"Struggling" OVCF coming to an end?

Belts are tight at Queen’s Park, which may well mean that the Ontario Venture Capital Fund is set for the high jump.

First announced in 2007 (see prior post “$165MM MRI Fund: blessing or curse?“ Dec 3-07), it has made just four commitments in the space of four years: BlackBerry Partners Fund, Edgestone Venture III (the commitment subsequently expired), Georgian Partners and XPV. That tortuously-slow pace is a problem, not just for the entrepreneurs, angels and broader VC industry, but also the government sponsor.

The mechanics of the fund were simple: 4 year term (or was it 5) and then re-up for the next vehicle. That clock has ticked, and it is time for the OVCF to go back to its hostages private sector LPs and see who wants to play again.

As we all recall, it took the Premier himself to get some of the private sector players to agree to commit in the first place. Each had their own reasons for playing or not, of course, but the lack of traction can’t have been missed by the senior management of Manulife, RBC and TD. OTPP will look back and say they were justified in passing, as was rumoured, at the time.

One has to assume the Cabinet has the bit in its teeth, too. As MRI Minister, a sincere Glen Murray referred to OVCF in 2010 as “struggling” (see prior post “No sacred cows for Murray“ Oct 26-10), and Finance Minister Dwight Duncan told a York Club audience last year that things “hadn’t worked out” at OVCF like the government had planned. Indeed, the Opposition has been on the file, too, and minority governments can’t ignore the mood across the aisle (see prior post “Tories pounce on Grits over Ontario VC stats“ March 2-10).

At the outset, one has to wonder if it was set-up for success. Although it has worked in B.C., Canadian funds of funds have a spotty track record. Some have made money, Edgestone successfully put the CPPIB money to work in the early part of the last decade, and certain provincial government vehicles have served their purpose. But the politicians are learning that building a successful VC ecosystem is more complicated than simply handing the public policy tool over to NorthLeaf Partners (manager of OVCF).

For NorthLeaf, the timing of a re-up could be crucial, too. Having acquired the TD Fund of Fund platform (TD Capital Private Equity Investors) from the bank for $1 a few years ago, prior to renaming it NorthLeaf, the firm has grown to 55 staff managing a variety of products. It is this critical mass that is rumoured to have drawn the M&A attention of Harbourvest, a US$28 billion goliath in the fund-of-fund space. Harbourvest has been acquiring regional players, and the drums are beating about a NorthLeaf/Harbourvest tie-up.

The OVCF is a marquee mandate to manage, and asset management platforms such as Northleaf are valued off their fee streams. Which means the timing of any eventual re-up, or the demise of OVCF itself, might have a bearing on more than just the local VC industry.

As the budget negotiations continue to Queen’s Park, entrepreneurs are left to hope that the Premier won’t throw the baby out with the bath water. The OVCF hasn’t worked, and Finance is looking for budget savings, but perhaps it wasn’t the basic idea of OVCF that has caused it to fall flat.

As fund managers at several VC firms would tell you, this was a failure of execution, not design. Give it another chance, but put the football in someone else’s hands.

MRM