Ontario's phantom VC rebound
News item: Canada draws 10% increase in VC dollars in 2010
Not to be picky, but where exactly is the rebound in Canada’s venture capital investing landscape taking place? According to a press release by the CVCA and Thomson Reuters, Canada attracted $1.1 billion of new venture capital investment in 2010, of which $424 million allegedly went to Ontario.
For the nation as a whole, this represented a 10% rise over 2009; for Ontario, a stunning $128 million jump. According to the release, Ontario now swamps Quebec’s marketshare by 5%, reversing its 2nd place standing in 2009.
The VC funds and entrepreneurial enterprises based in Ontario will be forgiven for scratching their heads, since most thought the Province had become a shadow of its former VC self. Apparently, this just isn’t so.
Looking at the numbers, as always, is instructive. The Ontario deals included in these totals involve a variety of transactions that don’t readily fall into the traditional venture capital category (including the three largest disclosed Ontario deals):
– In March 2010, Adenyo raised $27.7 million, largely from a series of passive institutional investors via a “pre-IPO” private round. According to Thomson’s background deck, this was the largest disclosed Ontario “VC” deal in 2010. To my knowledge the deal didn’t involve any traditional VCs beyond Genuity Capital Partners, and the lion’s share of capital came from firms that aren’t VCs. Last month, Adenyo agreed to be acquired by a US-based, NASDAQ-listed firm.
– In July 2010, Sprott Power raised $23 million for that start-up, aka “Ventus II”. VentureLink led the round with a $2 million cheque, backing the very successful Jeff Jenner. Our Fund III enjoyed financing “Ventus I”, a wind farm developer, which was acquired a few years ago by Suez of France. Sprott Power develops and finances renewable energy projects.
– NexJ did a $22.5 million round, although none of its investors were disclosed, they’re not believed to be VCs.
– I’m guessing that a deal for Public Mobile would have been a material financing. Although the size of the round hasn’t been disclosed, I’m assuming it was included in the overall total deployment figure of $424 million. But, is that a “VC” deal? Well, they do count RHO, Columbia, OMERS and Kensington as investors, among others. But is a wireless start-up a venture capital-type company? Depends upon your point of view.
– According to the releases on the website, Thomson also counted deals for Espial ($3.5MM in debt) and Cymat, both of which are TSX-listed and have been public for years.
If the largest VC deals in Ontario last year didn’t really fit the traditional sense of what venture capital is, or didn’t even involve VCs at all, it only serves to skew the figures of what actually went into our startup ecosystem. Which means we risk politicians hugging the stuffing out of these miscategorized deals, pretending that they count towards the argument that Ontario is enjoying a rebound. One can only hope not.
The Ontario Capital Growth Corporation did eight deals in Ontario last year via the Ontario Emerging Technologies Fund. $28.5 million was put into the start-up and VC ecosystem in 2010 via this government arm, representing 6.7% of the overall Ontario figure.
Since I’m not in the data business, I’ll leave it to others to decide what types of deals should be going into a database for the purposes of deal tracking; if they don’t involve VCs, can the dollars still represent “venture capital”? According to the OSC, the answer is pretty clear: VCs are active in the management and oversight of their investee partners. A passive cheque from a mutual fund is just that: an investment in a company, whether it be private or publicly-held. The data business is a tough job, but let’s not confuse tracking with analysis.
When it comes to assessing VC fund flows, the concern is that policy makers will grasp the thin reed of the 2010 press release (flawed or otherwise), and declare that Ontario’s start-up and VC market is starting to recover. I don’t want to be accused of being a killjoy, but there’s no evidence of this on the ground.
Is there anyone in the private sector who believes the industry recovered in 2010?
MRM
(this post reflects a personal opinion, and may or may not reflect the views of the CVCA and/or its members)
Mark, I agree that VC investing in Ontario continues to struggle. And as a VC investor, I understand your critique of the ‘official’ stats. But if private businesses are getting access to financing, does it matter what/who the source is or how they’re classified with respect to the health of the market for small business investment? Or are you arguing more about definitions – i.e. what is VC-based funding vs. other sources of funding for private companies?
Thanks for stopping by Evelyn.
I am trying to make the point that folks shouldn’t confuse “financing” with “VC financing”. If an early stage company can raise money from, say, the government or AGF instead of a VC, that certainly counts as a financing.
Cash is cash.
But when those figures are then inappropriately used to support a claim that “VC” investing has rose by 10% in 2010, it causes a multitude of self-evident problems for our industry with public policy-makers looking to declare victory.
MRM