Feds name first set of VCCI investments

The federal government is backing five large venture capital (VC) fund of funds (FoF) to boost the much-needed late-stage capital available to Canadian tech firms.

The five -- Hamilton Lane, HarbourVest Partners, Kensington Capital Partners, Northleaf Capital Partners and Teralys Capital – were selected under Stream 1 of the Venture Capital Catalyst Initiative (VCCI) competition. The winning FoFs can tap up to $350 million out of the $400 million that the feds allocated in Budget 2017. They are then to raise an equivalent of no less than 2.5 times the value of the public sector funding to generate more funds for scale-up entrepreneurs to the tune of up to $1.5 billion.

By increasing the availability of late stage funding, the government is hoping to attract business investments in the country and boost Canada’s competitiveness. The government said that as of 2017, the VC industry invested $3.5 billion worth of deals, the eighth straight year of growth momentum.

If the four, with the exception of Hamilton Lane, sound familiar, it is because they also participated in a similar initiative by the Conservative government, the Venture Capital Action Plan (VCAP). VCAP, which ran from 2013 to 2016, was also budgeted for $400 million with a leverage of 2-1. The four raised up to $1.35 billion under management. At the time the program closed, the VCAP FoFs benefitted 19 VC funds that helped nearly 100 Canadian companies.

Hamilton Lane is a Philadelphia-based private market investor that specializes in direct and FoF investments. It recently partnered with Novacap, a Canadian private equity firm, to facilitate the acquisition of Horizon Telcom of Ohio. Novacap also worked with HarbourVest Partners in this deal.

The balance of VCCI’s $50 million is for Stream 2, targeting “alternative investment models,” such as deal-based fundraising models and micro-funds. Results for this have yet to be announced.

Similar to VCAP, VCCI is being administered by the Business Development Bank of Canada (BDC). In an earlier interview, Neal Hill, BDC VP for market development, told RE$EARCH MONEY that he was hoping other players could be attracted to the program.

“We were gratified by the number of responses we got to the Call for Entries, and were impressed by the overall quality of proposals submitted,” says Hill.

Responses to the VCCI Call for Expressions of Interest were screened by a private-sector selection committee named in April. Their recommendations were forwarded to the DM of Innovation, Science and Economic Development. Even the members of the selection committee were drawn from an open call. The members include:

- Gilles Duruflé, co-chair, executive VP of the Quebec City Conference and president of its Tech Innovation Platform, VC investor and researcher;

- Serra Erdogmus, co-chair, has over 15 years of experience in private asset portfolio management, institutional investor;

- Catherine Lacavera, leader of Google's global litigation and employment teams, formerly from Ontario but now based San Francisco, technology acquisition and IP specialist;

- Bill Tam, co-chair of the Digital Technology Supercluster and former president & CEO of BC Tech Association; and,

- Rebecca Yu, VP at Takeda Canada, start-up support, life sciences.

Aside from the capacity to raise funds, another requirement for the large VC funders is to demonstrate how they will include diversity and include the participation of women and other members of emerging and underserved sectors in the VC ecosystem. This is also true for Stream 2.

VCCI is funded under the Innovation and Skills Plan and was first announced in Budget 2017.

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