volatility, and a baby boomer-driven family succession wave are just a few of the factors uncovered by PwC that are expected create even more opportunities for the Canadian PE industry, proving that it indeed is a force to be reckoned with in the coming years.

CVCA 2012 Conference
And now, this spring, CVCA members and industry leaders will congregate in Montreal to focus on sustaining this momentum well into the future. We will host our  industry’s outperformers. The city provides the ideal setting for such a gathering, having long served as a symbol of Canadian excellence around the world in finance,  aerospace, transportation, entertainment, commerce, technology, pharmaceuticals, telecommunications and fashion.

With strong public and private sector commitments to both the VC and PE industries, Montreal is also in the midst of redefining itself as a global hub for  entrepreneurship and investment activities. Canada’s entrepreneurial capital is fostering an environment that is conducive to creating opportunities by leveraging  traditional industry expertise, access to capital and extended personal networks to carve out a global leadership position for both its entrepreneurs and investors.  Initiatives being held in Montreal the same week as the CVCA Annual conference, such as the Cirque du Soleil and Sid Lee sponsored C2MTL event, the  FounderFuel Demo Day and C100 AccelerateMTL events, are testament to the commitment of our local potential and recent performance.

In light of these developments, perhaps it is appropriate that instead of inviting others to “Think Canada,” we encourage ourselves to “Think Global.” We stand on the verge of an era in which Canadian entrepreneurs and investors can carry their domestic strength to the international arena, and stand as shining examples for the rest of the world. All eyes will be on Montreal from May 23 to 25, 2012 to see if CVCA members are indeed up to the challenge.

“We stand on the verge of an era in which Canadian entrepreneurs and investors can carry their domestic strength to the international arena – Chris Arsenault”

See you in Montreal in May!
Chris Arsenault is Co-chair of the CVCA 2012 Conference
and Managing Partner at iNovia Capital

CVCA Response to the National Post article: “What Venture Gap?”

March 14, 2012

Dear Editor,

I read Preston Manning and Jack Mintz’s article (“What Venture Gap?”) in the March 8 edition of the Post with great interest and some puzzlement.

From my perspective, a significant gap has emerged in the balance between the supply of, and the demand for, venture capital financing in Canada. This gap needs to be addressed for Canada to develop the world-leading high technology companies we require to improve our lackluster record in successfully commercializing the innovations that are bubbling through our incubators, research institutions and universities. In this regard, it is worth recalling that venture capital has proven itself to be the essential building block in the U.S.,Israel, Canada and elsewhere for the development of  high growth  companies across the entire spectrum of high technology industries from  information and communications to pharmaceuticals and clean tech.

On the supply side, venture capital investing volumes are a fraction of what they were over a decade ago. In 2000, the venture capital industry invested just under $6 billion while last year that number stood at just $1.5 billion. For entrepreneurs and their companies this situation means that they are only able to raise about 40% of the capital available to their U.S. counterparts. This under funding is causing many of our most talented entrepreneurs to go to where there’s greater capital availability – namely, the U.S. – and remain there, to the detriment of the Canadian economy.

Ultimately, venture capital investments are driven off the amount of capital available to venture funds themselves. Here too, worrisome trends have developed. Major funders have all but disappeared and the venture capital industry itself is in a capital drought. For instance, in 2011 not a single dollar from outside Canada found its way into our funds.

On the other hand, demand for risk capital is surging. Governments have laid the basic foundation by their huge support for R & D through a plethora of effective support programs, the most notable of which is the SR & ED one.  Importantly, there has been considerable growth of business incubators and accelerators across the country, much like the well-known MaRS Centre in Toronto, whose activities are fostering the development of a new and vibrant generation of high technology entrepreneurs.

To sum up, venture capital supply and demand are incontestably out of synch.

And, we need to act.

Yours truly,

Gregory J. Smith

President, CVCA

The Fall 2011 issue of PRIVATE CAPITAL Magazine is here

The Fall 2011 issue of PRIVATE CAPITAL Magazine was mailed out to CVCA members last week. And the electronic version has been posted on the CVCA home page and here is the link http://tinyurl.com/Private-Capital-Fall-2011 .

Enjoy!

Private Equity Provides Some Shelter From The Market Storm

Curated content from Rick Nathan of Kensington Capital Partners, August 9th, 2010

Investors have been on a scary ride in the public markets through the past few days. With near back-to-back 500-point drops, all of the major North American stock market indexes have turned decidedly negative for the year to date. The historic S&P downgrade of US Government debt adds to the weight of worry on investors, alongside falling commodity prices and the continuing risks in Europe and Japan. Most investors have suffered from these rapid and severe declines in public markets.

Private equity investors have greater stability in their portfolios. Of course, all markets are affected by a weakening economy. And if access to capital becomes restricted, the effects will spread to private equity dealmakers soon enough. We saw this happen in 2007-2008, when banks stopped lending, public equity markets fell, and private equity firms found it difficult to buy businesses at realistic prices through 2009.

The correlation between public and private equities is indirect. Private equity portfolios will obviously be affected if the current market correction leads to a sustained period of lower valuations, or a new recession. But only after investors have connected this capital market activity back to the real economy. Private equity portfolios are not seriously affected by day-to-day gyrations in the public markets that do not lead to new economic conditions.

When public market turmoil does foretell a slowdown in the economy, the impact on private equity portfolios is typically muted. The chart below shows the Net Asset Value (NAV) of the Kensington Global Private Equity Fund measured against the major public market indexes in the period from August 2008 through July 2010.

Kensington Global Private Equity Fund vs. Public Market Performance
July 31, 2008 – July 30, 2010

As can be seen in the chart, the sharp declines in the public markets in September 2008 and following did not have as significant an impact on the Fund’s NAV. The values of private companies were re-set more gradually over subsequent months as it became clear that a recession had begun, with weaker prospects for sales and profits across the Fund’s diversified portfolio of more than 100 companies. During that period, the valuations of private companies declined, but nowhere near the levels reached at the depths of the public market panic.

Private companies are valued on Main Street, based on the real economy. Their prospects change with the economic cycle, but not every day or every minute. This can create a sharp contrast to the valuations of public companies established on Wall Street and Bay Street, so heavily influenced by rapidly changing market sentiment, program trading and other immediate distractions.

One reason for the different valuation approach is the lack of liquidity in the private markets. Investors cannot buy and sell at will, and so they see no need to continuously revalue their portfolios. When valuations are prepared, they are based largely on business fundamentals or completed corporate transactions (such as the sale of the company), which results in much less volatile pricing.

An allocation to private equity can therefore act as a shelter from stormy public markets, or at least as a shock absorber. Large institutional investors such as public pension funds have learned this lesson, and continue to increase their allocations in recent years, now in the range of 10% to 20% of total assets.

Individual investors can find similar shelter through a similar allocation to private equity in their own portfolios. A diversified private equity investment such as the Kensington Global Private Equity Fund can add real stability during times of market stress.

Of course, a diversified private equity portfolio such as the Kensington Global Private Equity Fund is not immune to public market fluctuations. Many private equity funds hold a small portion of their portfolios in publicly traded stocks, typically as a result of an IPO of one of their portfolio companies. For example, our Kensington Fund currently holds shares in a company that completed its IPO on the NYSE in June. These shares remain restricted under standard underwriters’ lock-up agreements for a six-month period following the IPO date. As a result, the Kensington Fund will experience some volatility based on this exposure. Public market stress may also reduce our ability to sell additional portfolio companies into the public markets for some time. However, since most of our portfolio companies are in the mid-market where company sales are primarily completed through strategic M&A transactions, this impact should be relatively less significant.