A turning point for VC fund raising in Canada?

By Chris Arsenault, Managing Partner & COO at iNovia Capital

Definitely, this is great news for the Canadian VC industry and for tech entrepreneurs alike. Today, Teralys Capital was born, with at its helm Mr. Jacques Bernier (an experienced entrepreneur, executive and investor), and with $700 million in capital (as a first closing), making it the largest Fund of Funds of its kind in Canada.

The Caisse de dépôt et placement du Québec (CDP), the Fonds de solidarité FTQ (the Fond), and the Québec government (via Investissement Québec), announced the creation of Teralys Capital, a new Quebec based Canadian Fund of Funds, which will invest in private venture capital funds (VC Funds) that in turn will invest in technology companies in sectors that include Infotech, Cleantech and Life Sciences. CDP announcement here (link).

The Caisse de dépôt et placement du Québec and the Fonds de solidarité each contributed $250 million and Investissement Québec contributed $200 million to Teralys Capital, all as part of the Fund’s first closing. Mr. Bernier expect to raise an additional $125 million from other institutional and private investors, bringing the first fund size up to $825 million.

The Government versus the role of the VC Fund in funding entrepreneurs.

I don’t believe in having our governments involved in every aspect of our businesses and especially not calling the shots on who should receive funding and who shouldn’t. And I don’t believe in bailouts per say. I believe in intelligent investments that can generate strong returns by enabling and by levering, knowledge, networks and expertise.

We live in a very competitive technology driven environment that requires our best entrepreneurs to not only have the best ideas, the best innovations but also the best business models and a unique competitive edge that is, more often than less, far from obvious to the venture capital firm looking to invest. Canada needs a strong community of privately driven VC Funds with industry expertise and broad networks of partners and co-investors to provide the insight and support our Canadian entrepreneurs need to succeed. These VC Funds need capital (just like entrepreneurs do) and today’s announcement will somewhat facilitate, for the few, their fund raising efforts and will hopefully create more awareness and interest towards this investment class.

Over the last 12 months, many provincial governments (British Columbia, Alberta, Ontario) and even some cities (Ottawa) announced their intent to actively support the Canadian venture capital industry by playing a direct or indirect role as an investor or co-investor in existing and upcoming VC Funds.  It was refreshing to start hearing about their concrete investment commitments into VC Funds, and not just read about it in the budgets! You can read more about the positive impact of these initiatives in an article ported on the Montreal Tech Watch blog (link).

But today’s joint announcement from the CDP, the Fond and the Government of Québec I believe is setting new standards in Canada by all means. And I think they are calling it right!

·         First, they put together a substantial amount of cash for this type of activity to be effective;

·         second they named an experienced management team, making the fund privately managed in its self, that can lead    the investment process without the direct involvement of the government  (and I expect this to be the first of many  Funds to come under Teralys Capital’s management);

·         And finally, they acted fast (within 2 months from the Government of Québec 2009 budget).

So with this announcement, we can expect Teralys Capital to announce its first commitments into VC funds within the two quarters. This is great, but let’s not forget that these VC Funds managers will likely be required to attract further capital from other Fund of Funds, Pension Funds, Institutional and Private investors before  themselves start investing into tech companies. Therefore, we should see the first few $ in the hands of promising technology companies and entrepreneurs by this time next year.

Now, we haven’t seen any traction from the Federal Government front yet, nor do we see enough traction for this class of investment from Canadian and Foreign institutional investors. The CVCA also welcomed the Quebec Fund of Fund initiative today, but highlighted the situation our industry in their press release (link), stating: The Canadian venture capital industry has endured several years of declining fundraising. Thus, the industry raised $1,718 billion in 2005 and only $1,028 billion in 2008, a precipitous drop of 41%. So allot still needs to be done.

Yet, I applaud today’s announcement and welcome the path of action taken by the Government of Québec, by not trying to substitute itself for a VC Fund manager, but instead, by acting quickly, partnering up and leveraging the expertise and knowledge of industry leaders in order to have a more substantial impact.

Other related posts:

$5 billion to end up in the hands of Canadian entrepreneurs, nothing less!

