By Francis Moran
I have been soliciting opinions all this week on a story by the Canadian Press, carried in the Globe and Mail on Monday, that said the Business Development Bank of Canada‘s venture capital wing had been urged by a federal government-ordered study to “cut its losses more often, abandoning the dogs in its portfolio in favour of the stars.” With the government-owned bank a key investor in many Canadian technology companies, the implications of this could be bad news for those still working on achieving their business plans.
(In the interests of full disclosure, I should note that the BDC is a welcome lender to inmedia and I have always been very happy with its service of our operating loans, even if the money does come at a bit of a premium. Additionally, we have a further, if indirect, dependency on the bank given that many of our clients count the BDC among their investors and, therefore, the source of the funds they use to pay for our services. Some of these clients have a happy and valued relationship with the BDC as VC; others are considerably less enamoured.)
“BDC seems to have some difficulty to walk away from non-performing investments to concentrate on winners,” the CP story quoted the report’s authors saying. “Build winners, walk away from losers.”
I asked several people in the community for their reaction to the story and their opinion of what it might mean if the bank became a less patient investor.
Most sidestepped that issue entirely and went straight to the heart of what they thought was a more relevant criticism of the bank, an apparent unwillingness to take the lead on new investments. BDC’s venture capitalists, many told me, are happy to have another investor do the initial due diligence and offer the first term sheet and only then will they pile on.
One person I spoke to noted that the bank’s charter is very clear that it does have a mandate to be an engine of economic growth for Canada. While not suggesting that BDC should become as interventionist an instrument of government economic policy as, say, the Caisse de dépôt et placement du Québec, it clearly should play a more nuanced role than your average cold-blooded VC.
Perhaps, in the end, BDC has the balance right. Allow some other more hard-headed investor to validate the investment before joining the syndicate, but then be a little more patient in waiting for the investment to pay dividends. There certainly was no appetite among the people I consulted to have the bank become more cut-throat in its treatment of what the CP called “the dogs in its portfolio.”
I’d love to hear from others on this issue. Should BDC walk away more swiftly from its underperforming investments or should it play a waiting game? Either way, what would that mean for Canadian technology companies?
Technorati Tags: Business Development Bank of Canada, venture capital
