Ontario Government as V.C.?

What’s that well-worn phrase, “government’s shouldn’t pick winners and losers”? If you’re a purist, hold onto your chair.

The press release is skinny on details, but the Ontario government has just announced a new $250 million fund that will, it appears, co-invest with “qualified venture capital funds and private sector investors. The fund would match small to medium private sector investments and receive an interest in companies it supports….”

Starting in July. Of this year. The OVCF was launched 18 months ago it has yet to make a single formal investment announcement (see prior post “Did the Ontario Venture Fund finally pull the trigger?” March 16-09)…so a July 2009 first investment date is blindingly quick.

Neither form nor structure are clear, and rather than take (or even seek) the advice of the Canadian Venture Capital & Private Equity Association and double-up on the Ontario Venture Capital Fund (see prior post “CVCA’s budget pitch to Ont. Premier McGuinty” March 17-09), the Province has decided to become a VC themselves. And no word about extending the runway for the LSIF funds, either (see prior post “The great LSIF myth” July 2-08). But there’s still time to see that in the upcoming budget.

As pre-budget announcements go, this one makes sense to put out ASAP. Get some attention before the big numbers grab the headlines. The new $250 million fund is targeted to put capital into the four sectors that MRI Minister John Wilkinson thinks Ontario has an clear advantage in: “clean tech”, “information communication technology” (whatever that is), “lifescience” and “digital media”.

I don’t pretend to have all of the answers, and the fact that the politicians and public servants didn’t involve the VC industry in designing the concept is curious. Could you imagine fixing the problems of the car industry without consulting the auto industry on the Government’s proposed ideas. But, as ideas go, this fund might just help!

Design matters, of course. And who will manage it also went unmentioned; will it be awarded via RFP, or will TD Capital Private Equity Partners hire a V.C. team over the next 8 weeks to dispense the co-investment dough in conjunction with their OVCF mandate?

Details and team are two keys in any prospective deal. All we know right now are pacing ($50MM per year) and start date (July).

Assuming this fund is designed well, managed by a talented group of people, and operates on industry timelines, it might be a great idea. For every entrepreneur who doesn’t run a business that falls within these four sectors, all I can say is I’m sorry. No soup for you.

The VC Community is trying, but we have little, if any, influence at Queen’s Park as you will have garnered. The VC industry offered last November to be part of the budget design, and are reading about this fund at the same time that you are. Perhaps some ideas are best designed in the dark of night. But I doubt it. The good news is that the problem of ebbing Innovation Economy remains on the Ontario Government’s radar screen.

Time will tell if the MRI skunkworks has produced a solution that will help stem the 12 year slide of start-up and venture capital in Ontario.

MRM