The state-backed Business Development Bank of Canada (BDC) has hailed 2013 deal data, recently released by Canada’s Venture Capital and Private Equity Association (CVCA), as a validation of its strategic efforts to revive the venture capital industry in Canada. The CVCA data shows a 31% increase in venture capital (VC) investments in 2013, with total VC financing in Canada reaching a six-year high of C$2bn.
Jérôme Nycz, executive vice-president of BDC’s Subordinate Financing and Venture Capital divisions, said the results were the fruits of an ecosystem coming together. “The fact is that venture capital has a real, tangible impact on Canadian businesses. We have been working hard in recent years with our partners to further stimulate Canada’s venture capital ecosystem.”
Nycz explains that BDC’s strategy dates back to when VC investments hit rock bottom in Canada in 2010. “BDC Venture Capital stepped up to the plate, conducting a thorough study of the situation and developing a multifaceted strategy for tackling the industry’s biggest challenges.”
BDC’s strategy included increasing its activities as a VC fund of funds. In 2012, for example, BDC Venture Capital’s fund-of-funds division committed C$103m ($94m) to five VC funds, and those fund managers were all active investors during 2013.
BDC Venture Capital also set out to attract more foreign VC funds to Canada, such as EnerTech Capital of Pennsylvania and Sanderling Ventures of California, which established offices in Canada in 2013, and the CVCA data indicates that foreign VC investments in Canada have more than doubled since 2012.
Another part of BDC’s strategy was the creation of three new venture funds to invest directly in the IT, energy and clean-tech, and healthcare industries. Two of the funds, totalling C$225m, were launched in 2013. According to the CVCA data, BDC Venture Capital invested nearly C$75m in 86 direct investments in 2013, making it the largest and most active VC investor in Canada.
Furthermore, the number of series A, seed and early-stage financing rounds increased 75% over 2010, helped by investments made as part of BDC Venture Capital’s efforts to plug the early-stage financing gap – BDC’s convertible note programme, which invests an initial C$150,000 in graduates of select start up accelerators, disbursed C$5.3m in 2013 to 35 Canadian startups.
Real Ventures closes VCap funding
Real Ventures, a Montreal-based seed VC fund manager, has closed C$50m ($45.3m) funding for Real III, its latest web, mobile and internet-focused investment fund. The funding includes commitments made under the Canadian government’s C$400m Venture Capital Action Plan (VCap), launched in January 2013 to help increase private sector investments in early-stage risk capital and administered by BDC Venture Capi-tal on behalf of the government.
Lead investors in Real III, which is expected to reach $100m by the time of its final closing, are Quebec-based Teralys Capital (a C$700m fund of funds backed by Caisse de dépôt et placement du Québec, Fonds de solidarité FTQ and Investissement Québec), FIER Partenaires – an investment partnership backed by IQ-FIER, a subsidiary of Investissement Québec, and also by three labour-sponsored VC corporations) and the BDC on behalf of the government via VCap.
The majority of Real III’s funds will be invested in Canadian companies, with a significant portion of this first close earmarked for companies based in Quebec.
Canada’s finance minister, Joe Oliver, said: “In contributing to this investment through Canada’s Venture Capital Action Plan, the government recognises that our innovative firms are important drivers in creating economic growth, high-quality jobs and long-term prosperity. We believe that Canada’s entrepreneurs represent superior opportunities for investors, and understand that private-sector-led investments and decision-making are essential to their long-term success.”
Éric Legault, managing partner at Teralys Capital, added: “This new investment is consistent with Teralys Capital’s strategy aimed at building a strong venture capital ecosystem that propels high-potential innovative companies in Quebec.”
Sylvie Pinsonnault, chairman of of FIER Partenaires, added. “Real Ventures’ innovative approach to investing and strong focus on Quebec companies make of this fund not only an attractive investment opportunity but also reinforces support for the venture capital ecosystem in Quebec.”
VCap investments have already been in funds of funds, including Northleaf Venture Catalyst Fund, as well as Lumira Capital, one of the four VC funds selected alongside Real Ventures by open competition in 2013. In November 2013, Lumira Capital raised C$10m through VCap for its second fund, Lumira Capital II, focused on companies in the biotherapeutics, med-tech, health and wellness sectors.
Peter van der Velden, managing general partner of Lumira Capital, which was targeting $101m for its second fund, said: “In this environment, it is critical for a life sciences fund to achieve sufficient scale of commitments to allow it to invest the substantial capital required to build successful companies in the sector. The VCap commitment, along with the earlier commitments of our other limited partners [investors], is really fundamental in allowing our fund to get to that optimal size.”
Jim Flaherty, Canada’s then finance minister, added: “The VCap recognises that Canada’s innovative firms represent superior return opportunities, and that private-sector-led investments and decision-making is central to long-term success. This investment in Lumira Capital II will ensure that Canada’s high-potential businesses have the resources they need to grow and create jobs, which in turn will help to strengthen Canada’s long-term economic competitive advantage in the knowledge-based economy.”
Other investors in Lumira Capital II, which made an initial close in 2012, include the BDC, Teralys Capital, Fonds de solidarité FTQ, Northleaf Capital Partners, Fondaction and drugs company Merck & Co, which committed $5m as well as $35m to the Merck Lumira Biosciences Fund.