During the February 2013 budget, the Ontario Liberal government promised to put $50 million into the next generation of its 2007-vintage Ontario Venture Capital Fund (see prior post “‘Struggling’ OVCF coming to an end?” April 24-12), which had run out of dough a year ago after a painfully slow start. With a $50 million matching commitment from Ottawa’s previously announced $400 million venture capital envelope (see prior representative post “Entrepreneurs are making steady progress in Bytown” Jan. 15-13), Ontario officials hope to attract another “$200 million” of private sector capital to the syndicate “in time”, according to the Premier’s Office.
Of the two VC-specific programs the Ministry of Research and Innovation had carriage of, the OVCF had no where near the immediate impact of the highly-regarded Ontario Emerging Technologies Fund, the 5-year, $250 million evergreen co-investment fund that was the Thoroughbred to OVCF’s Donkey, managed by TD Bank-spinout Northleaf Capital Partners.
Despite being positioned as a permanent replacement to backfill the entrepreneurial funds that evaporated when former Premier McGuinty shuttered the LSIF program, the OETF’s funding was cut-off barely midstream (see prior post “Ontario government puts $250M Emerging Technology Fund on ice” June 21-12). With yesterday’s announcement, it appears that the Province has decided to stick with the fund-of-fund sponsor role, and leave the OETF for dead.
I’m all for giving the OVCF a second chance, although the Province isn’t showing great leadership by cutting back its allocation from $90 million on Fund I to $50 million this time around. The Feds are making up the shortfall with their own $50 million commitment, but Federal Crown Corp. BDC was one of the five other limited partners in OVCF I (along with OMERS, Manulife, RBC and TD), and it is unclear if they’ll be back with their own ~$25 million commitment for OVCF II now that Ottawa has already put up $50 million directly.
To attract another $200 million to OVCF II, when Ottawa is trying to separately draw $400-600 million of new private institutional capital later this week to its own $250 million national fund-of-fund initiative seems like a tall order. If I was to guess, I’d say there’s about $500 million of non-government private institutional capital allocated to domestic venture funds today (in the hands of new vehicles managed by independent firms such as Celtic, Georgian, Lumira, iNovia, Vanedge and XPV); in addition to the government-linked capital these funds have raised from BDC, EDC, OVCF and Teralys. Add this targeted $600-800 million to that existing $500M figure, and we get to a potful of money.
There hasn’t been $1.3 billion of private institutional capital allocated to the Canadian venture asset class since 2000; and, perhaps, not even at the peak. How that capital is going to dragged to the asset class will take all of the structuring talents of Sam Duboc and his comrades-in-arms at Finance.
Setting reality aside for the moment, OVCF 2.0 is a worthy initiative even if they only bring in OMERS for a $25 million re-up and CPPIB for a similar figure. OMERS has every reason to keep up good relations with Queen’s Park, while CPPIB surely needs to put its money where its venture-loving mouth is given the multi-year non-performance of its own high profile venture fund allocation (see prior post “Has anyone seen CPPIB’s venture bucks? part 2” Nov. 12-12). Ottawa will likely snag CPP, Manulife, RBC and TD Bank for their own vehicle, among others.
When the Province puts that OVCF II RFP out to tender, they should remember the tortuous way in which that first vehicle treated the industry, which explained much of the delay in execution that upset Ministers Murray and Duncan, not to mention led to the unnecessary demise of Edgestone Ventures III (see prior post “Bridgescale and Edgestone demerge” Sept. 20-11). When he was MRI Minister, Glen Murray said it was “struggling” in the hands of Northleaf Capital Partners (see prior post “No sacred cows for Murray” Oct. 26-10), while former Finance Minister Dwight Duncan summed it up with a simple: “it hasn’t worked out like we thought”.
Amen to that.
Stories abound about inertia at the OVCF. With it taking eight months for Northleaf to return the calls of an existing VC fund manager looking to raise capital. With a universe of less than two dozen existing and emerging managers to potentially deal with, it was never clear why OVCF appeared to be run like the Greek Post Office. Teralys, despite having a larger fund and fewer team members, never got that kind of reputation. Inexplicably, Northleaf seemed more comfortable backing “emerging” funds with no IRRs or record of working together as a team, rather than existing managers who had survived and learned from the “long war” that followed NASDAQ 6,000. I always got a kick out of the fact that the OVCF team never even called over to meet us during that five year period, despite being across the street, even when we’d had our second close on Fund IV (see prior post “Wellington Financial Announces 2nd Closing for Fund IV” Jan. 13-13), reaching a fundraising high watermark for a post-2004 Ontario-based innovation fund.
Ontario could do worse that hand the keys of OVCF II to a few proud, professional Quebecers.
(disclosure: this post, like all blogs, is an Opinion Piece)