The Department of Finance has launched a consultation on ways to increase the availability of venture capital for high-growth businesses in Canada, and how best to deploy the $400 million it pledged to this task in the last budget.
In a discussion paper issued on Friday, Finance says it’s seeking input on the financing needs of high-growth firms in Canada, the factors that influence private sector participation in venture capital, and the role that governments can play in developing an environment that supports a sustainable private-sector-led venture capital market.
Samuel Duboc, a partner in the private equity firm EdgeStone Capital Partners, and formerly with CIBC’s merchant banking division, CIBC Capital Partners, has been appointed a special advisor to the government on venture capital.
In this year’s federal budget, the government announced that it would make $400 million available 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.
Industry Canada recently reported that venture capital investment in 2011 rose 34% to $1.51 billion. However, VC investment remains well below the $2.05 billion invested in 2007. And, all of the increase is coming in later-stage deals, which accounted for 71% of all investment dollars. Apart from late-stage financings, year-over-year investment levels at all other stages dropped compared to 2010.
Industry Canada also reported that VC fundraising activity remained relatively unchanged in 2011, with just over $1.0 billion raised, up just 2% from 2010. And, while the number of companies receiving VC funding was up during the year to 504, this still fell short of the 595 firms that received financing back in 2005.
The paper issued on Friday indicates that the objectives for the new funding commitment are to: contribute to the development of a sustainable venture capital eco-system led by private sector investments that includes domestic and international institutional investors and large-scale venture funds; encourage private sector investments in early-stage risk capital and help to ensure high-potential firms have access to financing; and, develop a deeper pool of experienced fund managers in Canada, including by attracting foreign expertise and capital to Canada’s venture capital market.
“Our government recognizes the crucial role played by private sector risk capital in driving business growth and innovation,” said Finance Minister Jim Flaherty. “These new resources will make it easier for entrepreneurs to access needed venture capital investments, helping high-growth firms develop and succeed.”
Comments on the paper are due by July 27.