Tories pounce on Grits over Ontario VC stats

“The government’s Ontario Venture Capital Program is a bust” — Peter Shurman, MPP

It has been a few days since representatives from the Canadian Venture Capital & Private Equity Association trooped up to present to the Finance Committee at Queen’s Park, but the sorry state of start-up and venture capital in Ontario finally appears to be sinking in with members of the Provincial Legislature (see prior post “Ontario Finance Committee appearance” Feb 1-10).

According to the Thomson / CVCA 2009 stats, of the $1 billion in new venture capital dollars invested nationally last year, a total of “$431 million was invested in Québec, up 10% from the $392 million invested in 2008, giving it a leading 43% share of the Canadian total last year. Deal activity in Ontario fell in both absolute and relative terms, with $288 million invested in 2009, or 50% below the $575 million of one year ago. As a result, Ontario accounted for only 28% of all disbursements nationwide, which is its lowest market share since the early 1990s.”

During yesterday’s Question Period, Progressive Conservative Economic Development Critic Peter Shurman asked Research and Innovation Minister John Milloy about “Liberal failures on venture capital”.

Mr. Shurman asked Minister Milloy “to admit that their venture capital program is an abysmal failure. The government’s Ontario Venture Capital Program is a bust. Despite set-up and operational costs that must run into the hundreds of thousands of dollars, no funds have actually flowed from the three commitments made to date. That means that not a single job has been created by this program since it was set up over two years ago.”

Tough stuff, and echos concerns you’ve heard raised earlier in certain quarters (see prior representative post “UAE’s Sheikh Khalifa Fund vs. Ontario’s OVCF” Jan 10-10).

According to a press release issued by Mr. Shurman’s office, Minister Milloy “could not explain why investment in Ontario from venture capital funds had fallen from $1.5 billion in 2000 to just $88 million in 2008.”

In Mr. Shurman’s eyes, the Ontario government’s 2005 decision to kill the Labour Sponsored Fund Program is to blame:

“It is clear that governments in the rest of Canada understand what it takes to attract job-creating investment to their provinces. The McGuinty government’s bad decision in 2005 to phase out tax credits for venture capital funds has come back to haunt them. The failure of the Ontario Venture Capital Fund is further evidence that the McGuinty Liberals are disconnected from reality when it comes to venture capital.”

In the last few days, the folks at the Ontario Venture Capital Fund have started a new marketing effort, sending out a blast email and newsletter outlining the four “commitments” they’ve made to Canadian-based VC funds since the OVCF was launched in June 2007. On the NorthLeaf website, they’re referred to as “investments”…which would be true once they all have a first close.

The good news is that one of these commitments has actually closed, with the US$67 million first close of XPV Water Fund. OVCF is a “lead investor” in the fund, with a C$20 million commitment.

This is a wonderful development for the XPV team, and their defined business model was understandably welcomed by the institutional investor community. The other three $20MM commitments from OVCF that are still in fund marketing mode include: Edgestone Venture Fund III, Georgian Partners Fund I and Lumira Capital II. There’s still not been any public acknowledgement by OVCF manager NorthLeaf of the rumoured early commitment to the USA-based Mayfield Fund, for example (see prior post “Did the Ontario Venture Fund finally pull the trigger?” Mar 16-09); maybe it never happened.

The other bit of good news is that OVCF will now sign up on less than $100 million of commitments for the first close. For the last couple of years, it had been understood that if you didn’t get to $100 million, there would be no fund. XPV’s US$67 million first close demonstrates that this $100MM mendoza line is no longer the case — if it ever was at play.

Congrats to the team at XPV! Hopefully this is the first of several fund closings that we’ll see as the year progresses.

The $20MM close for Mantella Venture Partners is one more step in the right direction, thanks to the hard work of Robin Axon and Duncan Hill and the confidence of their LP Mantella Corp (hat tip Start Up North).

Sadly, these two bits of great news don’t undercut the concerns raised by Mr. Shurman regarding Ontario’s shrinking role in Canada’s Innovation landscape. Even if both new funds put out every dollar they’ve raised tomorrow, and only in Ontario-based deals (which seems unlikely as XPV’s fund is in U.S. dollars), the Province still punches below its weight.

MRM
(disclosure – although I am a Director of the CVCA, these views are my own)