Did the Ontario Venture Fund finally pull the trigger?

The rumours have been churning for weeks that the Ontario Venture Capital Fund has made its first financial commitment to the space, some 18 months after its launch. The figure isn’t known (US$5 or US$7.5 million perhaps), but most agree that Mayfield Fund was the first to get the nod from TD Capital Private Equity Partners on behalf of Ontario Premier Dalton McGuinty and Innovation Minister John Wilkinson.

Here’s the skinny on them:

We have over $2.8 billion under management and a team of ten investing professionals. Since our founding in 1969, we have raised 13 funds, invested in more than 500 companies, taken more than 100 public, and nearly 100 have merged or were acquired.

Mayfield has a truly great reputation, and one hears that they’ve agreed to open up a one-person office in Toronto as part of the deal. The brightside of all of this is that Toronto may have a new player in town with global links. Prior Mayfield successes include Broadvision, Citrix, Concur, Genentech, Nuance, Sandisk, etc.

500 investments over 40 years works out to be 12.5 per annum worldwide, counting both leads and syndicates. Which means, based upon the size of our tech economy relative to the rest of the world, Canadian entrepreneurs might imagine one incremental lead a year from their own backyard as a result of this new footprint.

The OVCF was designed to help arrest the death of the local start-up economy (see prior representative post “MRI Fund rumors come true” June 11-08). Critics will wonder why the first venture fund that the Ontario government invested in was an American group (particularly when the 2nd press release said that between “80% and 100%” of the capital would go into “Ontario-focused funds”), but I find no fault with the concept.

The only valid criticism will be that none of this information is ever made public. 1) How can entrepreneurs tap into the Province’s capital if no one knows who is deploying the $205 million of capital and where to access it?; and 2) How can taxpayers track the performance of the strategy if Ontario doesn’t have a specific website dedicated to performance data, as one would find at CPPIB?

Ontario politicians and officials have unwittingly learned two lessons over the past year. First, that it is hard to raise capital: even with the Premier himself making calls, only a few corporate and institutional LPs joined the OVCF (all of which were gov’t regulated). The second closing, which would take the $205 million figure higher, was “anticipated” to happen in 2008 — but never came to pass.

And second, when LPs go to commit new capital to the venture space, it is so much easier to “buy IBM” than to support a domestic VC team. This decision makes it a bit more difficult for provincial politicians to criticize the CPP Investment Board for cutting back so dramatically on their Canadian venture investments over the past few years (see prior representative posts “CPPIB general partner Q1 2007 performance numbers” August 26-07 and “Doubling Down on Private Equity at CPP Investment Board” February 20-09).

Welcome, Mayfield! The industry is glad to have you onboard. If the rumour that TD Capital Private Equity Partners’ second commitment is also to a U.S.-based venture fund is also true, then the notion that the OVCF was designed to help save the Ontario VC industry will start to unravel in no short order. But that’s no knock on Mayfield’s capabilities.

According to the Ontario government’s own stats, venture capital and follow-on financings in Ontario hit a 12 year low in 2008, the year after “first time” VC financings in Ontario reached a similar nadir.

Transplanting the U.S. venture industry to Ontario just isn’t feasible. We still need local managers if Ontario is ever to have an Innovation Economy, whether or not Chrysler’s 3 Ontario-based plants survive the next 36 months. Having almost killed the Labour-sponsored Fund Industry, and agreed that the OVCF isn’t the “silver bullet”, where’s the balance of the Ontario government’s strategy?

MRM