Ontario’s venture to catalyze private markets – Canadian Government Executive

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May 7, 2012

Ontario’s venture to catalyze private markets

An idea – that’s where it all starts. Entrepreneurs travel a long road to achieve success, with many stops along the way: prototyping, testing, refining, production, marketing, sales, and expansion. But there is one question that keeps them up at night. How am I going to finance all this?

Investment capital powers the journey from concept to market, but accessing a steady source of capital is one of the biggest challenges a company faces.

There’ no doubt that Canada’s venture capital industry has faced some challenging times, in part because it is smaller and less mature than the U.S. industry and in part because of the recent economic downturn. Without a thriving investment industry, an innovation knowledge-based economy cannot grow. And that’s something that has kept the Ontario government up at night.

So three years ago, we stepped up to the challenge.

We recognized that if venture capital capacity was not developed domestically, Ontario’s best opportunities and most vibrant companies would have no choice but to seek investment from U.S. funds. All too often, these companies follow the money and locate elsewhere just as they are on the cusp of generating profits, jobs and tax revenue. So we acted on the needs of business and mobilized a team who quickly became very credible in VC financing.

With the speed and discipline of the private sector, Ontario directly addressed the venture capital question by creating the Ontario Venture Capital Fund (OVCF) and the Ontario Emerging Technologies Fund (OETF).

We had two priorities: drawing institutional investors back into the market and getting investment flowing directly into emerging companies. We based our programs on three guiding principals. The programs had to:

  • Be market-based,
  • Fuel innovation in priority-growth sectors, and
  • Be based on best practises in venture capital financing.

The OVCF and the OETF signalled a leading-edge collaboration between government and the private sector. Neither fund is subject to political direction or regional economic need – it’s all about the return on investment.

What have been the results?

Institutional investors returned to the table when we pioneered a partnership with OMERS Capital Partners, RBC Capital Partners, Manulife Financial, the Business Development Bank of Canada and TD Bank Financial Group to create the Ontario Venture Capital Fund – a $205-million fund-of-funds.

One of the OVCF’s first commitments was as lead investor in Georgian Partners. Over the past year, the fund and its managing partner, Northleaf Capital Partners (formerly TD Capital Private Equity Investors), have been actively assisting Georgian Partners to raise the capital required to reach a first institutional close – a close that was recently announced ahead of its initial $50 million target.

Since its launch, the OVCF has announced commitments to three Ontario-based/focused funds and two direct Ontario co-investments totalling almost $70 million. These commitments are expected to lever between $300 and $500 million in total fundraising for these funds.

With the recent economic downturn, we knew we needed to do more, to come up with a second short-term fund that allowed us to invest directly into emerging companies. We’ve done that with the $250-million Ontario Emerging Technologies Fund.

The OETF is supporting companies working in clean technology, life sciences, digital media and information communication technology. Companies like ecobee, which manufactures smart thermostats that help homeowners conserve energy, save money and reduce their environmental impact by programming their thermostat from anywhere there is an Internet connection.

The OETF has announced commitments to nine Ontario-based companies totaling $16.77-million to date. The fund has approved and qualified 13 co-investor applications, including a U.S. investor.

As a result of our activities, there are now hundreds of millions of dollars more in the venture capital market today than there would have been without these programs. And every single Ontario dollar is leveraging up to $3 from the market that is flowing directly into high-growth Ontario companies. We are stimulating the kind of investment that would otherwise not exist.

The OVCF and the OETF are just part of the solution to addressing the access to capital issue facing emerging companies. By pioneering innovative partnerships and by helping to catalyze private markets, we are committed to ensuring that Ontario’s companies have the support they need to turn great ideas into the next generation of prosperous, global companies.

Ontario’s limited partnership interest in the OVCF and the OETF are managed by the Ontario Capital Growth Corporation. To learn more, see www.ocgc.gov.on.ca.

 

George Ross is Chair of the Ontario Capital Growth Corporation and Deputy Minister of Research and Innovation.

 

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