Venture capital in Canada has faced significant funding challenges in recent years. The downturn in the global economy — together with the credit crisis, volatile capital markets, and a dearth of initial public offerings — have further exacerbated the problem. Venture capital deal activity in Canada slowed significantly in 2008. Across the country only $1.3 billion was invested, a 36 per cent drop over the prior year and the lowest level in 12 years.
Perhaps there is a glimmer of hope on the horizon. Recent announcements by a number of provincial governments across Canada appear to recognize the important role venture capital and angel investors serve in creating jobs and supporting innovative, entrepreneurial businesses. This is particularly the case in strategic, export-driven sectors such as information and communications technology, life sciences, bio-technology, and alternative energy and clean technology. Here are some details regarding the recent announcements:
- As part of its 2009 provincial budget, Québec announced the establishment of a new $825-million fund to finance venture capital funds in partnership with the Caisse de dépôt et placement du Québec and FTQ Solidarity Fund. In the same budget, Québec also announced the commitment of $125 million for three new funds to finance new high-tech businesses.
- Ontario announced funding through the Ministry of Research and Innovation for the establishment of the Emerging Technologies Fund, which will invest up to $250 million directly into Ontario-based companies in the clean technology, life sciences, digital media, and communications technology sectors. The money will be invested on a co-investment basis with other private sector investors. The initial announcement set an aggressive timetable for initial investments to commence as early as July 2009.
- Ontario also announced the first local commitments made by the Ontario Venture Capital Fund (OVCF), a "fund of funds" established by the Ontario government and a number of private and public sector institutional investors focused principally on investing in venture capital funds. The OVCF will commit up to $15 million to Georgian Partners, a new venture fund focused on information technology, information aggregation, and enterprise software opportunities. The OVCF will also commit $20 million to Edgestone, an established venture investor currently raising its third fund. And in the near future, the OVCF will announce a number of additional local venture capital fund commitments.
- Alberta announced the names of the board members and details regarding potential investments for the Alberta Enterprise Corporation. The corporation will invest as a limited partner in venture capital funds with a local presence in Alberta. Up to $100 million will be available for commitment into venture funds focused on underserved sectors, including information and communications technologies, life sciences, environmental technologies, and nanotechnology.
- In British Columbia, the B.C. Renaissance Capital Fund issued a further request for qualifications for up to three fund managers to invest and manage up to $55 million of capital commitments from the B.C. Renaissance Capital Fund. This further commitment from the B.C. Renaissance Fund, established in 2007 to stimulate both the quantity and quality of venture capital management in British Columbia, brings the total amount to $90 million. By the end of 2008, three venture capital firms had completed fundraising with prior commitments from the fund. The current request for qualification requires applicants to demonstrate success in investing in one or more of the designated key sectors of information technology, new media, and clean technology, and also to demonstrate experience in understanding the local B.C. market sectors.
- In addition, provincial governments in Nova Scotia, Newfoundland and Labrador, and Saskatchewan announced increased tax credits in respect of investments made in labour-sponsored funds. It is expected this will encourage additional investments from retail investors in labour-sponsored venture funds active in those provinces.
A number of details will need to be worked out with regard to most of these announcements. It also remains to be seen when we can realistically expect to see money directly invested in innovative entrepreneurial businesses in Canada. Taken as a whole, perhaps these announcements represent a turning point for venture capital funding in Canada.