Montreal, Quebec – In summer 2012, the Department of Finance led consultations with a broad range of public and private sector actors involved in the venture capital ecosystem including entrepreneurs, business angels, venture capital firms, financial institutions, corporate strategic investors, investor groups, post-secondary institutions and others. These consultations were critical in informing the design of the Venture Capital Action Plan.
The framework for the discussions was provided in a consultation paper (http://www.fin.gc.ca/activty/consult/vcf-fcr-eng.asp#notes), which outlined key issues such as the challenges facing high-growth firms; the barriers to participation in the market by Canadian and international investors; different models of venture capital support (size, time period, investment focus of funds); and the criteria for allocating resources. The Government's objectives with respect to venture capital as outlined in the paper were to:
- Act as a catalyst in the development of a sustainable venture capital ecosystem led by private sector investments that includes: participation by domestic and international institutional investors, and, large-scale venture capital funds managed by the private sector;
- Increase the number of successful Canadian companies by encouraging private sector investments in early-stage risk capital and helping to ensure high-potential innovative firms have access to financing; and,
- Contribute to the development of a deeper pool of experienced fund managers in Canada, including by attracting foreign expertise and capital to Canada's venture capital market.
Consultation sessions were held in Halifax, Montréal, Ottawa, Toronto, Calgary and Vancouver, as well as in Silicon Valley and Boston, U.S., with a total of approximately 250 stakeholders. In addition, stakeholders provided some 80 written submissions.
The following key themes emerged from the consultations:
- Venture capital returns have been poor across the world, and venture capital fundraising in Canada has declined since 2001.
- Invigorating a self-sustaining Canadian venture capital sector will require time and persistent efforts over at least seven to ten years.
- The funding announced in Economic Action Plan 2012 will need to be supplemented by significant private sector resources that are invested over several years.
- Governments have been the dominant source of venture capital funding in Canada in recent years. The federal commitment of $400 million should be deployed to increase the number of private sector-led funding sources for venture capital funds managers. Investment decisions and implementation should be led by the private sector and be substantially market-driven.
- The recent scarcity of capital has reduced the number of active venture capital funds in Canada, and new fund managers have emerged with deeper experience in selecting high-growth potential firms and helping them grow. Capital allocations should be directed to high-performing fund managers and innovative companies, which are best positioned for success.
- The Government's actions should be structured to avoid blunting market signals, although reasonable incentives from the Government will be needed to attract institutional investors who have left the asset class in Canada over the past decade.
- The success of jurisdictions such as Silicon Valley, Boston and more recently New York in financing and growing new companies is rooted in a strong entrepreneurial culture and well-established networks between researchers, companies and venture capitalists. Long-term success will require a range of complementary efforts to enhance Canada's venture capital ecosystem.
