Establishing new, large private sector-led national funds of funds

The Government of Canada will establish new, large private sector-led national funds of funds (a funds of funds portfolio consists of investments in several venture capital funds) with the participation of institutional investors, corporate strategic investors, and interested provinces.

Description

• The Government of Canada will make available $250 million under the Venture Capital Action Plan to support two new large-scale, private sector-led national funds of funds. These funds of funds will be sufficient in size to act as credible lead investors in venture capital funds.
• Each of the national funds of funds will be managed by an experienced private sector General Partner, who has a substantial presence in Canada. The investments made by the funds will be market-oriented and focused on maximizing returns. To be eligible for investments from the funds of funds, underlying venture capital fund managers must have a substantial presence in Canada and must also commit to investing one third of their total capital in Canadian-domiciled firms.
• General Partners of the funds of funds will be able to invest up to 20 percent of the funds of funds' capital directly into companies, alongside the venture capital funds in which they invest. This feature will help attract high-calibre General Partners to manage the funds of funds.
• The Government of Canada is prepared to provide incentives to private sector investors, modelled on approaches that have been used in other jurisdictions to attract private sector resources into venture capital, while ensuring that taxpayers' interests are protected. Similar incentives will be provided to private sector investors in the private sector-led funds of funds to be recapitalized by provincial governments.
• The exact size, number and investment strategies of the national funds of funds will depend on the outcome of discussions with private sector investors, and the investment strategies that maximize participation from institutional and corporate strategic investors. The investment strategies could have a sectoral focus in information and communications technologies, life sciences, and/or clean technologies. These sectors are high-growth sectors where Canadian firms have existing strengths.

Potential Investors

• Large domestic or foreign institutional investors, such as banks, insurance companies, pension funds, corporations, sovereign wealth funds and interested provinces.
• Investors will have the option of investing in one or more national funds of funds.

Minimum Investment

Investors must be prepared to make a minimum investment of $10 million in the fund of funds.

Process

• The Government of Canada is interested in working with partners from the private sector (including institutional and corporate strategic investors) and provinces who are prepared to invest in large-scale private sector-led national funds of funds to be established in Canada.
• The Government of Canada will present interested parties with a draft term sheet outlining: i) the key parameters of the funds of funds, including the structure of any incentives; ii) the investment orientation of the funds; and iii) the selection of private sector General Partners.
• In the coming weeks, the Government of Canada will be seeking private sector expertise on the selection process of fund managers of the new national funds of funds. Private sector investors in the funds of funds will have the opportunity to provide input into the development of the selection criteria for the fund managers.
• The funds of funds are expected to be finalized in the coming year.

Next Steps

Parties with a potential interest in partnering with the Government of Canada should contact Finance Canada at VentureCapital-CapitaldeRisque@fin.gc.ca by February 8, 2013.

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