The federal government will inject $400 million into Canada's lagging venture capital market in the form of the Venture Capital Action Plan unveiled this week. The plan will increase private-sector investment in early-stage risk capital and create large scale, private sector-led venture capital funds.
"The reality for the ecosystem is that there's been a decline in venture capital over the last 10 years," says Peter van der Velden, president of Canada's Venture Capital & Private Equity Association (CVCA) and managing general partner of Lumira Capital. He says unlike in the U.S., representation of traditional venture capital funders, like pension funds, endowments and foundations, have been diminishing since the late 1990s.
"[The Venture Capital Action Plan] will re-engage those stakeholders who haven't been in the ecosystem and allow them to build relationships with the really different class of [general partners] that exist today," adds van der Velden. "They'll see the kind of returns that can be achieved in the sector and then stay in the sector as long-term capital."
The funding was first announced as part of the 2012 federal budget. Over the summer, Finance Minister Jim Flaherty and Samuel L. Duboc, a Toronto-based entrepreneur and business investor named as special advisor on venture capital, held consultation sessions with stakeholders across Canada, as well as in startup hotbeds Silicon Valley and Boston.
January 14 marked the first release of information on the plan's shape. It will include:
- $250 million to establish two new, large private sector-led funds of funds, which are portfolios of investments in several venture capital funds;
- Up to $100 million to recapitalize existing large private sector-led funds of funds. Investments made by the fund will be market-oriented and focused on maximizing returns; and,
- An aggregate investment of up to $50 million in three to five existing high-performing venture capital funds in Canada. The government is currently seeking private-sector expertise on the selection of the funds and expects to release more information in the coming weeks. The selected funds will be announced in the coming months.
The new funds of funds and the recapitalization funds of funds will be managed by an "experienced private sector general partner, who has a substantial presence in Canada," the announcement stated.