Foreign investment $ still sleepy post section 116 "fix"
Time for a reality check. With the end of the year coming, I thought it was high time to review the promised “deluge” of foreign investments in the wake of the Federal Government’s removal of “Section 116” during the last budget season (March 2010).
I know that many of you believed this was the key ask of government, and Ministers Flaherty and Clement certainly acted. As part of a package of adjustments and new initiatives, I thought is was a useful step. But certainly not the be-all-and-end-all (see prior post “If it’s not built, they can’t come” Mar 6-10).
Let’s analyze the early performance and behaviour of foreign VCs, now that the Section 116 bogey man is out of the way.
VC deals with Canadian cos. (where at least one investor is foreign):
April 2010 – October 2010: $231MM raised on 31 deals
April 2009 – October 2009: $196MM raised on 25 deals
April 2008 – October 2008: $307MM raised on 38 deals
April 2007 – October 2007: $457MM raised on 38 deals
April 2006 – October 2006: $341MM raised on 27 deals
April 2005 – October 2005: $531MM raised on 35 deals
Let me guess what you’re thinking right now.
MRM
Hi Mark
Thanks for the post. I think you could interpret the data in 2 ways. First, one could say that we are are in the first inning and its too early to call the game since it takes time to educate these foreign investors about this new policy. Or you could say that this data clearly illustrates that it has little to no impact on driving foreign investments and instead, the only thing that drives foreign investments is big exits. The VC industry is a herd industry. Only when folks see big exits will more money flow in. Clarity is one of the best exits we have seen in a while. We need 5 more and then lets look at these numbers.
Thanks for stopping by Rob!
I agree that it is too early to make any determinations from the stats; that’s why I called them “early” figures. The lesson here is that politicians and public servants were led to believe by some that Sec. 116 was one of the key problems for Canadian’s raising start-up or growth capital. I never subscribed to that view, and saw the “fix” as merely part of a needed suite of program changes, policy adjustments and financial reallocations within the government’s collective toolkits. Unfortunately, all we got was Sec. 116., and this post is meant to be a cautionary tale.
Since US VCs contributed ~40% of the overall VC capital pool raised by local firms just 2 and 3 years ago (when Sec. 116 was still in place), I hope we don’t need “5 big exits” to bring them back to that level again…particularly now that the alleged barrier of 116 has been done away with.
MRM