CVCA’s Comprehensive Study on The Impact of Venture Capital in Canada on Economy, Jobs and Innovation

CVCA English press release  Communiqué en Français ci-joint

Caisse de dépôt et placement du Québec press release

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Quebec Fund of Funds April 27 2009-fre.pdf (42 KB)

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Fond de Fond du Quebec - francais.pdf (42 KB)

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Times they are changing... at the cross roads of yet another evolution!

Yep! Times are changing, like it or not, they are changing, and it’s all for the good! I’ve been reading allot lately, about the lack of funding for entrepreneurs, the poor VC returns, the lack of VC funding, the lack of recurring entrepreneurs, the “broken VC model”, what to do & what not to do from deep experts and deep commentators alike, even the incubator model has resurfaced again!

Yet, while all that is being said, what I really like to see is what is being done. People taking action. I love leadership, in every form it takes, right or wrong, I highly respect leadership. So, without re-writing what has already been said over the last few weeks, I thought I would share with you a few interesting post I've read, which provides views of our industry from different angles, from players within our industry (but from both sides of the table), with unique comments which are representative of the times we live in, times that are changing... And yes, even though we have witnessed two positive tech-IPO’s (Language software Rosetta Stone and online college Bridgepoint Education) it’s not bringing us back to the heydays. Entrepreneurs are realizing that not all great Companies are made for the VC high growth model and not all VC’s are made for funding entrepreneurs...  don’t miss the comments, sometimes even more revealing than the post itself.

First angle, some hard facts:

Venture Capital Investing Hits 11-Year Low

The Wall Street Journal, produced by the editors of Dow Jones VentureWire

Venture capital investment plunged 50% in the first quarter from a year ago, signalling what could be a fundamental shift in the industry’s size and direction.Venture-backed companies raised $3.9 billion in the first quarter of this year down from $7.78 billion in the first period of 2008, according to VentureSource, an industry tracker owned by VentureWire publisher Dow Jones & Co. It was the lowest quarterly investment since 1998. The total fell significantly below the $5.95 billion invested in the fourth quarter of last year when the collapse of Lehman Brothers Holdings Inc. and other economic shocks took their toll on the venture business.

For the whole story please go to The Wall Street Journal http://bit.ly/BTLLW

Second angle, the entrepreneur turned investor:

Reid Hoffman: My Rule of Three for Investing

Reid is the founder and CEO of Linked-in and  an investor in over 60 web ventures including Digg, Facebook, Flickr, Friendster, FunnyOrDie, Ning, Last.fm, Six Apart and Technorati.

As a serial investor, I’ve enjoyed backing some good Web 2.0 companies, and it’s helped me develop a shortlist of criteria to cut the wheat from the chaff. After five minutes of a pitch, I know if I’m not going to invest, and after 30 minutes to an hour, I generally know if I will. Many entrepreneurs are product-focused, which leads them to pitch the brilliance of the product. Others are money-minded, so they can over think the business plan. But neither of these approaches answer the first few questions I want to know as an investor:

For the whole story please go to Techcrunch at: http://bit.ly/EhYWK

Third angle, the entrepreneur:

Incubators, accelerators, and ignition

by David Crow 

I am still curious about startup incubators. Mostly because I think that they do a great job focusing attention and driving buzz around the startup activities in a community. ReadWriteWeb has a great summary of seed fund incubators. Maybe we don’t need an incubator. But LaunchBox and DreamIt have been successful in building the local communitiesin Washington, DC and Philadelphia respectively. And there are local entrepreneurs heading to Y Combinator, there is a need and a desire for the benefits these programs bring for the entrepreneurs and the community.

For the whole story please go to StartupNorth.ca at: http://bit.ly/11dZMb

Fourth angle, from the top tier VC:

Venture Capital Under Attack

The Wall Street Journal, by Adam Grosser, a general partner with Menlo Park, Calif.-based venture capital firm Foundation Capital

As a venture capitalist, my job is to find great ideas and turn them into great companies. The journey to find these ideas has taken me from inventors’ basements, to obscure research labs, to, in one case, a smoky Milwaukee bowling alley renowned for its fried Twinkies. With a lot of hard work and a little luck that journey ends on the floor of a stock exchange, witnessing a company you helped build go public. It’s a helluva ride.

