BDC to boost seed investments in Quebec with $50-million GO Capital fund

The Business Development Bank of Canada (BDC) is significantly expanding its ability to make Quebec-based seed and pre-seed investments with the creation of GO Capital, a $50-million fund backed by several Quebec-based investors including BDC. The new fund will be used to match BDC seed and follow-on investments, effectively injecting $100 million into new company formation.

One and a half years in the making, GO Capital is being launched as Quebec's venture capital (VC) industry works to recover from the twin shocks that ushered in an era of fiscal conservatism, leaving many promising technology plays languishing on the shelf. The meltdown of the dot com and telecom sectors, combined with the restructuring of the sector by the government of Jean Charest, sent VC managers scrambling for safety in more mature and existing investments.

"A lot of groups decided to slow down on seed investment as everyone was looking at their own portfolios," says Jacques Simoneau, BDC's executive VP investments. "Many got out but BDC stayed in there."

FIER LARGEST INVESTOR

The largest investor in GO Capital is FIER Partners, one of three funds under the umbrella of Fonds d'intervention econom-ique regional. FIER was created by the Charest government in response to recommendations in the Brunet report, which was requested to address the dominance of public VC funds in the province (R$, March 18/04). The GO Capital investment closely follows another $25-million investment FIER Partners made in the CTI Life Sciences Fund, which has $100 million in capitalization and targets Quebec or non-Quebec based Canadian biotechnology and biopharmaceuticals as well as medical devices companies.

"We were approached by BDC and decided to invest because it has a good background and expertise in seed financing," says Sylvie Pinsonnault, managing director of FIER Partners.

In 2002, BDC restructured operations, creating the Technology Seed Investment Group. In 2004, the federal government invested an additional $250 million in BDC, including $100 million specifically targeting seed and pre-seed investment (R$, September 28/04). The $10 million that BDC contributed to GO Capital is sourced from that envelope (see chart). But Simoneau — a seasoned Quebec venture capitalist who joined BDC last April — notes that not all of GO Capital funding and the BDC investments it will match are destined for seed-stage investment.

"GO Capital will match ongoing BDC investment which allows us to continue operations at a higher pace and a larger level," he says. "Our objective is to fund about 20 companies at between $1 million and $2 million (and) keep investing in the successful ones. The big mistake in past seed funds was that there was no follow-on."

GO Capital will target businesses in the seed and start-up phases with an emphasis on advanced technologies, information technology, life sciences and telecommunications. The concept was initially hatched in the industry liaison office of Laval Univ and there are plans to take it beyond Quebec's borders. Simoneau says preliminary discussions are underway in Ontario and Alberta.

"The same problem (lack of seed capital) exists everywhere in Canada so we'd like to do similar matching funds elsewhere in the country which can be adjusted to the local reality," he says. "It's a good initiative to address commercialization problems and might be the right recipe to focus a dedicated group at the early seed stage."

BDC is not the only financing entity allocating VC to seed-stage prospects. Earlier this year, Garage Technology Ventures Canada closed a $50-million round of financing involving many of the same players that invested in GO Capital (R$, April 28/06).

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