Canada's long-term economic competitiveness in the knowledge-based economy will be driven by globally competitive, high-growth businesses that innovate and create high-quality jobs. Venture capital plays an important role in providing the investment and resources needed for innovative small and medium-sized enterprises to grow and create high-value jobs.
Canada's venture capital industry has been challenged on a number of fronts. Stakeholders have commented on the persistent low returns for venture capital investors leading to a lack of investor confidence; the reluctance of institutional investors such as banks and pension funds to invest in innovative early-stage firms; the relatively small size of venture funds in Canada; and a shortage of experienced fund managers that could lead successful venture capital funds. The Expert Panel on Federal Support to Research and Development in its 2011 report concluded that the weakness of the venture capital sector in Canada makes it difficult for young firms to grow.
Recognizing the importance of the venture capital industry to Canada's future economic prosperity, Economic Action Plan 2012 announced resources to support Canada's venture capital industry, including $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
The Government of Canada recently concluded extensive consultations with key stakeholders on how to structure this support and on how to ensure that it contributes to the creation of a sustainable, private sector-led venture capital sector in Canada. Over 250 stakeholders were consulted in Canada and the U.S. and some 80 submissions were received through an online portal. These consultations revealed that a long-term, market-oriented approach is required to address the issues facing Canada's venture capital sector.
To this end, the Government of Canada is announcing the Venture Capital Action Plan, which will guide the deployment of the $400 million in new capital to demonstrate that Canada's innovative firms represent superior return opportunities. The Plan recognizes that private sector investment and decision-making is central to long-term success. With this in mind, the Venture Capital Action Plan will make available:
- $250 million to establish 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;
- Up to $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.
In addition, the Venture Capital Action Plan will promote a vibrant venture capital environment in Canada rooted in a strong entrepreneurial culture and well-established networks that link investors to innovative companies.
The Venture Capital Action Plan represents an opportunity to put Canada's venture capital industry on the path to sustainability, and ensure Canada's high-potential firms have the resources they need to grow and create jobs.
Private sector expertise will be sought in the coming weeks to assist in the selection of the private sector funds managers for the funds of funds, and the high-performing venture capital funds to receive direct investment.
The Government of Canada encourages potential investment partners to signal their interest by February 8, 2013, in co-investing in new or existing large private sector-led funds of funds. Additional information on each component of the Venture Capital Action Plan can be found at http://www.fin.gc.ca/vcap-pacr/index-eng.asp.