Ontario politicians asked to address deteriorating VC climate
1 October 2007Earlier today, our firm joined other local and US-based funds in an effort to get Ontario politicians to address the major drop in venture capital attracted by Ontario-based firms over the past few years.
Here is the text of our release as well as a separate one put out by the Canadian Venture Capital and Private Equity Association (”CVCA“):
“Leading investors call on Ontario politicians to tackle deteriorating investment climate
TORONTO, Oct. 1 /CNW/ - This morning, a group of leading Ontario-based venture investors called upon the leaders of the four Ontario political parties to address the acute shortage of venture capital for Ontario-based firms.
According to results released by the Canadian Venture Capital and Private Equity Association (the “CVCA”) on August 14th, venture capital investment in Ontario experienced a sharp decline in the second quarter ended June 30, 2007. $131 million was invested in 34 companies during Q2 2007, down 58% from $309 million in Q1 2007 (of which $160 million was a single investment and partial sale transaction for Guelph-based Geosign). Q2 2007’s figure was also
35% below the $201 million invested in Q2 2006, for example.According to the CVCA, the specific decline in Ontario is “most noticeable when measured against activity in other regional North American markets. Investment activity in Ontario dropped behind much smaller markets, such as Colorado, Minnesota, Virginia, Florida and North Carolina.” Quebec finished the quarter in 11th place, with 71 companies receiving $149 million
during Q2 2007. Ontario came in 14th place.For the first half of 2007, Quebec received $321 million while Ontario firms received $440 million (again, one firm received $160 million of that $440 million). Quebec firms received 73% of the funding of Ontario firms, despite having 62% of the population base. Removing the one $160 million outlier transaction, Quebec firms received 15% more funding despite having a
far smaller population base.Firms in British Columbia attracted $175 million of venture funding during the first half of 2007, as compared to Ontario’s $280 million (excluding the outlier transaction), despite having approximately one third of Ontario’s population according to the 2006 census.
“Since 2002, Ontario has experienced a dramatic decline in venture capital investing”, said Mark McQueen, President & Chief Executive Officer of Wellington Financial LP, one of Canada’s leading venture debt funds with over $200 million under management, “and there is no end in sight.” “In 2002, Ontario attracted $1.4 billion of venture capital, according to Thomson
Financial,” continued Mr. McQueen. “In 2003 and 2004, the number was in the range of $600 to $650 million. In 2005, it fell to $578 million. In 2006, it fell again to $483 million. Through the end of August 2007, excluding one unusually large investment/sale transaction, we’ve seen just $237 million of VC-backed deals.”“During the past two years, more than $1 billion of new capital has been raised for Quebec-based venture funds. Ontario VCs, by comparison, have raised approximately half that amount during the same period. Is the dichotomy the result of Ontario having the highest provincial corporate tax rates, the Provincial government’s destruction of the labour-sponsored fund market, or lethargy on the part of pension fund investors? Probably a combination of all three. Provincial politicians certainly can’t blame the dollar, nor the NASDAQ” said Mr. McQueen. “With an election underway, 50,000 manufacturing jobs lost this year alone, and tepid success commercializing University research, where is Ontario’s strategy to attract more investment capital?”
“Last year we hit the lowest point in 10 years in terms of new Ontario entrepreneurs funded,” said Les Lyall, Senior VP of GrowthWorks. “This is a direct result of the decline of available venture capital in the province. The situation is only going to get worse until the retail venture capital tax credits are reinstated by the Ontario government and we can provide the much
needed venture capital to make Ontario a friendly environment for entrepreneurs to cultivate their businesses.”Added John Varghese, Managing Partner of VentureLink Funds: “The Ontario LSIF market has raised over $2.7 billion, with almost 40% of that deployed in Ottawa area. The Waterloo area has also greatly benefited from LSIF investing. I would argue that we would not have attained these centres of excellence without the investments made by labour-sponsored funds. It has been lost on our candidates that since inception, Ontario LSIFs have invested in over 600 companies that have created over 27,000 jobs.”
