The government has helped venture capital firms get going, but it’s time for other funders to get into the game.
Driving the news: Ottawa gave $25 million to five venture capital firms — Raven Indigenous Capital Partners, Pender Ventures, Amplify Capital, StandUp Ventures, and TandemLaunch — through the Venture Capital Catalyst Initiative (VCCI) to invest in under-represented entrepreneurs.
Catch-up: VCCI succeeded the Venture Capital Action Plan (VCAP), a program started in 2013 to get Canada’s young VC ecosystem off the ground, mostly by putting money towards establishing funds-of-funds.
- A fund-of-funds is a limited partner (LP) that entrusts VC firms to invest money for them. Other LPs include banks, pension plans, and high-net-worth individuals.
Big picture: Some — like the head of the CVCA — have wondered if VCCI will keep going, speculation fuelled by the fact that the government has yet to commit to extending it beyond a $200 million top-up in this year’s budget.
Why it matters: The private sector doesn’t have as large of a role as Canada’s VCs would like. Government programs fill gaps in nascent ecosystems and until other LPs catch up — but that hasn’t happened, as Canada’s most active LPs are still the government, followed by the initial funds bolstered by VCAP.
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Canada has big LPs, like pension plans. But Michelle McBane, StandUp’s managing director, says the bigger players typically go to big U.S. firms because “they need to put $10 million to work all at once, and I’m a seed fund writing $1 million cheques.”
- According to RBCx, 85% of Canadian VC funds are focused on pre-seed, seed, or early-stage investments.
Zoom out: Roughly half of Canadian VCs have raised a second fund since 2013, with only half of them reaching a third. VCs need time to get established, but one general partner told Peak Tech that LPs also tend to stick with funds they are familiar with — and with relatively few LPs in Canada, fewer VCs have a path to getting established.