Government gets it right on venture capital

The Globe and Mail

Startup hedge funds, private equity funds and venture capital funds in Canada are struggling to raise money. (MARK BLINCH/MARK BLINCH/REUTERS)

The federal government has heard the desperate calls to support Canada’s venture capital industry, and its latest budget has answered them loud and clear.

As part of the new fiscal plan, the federal Conservatives have set aside $400-million to create venture capital funds led by the private sector, and have also promised to give the Business Development Bank of Canada another $100-million to buttress its venture capital activities.

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The pleas for this support have been growing louder and louder. “There’s a real crisis right now: the big pension funds have abandoned the space, the small pension plans aren’t capable of evaluating the venture capital opportunities and those that maybe participated in the early and late nineties didn’t get great returns,” David Rogers of Caledon Capital Management told the Globe last August.

Mr. Rogers knows the space well, and he understands just how much government can help. In 2006, the Ontario Liberals tasked him with creating the Ontario Venture Capital Fund. With $90-million of the provincial government’s money in his back pocket, he was able to convince institutions to throw another $115-million at venture capital.

“The venture capital market faces a broad range of challenges including a decline in fundraising, which is partially attributable to the market’s inability to consistently attract private investors, including large, well-funded institutional investors such as pension funds,” the federal government said in the latest budget.

But don’t think this is going to be a government-run initiative. The Conservatives have made it clear that they’re simply putting some money up. The venture capital funds will be led by the private sector.

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