“US investors who are thinking about making investments in Ontario companies like to co-invest with local VC funds,” said Ken Wigglesworth, Senior Managing Director of Rising Tide Fund, a Silicon Valley based expansion capital fund with offices in Ottawa. “Unfortunately, as the supply of venture capital in Ontario declines, US investors are having a harder time finding local firms to partner with. I am concerned that the current contraction of the domestic VC supply could lead to a similar contraction of US investment in the province.”
About Wellington Financial LP
Wellington Financial LP is a privately held specialty finance firm providing operating lines of credit, term, venture and amortizing loans up to $40 million. Wellington Financial LP is currently deploying a $400 million investment program via its third fund. The fund’s clients vary in size and
business model, but generally have current year revenue of approximately $5 million. Wellington Financial LP is managed by a partnership controlled by fund management and Clairvest Group Inc. (CVG:TSX), who jointly have contributed a large financial stake to Fund III. Limited partners include several of Canada’s largest institutional investors, crown corporations,
financial institutions and pension funds. Please visit the fund website at www.wellingtonfund.com, or the Wellington Financial team blog at www.wellingtonfund.com/blog.About Growthworks (www.growthworks.ca)
GrowthWorks(TM) managed funds provide investment capital for Canadian companies and tax-advantaged investment opportunities for Canadian investors. GrowthWorks manages over $800 million in assets through the Working Opportunity Fund (EVCC) Ltd., GrowthWorks Atlantic Venture Fund Ltd., GrowthWorks Commercialization Fund Ltd. and GrowthWorks Canadian Fund Ltd. GrowthWorks identifies, analyzes and structures investments in companies with high growth potential. Particular emphasis is placed on IT, Life Sciences and Advanced Manufacturing sectors. Building on over 15 years of investment expertise, GrowthWorks is a leader in Canadian venture capital management.
About VentureLink
With over $250 million under management, VentureLink Funds is a diverse group of labour-sponsored funds (”LSIF”). The group was a pioneer in bringing funds focused on mezzanine debt to the LSIF market, a conservative approach that provides investors benefit from the security of debt positions along with the growth potential of participating equity.
Rising Tide Fund
Rising Tide (formerly Newbury Partners) is a global private equity fund, investing $10 million to $50 million of expansion capital per investment in healthy, established companies. The fund targets investments in rising tide markets such as digital media and content delivery, and in businesses that enhance the quality of life of individuals through ever-improving productivity, connectivity, entertainment, security and healthcare. Rising Tide is headquartered in Silicon Valley with Senior Managing Directors in Ottawa, Canada, Europe and the Middle East. The Investment Team has over 75 years of CxO-level experience in technology, and over 75 years of investing experience over twelve diverse funds.
For further information: Mark McQueen, President & CEO, Wellington Financial LP, Tel: (416) 682-6000, mmcqueen@wellingtonfund.com;
Les Lyall, Senior Vice-President, Growthworks, Tel: (416) 934-7753
CVCA release:
Toronto, October 1, 2007 - CVCA - Canada’s Venture Capital and Private Equity Association is calling on all Ontario provincial parties to articulate their plans for the growth and development of the venture capital industry in the Province. The CVCA is concerned that the continuing decline in risk capital available for new ventures in Ontario represents a serious challenge for the Province – a challenge that has not received appropriate attention during the current Election.
Ontario’s future economic growth in knowledge based industries such as mobile computing, telecommunications, software, life sciences, new media and clean technologies depends upon a vibrant venture capital industry in the Province. The opportunity to stake out a leadership position in these emerging industries – and the high quality jobs and economic development that goes with them – is being lost as other markets continue to surpass Ontario in the financing of new ventures.
The decline in the Ontario venture capital market is most noticeable when measured against activity in other regional North American markets. During the most recent quarterly period ended June 30, 2007, investment activity in Ontario dropped to 14th place on the ranking of all U.S. states and Canadian provinces, falling behind traditionally much smaller markets such as Colorado, Minnesota, Virginia, Florida and North Carolina. Québec also finished the quarter ahead of Ontario, in 11th place overall, in spite of its smaller capital market and population base.
Now is the time for all Ontario Political Parties to state their position on this important issue.
About the CVCA
The CVCA - Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 1200 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters.
For further information please contact Richard Rémillard Executive Director
CVCA - Canada’s Venture Capital & Private Equity Association
Phone 613 744-8969
rremillard@cvca.ca”
AO
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