If pressed, most federal Members of Parliament will tell you that the Business Development Bank of Canada’s role is to support early stage companies that don’t have sufficient access to traditional sources of capital.
Venture capital certainly falls under that category, and from the first look at the 2010 BDC financial statements, it seems that BDC is really pulling in their horns when it comes to venture capital investing: new or follow-on. Perhaps the ongoing McKinsey review has put a stick in the spokes (see prior post “An idea for McKinsey & Co.” July 8-10).
Here are the key figures:
– BDC authorized just $85 million in VC investments in 2010, a drop of 38% (more than $50 million) versus 2009’s figure
– BDC’s actual venture capital dollars advanced amounted to merely $58.2 million, down 33% as compared to 2009 ($58 million represents just over 1% of all new BDC loans/investments made during fiscal 2010)
– this $58.2 million is dwarfed by the $250 million of new capital provided in 2010 by Industry Minister Tony Clement specifically for BDC’s VC portfolio (an additional $225 million was subsequently committed by the Federal Government to BDC’s VC portfolio); with assets of more than $17.7 billion as it is, it is unclear why the government needed to give BDC any new capital at all (at the expense of other national VC initiatives that didn’t happen as a result; see prior post “Flaherty to VCs: “Don’t expect too much” in Budget” Feb. 18-10)
– BDC’s authorized financial contribution to existing VC syndicates dropped from 23% in 2009 to 15% in 2010; which means any number of things, including that i) when folks passed around the hat, BDC chose not to fund the next round when other Canadian VCs in the syndicate did, ii) BDC funded less than their pro rata, allowing themselves to be diluted on follow-on rounds, iii) there’s not enough capital to go around, despite the federal governments’ new grant, iv) the risk managers have taken the wheel at BDC’s VC arm, or v) 2009 was an anomaly, and the 2007 figure of 18% is more the norm
– new Venture Capital authorized specifically to seed and early stage companies amounted to just $19.55 million (and authorized doesn’t mean the capital was actually drawn, which would have been closer to $13.3 million for 2010)
– the value of the existing BDC VC portfolio dropped $74.1 million, to $362.3 million; of which $302.8 million is in direct investments, and $59.5 million is as a Limited Partner in 20 different VC funds
– operating costs at BDC’s VC arm amounted to $12.2 million ($2.8 million lower than planned), on a direct portfolio NAV of $302.8 million (that may seem high, but the direct and fund-of-fund program had a cost base of $601 million in 2007, so their VC cost structure is close to that of a traditional “2&20” GP/LP model, if you counted a 3rd party fund investment in the same way as a direct one)
As a percentage of VC dollars advanced, compare BDC’s $58 million for the last twelve months as at March 2010, to the $1B of new VC capital deployed in 2009 across Canada by the entire industry; BDC’s adding about 6% to the Canadian VC pie right now. On a year over year basis, Canada saw a 27% drop in new VC capital deployment in 2009, versus a 33% drop at BDC.
At a time when we all though the government was pushing BDC to do more in the area, and cutting cheques to ensure that was possible (see prior post “Clement moves to fund BDC’s existing venture portfolio” June 15-09), I’m not sure what’s more surprising: that they’ve cut back new dollars more than the industry, or to see the drop in BDC’s relative financial contribution to existing financing syndicates.
Haven’t heard any buzz about the latter, but the entrepreneurs and VCs who have to pick up the slack must be confused, to say the least. For all that MPs will hear about VC during the upcoming BDC House of Commons mandate hearings, the venture capital program now represents just 2% of the Crown Corps’ assets, down from 5% in three short years.
Starbucks spends about as much on advertising each year as the BDC puts out in new VC investments. Has the BDC VC arm become merely a marketing tool for use on Parliament Hill?