BC commits $90 million to generate $450 million in new technology investment

The British Columbia government is hoping to lever $450 million in new venture capital (VC) with a commitment of $90 million to create the BC Renaissance Capital Fund (BCRCF). The new Fund is considered a turning point in the province's ongoing challenge to encourage new investment and R&D in the homegrown high tech sector and expand the talent pool. The Fund is in addition to existing government-backed VC funds and tax credits.

The Ministry of Economic Development (MED) issued a request for qualifications (RFQ) earlier this month for the BCRCF seeking qualified institutional VC fund managers to submit proposals for a new fund or funds. The RFQ stipulates that the successful applicant contribute $80 million in uninvested institutional capital before the province releases its $90-million commitment. It also states that the province's share cannot exceed 20% of available fund capital, achieving at least a 4:1 leverage ratio.

"This is a turning point for the province ... The challenge right now in BC is company retention. If we increase capital and the talent pool, it will encourage young entrepreneurs to stay in BC," says Rob Cruickshank, president of the BC Technology Industry Association (BCTIA). "This initiative was right behind creating a technology strategy for the province as our highest priority. We felt that, if we could create larger VC funds and attract expertise from outside the province and the country, it would significantly benefit the industry here."

BC traditionally receives 10-11% of the VC invested in Canada in any given year, although the province's share rose to 18% of the national total in 2006 with investments of $297 million. The BCRCF model was chosen after extensive study of the marketplace and its impact on the existing VC community.

"We have established a fund on market terms in which financial firms are willing to participate," says Clint Megaffin, senior portfolio manager with the MED's investment capital branch. "It has a dual objective — to further the development of the VC market in BC and attract talented managers, while making sure the companies here are properly funded."

The Fund is also being created to enhance the returns on recent public S&T investments. It's estimated that BC has invested $1.5 billion in the past three years to support research and innovation.

The BCRCF has been in the works for more than two years and stems from a recommendation by the Premier's Technology Council (PTC) in its fifth report, released in 2004. In that report, the PTC stated that it has "encountered a sense of frustration that inadequate funds are impeding the most dynamic innovative businesses".

"A targeted campaign in partnership with the private sector aimed at encouraging high-tech investors and senior management to come to the province is needed," stated the report. "A larger pool of venture capital can be realized through the acceleration of funding to venture capital from traditional sources … There must be a full maturation of the market for funding of venture capital in British Columbia and Canada."

targets 3 key sectors

The BCRCF is targeted towards but not limited to the three technology sectors in which BC has existing strength and the capacity to grow — life sciences, information technology and new media, and clean technology. These are also the technology areas that the government has cited as its primary focus and will likely be featured prominently in its forthcoming S&T strategy.

"The government has looked at S&T in the province and these are areas where there is a build-up of potential investment. They're also broad enough to cover the majority of S&T in the province," says Megaffin.

The expectations of the BCRCF are to:

* generate superior, risk-adjusted returns for capital committed by the province;

* increase the probability that innovative new goods and services in BC gain full-scale commercialization;

* increase the depth of the VC market in BC; and,

* enhance the visibility of BC as a market for attractive VC opportunities in North America and globally.

Of some concern to the high-tech industry is the stipulation that only the province's $90-million contribution to the proposed VC fund or funds must be invested in the province. "It's not exactly what we had hoped for but it's not uncommon in these kinds of proposals," says Cruickshank. "If the fund invests the minimum amount, hopefully it will invest more.

"We did a technology survey in 2006 (and) the tech sector is very bullish about the future. Companies are projecting 15% growth in people and revenue and they are looking for customer-facing people. They're looking to go to the market so the timing of the fund is good."

R$