For the whole story please go to The Wall Street Journal http://bit.ly/HXVS0

And finally, the fifth angle, the evolutionary VC point of view:

A VC Revolution In The Making

PEHub, Georges van Hoegaerden is the Managing Director at The Venture Company 

Venture Capital is broken in some fundamental way. So much so that PCG predicts a revolution and a complete redesign of the Venture Capital model, with CalPERS nodding in agreement. CalPERS has gone from a yearly review of their asset allocation to quarterly and is currently debating new hybrid asset allocation models. That means less dependency on VC, and more on other vehicles. At the same time it is looking to reduce its relationships to only the top quartile VCs and getting out of the mid and bottom tier ones altogether. Annex funds, created to fill the void of fleeing late stage investors, are not found to be interesting as the majority of the funds currently in the pipeline will not produce positive returns anyway.

For the whole story please go to PEHub http://bit.ly/MamWo

So, after reading the above angles on the current state of affairs of the VC industry and tech-entrepreneurs world, what do you think? Is the VC model broken, dead?... or is it just evolving... just like any other business!

Good times lay ahead, and yes those times they are changing, great entrepreneurs and great VC’s alike are building the next generation of tech companies and venture capital funds, new approaches, new models... I feel we are at the cross road of yet another evolution!

 

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Twitter For Business - tips

Check out this SlideShare Presentation: Twitter for Business, some uses of Twitter from a Corporate perspective, by Ian Greeen of GREEN Communications.

I like!

Twitter For Business

View more presentations from iangreen.

Leveraging Non-Existing Networks Into

Check out this SlideShare Presentation: Leveraging Non-Existing Networks Into Guerilla Revenue Generating Strategies by Jacqui Murphy of tech Capital

Leveraging Non-Existing Networks Into Guerilla Revenue Generating Strategies

View more presentations from Jacqui Murphy.

OUR INDUSTRY IS ALIVE AND KICKIN’ – So lead, follow or get out of the way!

First posted for the CVCA Capital Rants blog

By Chris Arsenault, Managing Partner & COO at iNovia Capital

Within 3 days I probably saw more Tweets and Blogs about the Canadian Venture Capital Ecosystem and Canadian Entrepreneurship than I’ve seen in any given month! Rants, Raves, Criticism and Support, some comments were without any deep while others provided insight. Over the last few weeks, we started hearing about the different provincial government initiatives to support, as investors, the venture capital industry, thus addressing in part the lack of equity financing for existing and new promising technology companies across Canada. Following the CVCA publication earlier this year of a Comprehensive Study on The Impact of Venture Capital in Canada on Economy, Jobs and Innovation (link), many provincial governments jumped on the bag wagon and were announcing fund commitments, new fund creations and/or new budget allocations to VC in order to show their support and help in addressing this crying need for more venture capital funding for Canadian businesses.

Even though we still haven’t resolved the fundamental issue of having private capital flow to entrepreneurs with high growth businesses via more LP commitments towards privately managed venture capital funds, I was pleased to read about the initiatives, the interest and comments from the various players of our ecosystem. The level of comments I received (online and directly via email) from my recent post about the indirect benefits of the recent Quebec government commitments towards venture capital (first posted on Montreal Tech Watch) $5 billion to end up in the hands of Canadian entrepreneurs, nothing less! told me one thing: Yes, people care, people want change, people are showing leadership, support and interest. I’m not saying that everybody agreed with what they understood was going on and how the challenges are being addressed, many had their own views on the Canadian funding issues and had very different opinions, and that’s a good thing, I respect that, as long as those who are voicing their opinions can show leadership by causing action and are participating in the debate by building our industry, not purposely demolishing it.

I suggest you checkout the following blogs for more views and angles, some are more positive than others, yet they all offer additional insight, such as Suzanne Dingwall: Ont. Gov’t As A VC: In with a Whimper, Not a Bang; Mark McQueen’s OVCF dips toe in Ontario waters with “commitment” to Georgian Partners; and entrepreneur start-up CFO Mark MacLeod’S Unfair Advantage only to name a few.

