Canada’s new venture capital plan problematic: IIAC

By Staff | February 15, 2013 | Last updated on February 15, 2013
2 min read

The federal government’s new $400 million Venture Capital Action Plan will help determine Canada’s competitiveness in global markets, says Ian Russell, president and CEO of IIAC, in a recent letter.

The plan is designed to aid high-growth companies looking to access venture capital. Russell says it aims to achieve this by injecting money into “a new venture capital ‘fund of funds’ created in partnership with institutions, corporate investors and interested provinces.” It will also support existing high-performance venture funds.

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Russell has reservations, however. While he says “there’s no doubt…small and mid-size companies in high-growth industries [are important],” he wonders if the plan will effectively channel enough capital to start-up businesses.

“A background paper accompanying the funding announcement pointed out Canada’s venture capital industry has been challenged by ‘persistent low returns,’ ‘the relatively small size of venture funds in Canada,’ and a ‘shortage of experienced fund managers,’ says Russell.

He adds, “Given this track record, it’s not surprising angel investor networks have eclipsed venture capital funds as the dominant financiers for startup businesses in corporate Canada.”

Further, he says businesses lack an effective exit strategy when it comes time to “recycle funds back into new start-up businesses.”

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“The typical exit point is the launch of a [company’s] initial public offering,” writes Russell. “But public markets for small- and mid-sized business have been in the doldrums since 2008 and [the past year hasn’t been] conducive to an IPO offering for small business. This eliminates the crucial exit strategy and [may] discourage initial venture capital investment.”

Read more on the challenges the government will face in implementing the VCAP and in supporting business expansion.

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Advisor.ca staff

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.