Editorial - 23-9

Guest Contributor
June 2, 2009

Canada's venture capital (VC) supply is broken. The industry is in near collapse with little activity beyond small follow-on investments in existing companies. The federal government should therefore be congratulated for utilizing one of its most effective mechanisms — the Business Development Bank of Canada — to address one of the biggest shortcomings in the financing system for tech-based firms.

Virtually no one in Canada has the wherewithal to provide large amounts of VC for growth- or late-stage firms, giving them the means to go global and ratchet up technology development and marketing.

That's where Tandem Expansion comes in (see lead story). Using $75 million in BDC financing, it's already half way towards its goal of assembling $500 million to assist Canadian firms in realizing their potential without selling off their equity too early or venturing south to raise the necessary capital.

Tandem was created by two VC stalwarts, giving the fund the kind of heft required to attract additional capital and invest in firms with the greatest potential. The chances of good returns are far higher than with seed or early-stage VC, raising the likelihood that other financial firms may follow suit.

Having a large, growth-stage source of funding won't solve the all problems facing Canada's tech sector. Changes must be made to federal R&D tax credits, making them refundable and therefore accessible to firms that are not in a profitable position. But the Tandem fund is a very good start to ensuring that homegrown tech firms and their intellectual property remain in Canada.

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