The article from The Canadian Press, and interview with Edmee Metivier, the Business Development Bank executive vice president of financing, gave a glimpsed of the importance of the continued support needed for our Canadian technology ecosystem and the role some government agencies (such as the BDC) play ‘Lost generation’ of technology threatens Canada: official; The techvibe Canada's Venture Capital industry is bad?blog posted comments and perspective from Brian Sharwood. Which in itself was interesting because it was a pure entrepreneurs’ view on the VC industry and start-up related government economic development agencies, questioning the way the system works from his angle.

But then... then... came the infamous WSJ article with as interviewee:  Mark Skapinker. Ouch! That one hurt. Why? Because the message that came across was wrong, the burning Canadian flag was an insult, and it created a false generalized impression that we, as Canadian Entrepreneurs and VCs had failed. No the Canadian Venture Capital Community is not dead nor broken, it’s evolving and that’s a good thing! The Canadian Venture Capital Community, like in any other country, needs to adapt to its own national realities while at the same time face global competition. And secondly, we do have great new and recurring entrepreneurs, that have proven time after time that we can built great companies (even though we end up selling most of them to foreigner). Can Canada afford to have more proven and successful Canadian Tech CEO's and Entrepreneurs? Of course, 10 times more, easy! Do Canadian Venture Capital Fund have enough financial resources to fund all the great deals out there? No, and we need to convince more institutions to allocate funds to VC & PE and we need toshow then hard results and strong IRRS!   

For those of you who missed some of the action, here are  the few must read links related to the infamous article:

1.     The Wall Street Journal article itself: O Canada VC, We Stand On Guard For Thee

2.     The reaction, among others of Mark McQueen: Skapinker gives his homeland the Bronx Cheer

3.     The clarification blog by Mark Skapinker: Say it like you see it – and get kicked in the ass

4.     The Rick Segal reaction: Owww! I hate getting hit from behind

5.     The clarifying-clarification of Mark McQueen: Skapinker gives his homeland the Bronx Cheer part 2

I personally think that we can wish and want, complain and comment as much as we want. But the only way to build a successful business, a successful fund, to build a strong ecosystem, to innovate in an ever-changing environment, is by showing leadership. No one person, nor firm nor government will make any true difference “alone”. We can’t expect everybody to agree on “how” our ecosystem should be built or how our industry should thrive. But we can agree to respect the leadership of others, to work towards building a strong ecosystem and support those who take initiative in paving the way towards solidifying our Entrepreneurship and Venture Capital base.   

Call to action! If someone doesn’t agree on how things are being done, then instead of complaining, show leadership and take action. Everybody, in its own capacity, can provide leadership, do his/her part, or at the least, support the leadership it believes is right.

I look forward to read more about what SHOULD be done, yet I sincerely expect to witness more of what WILL be done.

Chris

 

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Calling movers & shakers! Inviting active VC's, repeat CEO's, passionate entrepreneurs and VC & PE industry leaders to year's Annual CVCA Conference

If you attend ONE private capital conference this year, this is the one you should attend - CVCA’s Annual Conference is the premier networking and professional development event for Canada’s venture capital and private equity industry and repeatedly attracts over 400 industry professionals and influencers from across the country, the U.S. and around the world. 

 

I highly recommend that you attend CVCA’s Annual Conference as it is the premier networking and professional development event for Canada’s private capital industry and repeatedly attracts over 400 industry professionals and influencers from across the country, the U.S. and around the world.  

High profile speakers include Thomas Barrack, Founder, Chairman and Chief Executive Officer of Colony Capital, LLC, Tim Draper, Founder and Managing Director of Draper Fisher Jurvetson, Leo de Bever, Chief Executive Officer of Alberta Investment Management Corp. Marc Beauchamp, President & Managing Partner at NOVACAP, Michael Nobrega, President and CEO of OMERS and Mark Wiseman, Senior Vice President, Private Investments, Canada Pension Plan Investment.

 

CVCA’s Conference attendees return year after year for the invaluable benefits of networking, with key industry leaders and for the topical issues presented and discussed at the various organized presentation. Participants and sponsors include the following:

·                     Private Equity Investors

·                     Venture Capitalists 

·                     Institutional & Corporate Investors

·                     Investment Bankers/Intermediaries

·                     Leveraged Lenders

·                     Commercial Banks

·                     Service Providers – Lawyers, Insurers, Accountants, Strategic and Financial Advisors, Executive Search

·                     Security Exchanges

·                     Government and Academia

 

You may visit the conference web site for the full agenda and on-line registration.

www.cvca.ca/news/events/2009AnnualConference.aspx   

 

Please also find a copy of the full length brochure in .pdf format.

