The revitalization of the Canadian venture capital sector

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By Chris Arsenault

It was a good news day for Canadian entrepreneurs yesterday. The Prime Minister of Canada, the Right Honourable Stephen Harper, and Minister of Finance, the honourable Jim Flaherty, were in Montreal to announce their “Venture Capital Action Plan.”

Under this plan, the federal government will put $400 million to work under the leadership of private-sector fund of funds and venture capital funds.

In a nutshell, the Venture Capital Action Plan will make available:

  • $250 million to establish two new, large private-sector-led national funds of funds (a funds of funds portfolio consists of investments in several venture capital funds) in partnership with institutional and corporate strategic investors, as well as interested provinces;
  • $100 million to recapitalize existing large private sector-led funds of funds, in partnership with willing provinces; and,
  • An aggregate investment of up to $50 million in three to five existing high-performing venture capital funds in Canada.

Doing the quick math (and looking at past decade’s stats) shows that this $400 million-injection should enable well over $1 billion of fresh available capital for Canadian entrepreneurs. The monies will transit via specialized private venture capital funds across the country. Furthermore, because of the existing positive track records of a certain number of venture capital fund managers, it is expected that part of these monies will be deployed quickly. That means a portion of the funds should get into the hands of some of Canada’s most promising entrepreneurs later this year.

I applaud this initiative in great part because the federal government acted quickly (Sam Duboc played a key role here) and decided to be a true catalyst to the venture capital industry. This is a very similar approach to what the Quebec government has been doing over the last 10 years with the Fond de solidarité FTQ, la Caisse de depot, Investissement Québec, and most importantly, launching the country’s largest fund of funds, Teralys Capital, in 2009. I actually wrote an interesting blog that year titled “$5 billion to end up in the hands of Canadian entrepreneurs, as a result of Québec’s support of venture capital initiatives nothing less!”

Four years down the road, it looks like we are very close to that $5 billion of capital to back our best and most ambitious tech entrepreneurs in the fields of IT, life sciences and cleantech. When you add up the numbers, the impact starts to show. Teralys Capital is a fine example of this, having committed $390 million towards leading VC fund managers across Canada. These fund managers have attracted over $1.3 billion in total fund commitments.

A friend and venture capital colleague, Scott MacDonald, co-founder of McRock Capital, mentioned yesterday the following: ” This program is somewhat analogous to the U.S. government’s Small Business Investment Company (SBIC) program started in 1958 that was largely responsible for kick starting private-sector participation in risk capital. This drove the creation of many legendary Silicon Valley venture capital funds such as Mayfield Fund and Sequoia Capital and subsequently led to the creation of many of the world’s largest tech companies.” Well said!

So what does all of this mean for Canadian entrepreneurs? It means more local capital to better support the most innovative and promising opportunities across the country. It means giving emerging tech category leaders the resources to grow well beyond $100 million in revenue while remaining in our own backyard. It means having the ability to attract the right foreign co-investors for continued global expansion. It means that the proposed $400-million federal initiative will reinvigorate and further support venture capital in Canada. It means that anyone involved in the entrepreneurial ecosystem in the country should have a smile on their face today!

As an active board member of the Canadian Venture Capital Association, I’m appreciative of the proactive consultative role taken by the federal government to date. After addressing Section 116 relief for non-resident investors, the announcement of the $400 million Venture Capital Action Plan is the most significant commitment I know towards supporting our Canadian entrepreneurs. I applaud them for their foresight, and look forward to working with them on this initiative and others over the coming years.

Chris Arsenault is Managing Partner at iNovia Capital and has been an early-stage investor and entrepreneur for the last two decades. Chris currently serves as a director or observer on the boards of Fixmo, Gamerizon, Localmind, Luxury Retreats, Reflex Photonics, Well.ca and Woozworld. Chris is an active board member of the Canadian Venture Capital Association (CVCA), is Co-Chair of the Canadian Innovation Exchange (CIX) and is active Charter Member of Silicon Valley based C100 (the Top Canadians in the Valley organization).

/// COMMENTS

2 Comments »
  • Startup Vernon | The revitalization of the Canadian venture capital sector

    January 16, 2013 11:59 am

    [...] via Chris Arsenault, iNovia Capital,  The revitalization of the Canadian venture capital sector. [...]

  • 1/29/13 | Start Up One Stop

    March 01, 2013 7:08 pm

    [...] The revitalization of the Canadian venture capital sector. “The federal government will put $400 million to work under the leadership of private-sector fund of funds and venture capital funds,” writes SOS member Chris Arsenault, who is also a Canada-based VC. Imagine that! The government is actually supporting the private sector. [...]

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