VenGrowth Capital Partners today announced the first closing of a new $40 million institutional fund. The VG Mezzanine I Limited Partnership will invest in mezzanine financing opportunities in traditional Canadian business sectors such as manufacturing and services on behalf of leading institutions.

Mezzanine financing is a form of private equity structured on a company’s balance sheet between senior bank debt and equity.

The fund invests in mature, established Canadian companies with demonstrated cash flows, proven management teams and well-defined growth strategies. Investments are primarily structured as subordinated debt to generate interest income to the fund. In addition, the fund will typically hold equity interests alongside the loans with the intention of generating additional return potential.

VenGrowth says investors in the fund include The Business Development Bank of Canada, BMO Nesbitt Burns Equity Partners and The Canadian Medical Protective Association. The diversified VenGrowth II Investment Fund also invested in the new institutional offering.

Vengrowth notes that mezzanine financing is an increasingly important option for Canadian companies looking to fund growth or facilitate ownership succession such as a management buyout.

“The support gained from leading financial institutions represents further opportunities for VenGrowth’s mezzanine finance group, following ongoing fundraising success for VenGrowth’s LSIFs,” said Graham McBride, VenGrowth Managing general partner. “VenGrowth continues to be the only labour-sponsored investment funds firm to consistently attract significant institutional as well as retail capital.”

The new mezzanine fund represents the fourth institutional fund closed by VenGrowth.

Since December 2003 VenGrowth has invested $53.3 million in mezzanine financing deals with eight companies. Most recently, VenGrowth participated in the financing of value beer leader Lakeport Brewing Corporation, helping celebrated entrepreneur Teresa Cascioli become majority shareholder of the Hamilton-based brewery in January 2005.

The VenGrowth Funds collectively managing over $1 billion in assets.