 

Sincerely, 

 

Chris Arsenault

Editor of the CVCA Capital Rants Blog

Board member of the  CVCA - Canada’s Venture Capital & Private Equity Association

Managing Partner & COO - iNovia Capital Inc.

Twitter: http://twitter.com/chrisarsenault

 

 

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2009 Conference Brochure Final at April 2 2009.pdf (7446 KB)

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Here is a copy of the letter sent out by Réseau Capital to all its Members, which below links to download either a French or English version of the report.

 Best,Chris

 Text en français au bas

 *** 

Letter sent out April 1t, 2009

To all members of Réseau Capital,

We are pleased to attach the study on the impact of Venture Capital on the Canadian Economy sponsored by the Canadian Venture Capital Association (CVCA) and BDC.  Aimed at a wide audience, it explains how venture capital works, reviews the major impact studies conducted in the United States and measures its impact on Canadian employment, growth, innovation and exports. Going beyond such quantitative impacts, it also illustrates by way of case studies the “snowball effect” of venture capital, whereby one success spurs the birth and growth of a new generation of technological enterprises. Finally, it highlights the risks to the entire ecosystem of the industry’s shrinking ability to attract more investment at this time.   

Québec and Réseau Capital were active participants in this initiative, funded jointly by the Ministère du Développement économique, de l’Innovation et de l’Exportation, the other provinces and Industry Canada. Summit Capital provided additional funding that led to four success stories in Québec: Axcan Pharma, BioChem Pharma, Positron Fiber Systems and Taleo.  Annie Thabet, Charles Cazabon and Hubert Manseau were on the steering committee for the study, which was presented at the Réseau Capital convention in February and served as the basis of discussions between Réseau Capital and Raymond Bachand, Minister of Economic Development, Innovation and Export Trade, when the Québec budget was being prepared. It is a fine example of partnership between Réseau Capital and the CVCA, which we intend to maintain. 

Janie C. Béïque             François Chaurette

Co-President                 Co-President

Réseau Capital              Réseau Capital

___________________________________________________________ 

À tous les membres de Réseau Capital,

Vous trouverez ci-joint l’étude sur la contribution du capital de risque à l’économie canadienne commanditée par l’ACCR et la BDC. Destinée à un large public, elle explique comment fonctionne le capital de risque, passe en revue les grandes études d’impact qui ont été conduites aux États-Unis, mesure l’impact sur l’emploi, la croissance, l’innovation et les exportations au Canada et, au-delà de ces effets quantitatifs, illustre par des histoires à succès « l’effet boule de neige » du capital de risque par lequel un succès alimente la naissance et la croissance d’une nouvelle génération d’entreprises technologique. Elle met également en lumière les risques que fait courir à l’ensemble de l’écosystème la contraction de la levée de fonds à laquelle fait actuellement face l’industrie.

Le Québec et Réseau Capital ont pris une part active à cette entreprise. Le MDEIE l’a financée aux côtés des autres provinces et d’Industrie Canada. Sommet Capital a ajouté un financement supplémentaire qui a permis de porter à quatre le nombre d’histoires à succès du Québec : Axcan Pharma, Biochem Pharma, Positron Fiber Systems et Taleo.  Annie Thabet, Charles Cazabon et Hubert Manseau ont fait partie du Comité directeur de l’étude. Enfin, l’étude a été présentée au Congrès de Réseau Capital en février et elle a servi à supporter les discussions que Réseau Capital a pu avoir avec le Ministre Raymond Bachand lors de la préparation du budget. C’est là un bel exemple de partenariat entre Réseau Capital et l’ACCR que nous entendons poursuivre.

 

Janie C. Béïque             François Chaurette

Coprésidente                Coprésident

Réseau Capital              Réseau Capital

Réseau capital http://www.reseaucapital.com

CVCA http://www.cvca.ca

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CVCA Impact Study FRENCH March 2009.pdf (531 KB)

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CVCA Impact Study ENGLISH March 2009.pdf (496 KB)

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