Industry investors, training key to fast-tracking maturation of VC sector: New BDC programs

The Business Development Bank of Canada (BDC) is betting that greater corporate involvement in venture capital will bring the know-how, contacts and money needed to move Canada’s VC sector from short pants to full adulthood. Faced with less than satisfactory improvement in Canada’s 30-year-old investment sector, BDC has launched two new programs designed to accelerate the maturation of Canada’s venture capital industry.

Its approach is two-pronged: encourage more companies to invest in promising tech firms, and train VC managers using a multi-module, cohort-based approach developed by Palo Alto CA-based Kauffman Fellows, a spin-off of the Kauffman Foundation.

Overseen by Neal Hill, BDC Capital’s VP market development, the programs target two areas where Canada’s VC industry is considered weak — corporate participation in VC, as opposed to traditional investment bankers, and fund management.

“We want to find places in the VC landscape and ecosystem where, with a nudge or injection of capital, we can help things mature faster than they would on their own,” says Hill. “With the Corporate Innovation and Venturing Program (CIVP), we want to be a concierge service, pointing to places where companies can get involved at lower cost and complexity … For the GP (General Partners) Academy, our first cohort has 11 fund managers who will move together as a fixed group through four modules over 18 months, developing relationships.”

Though Canada’s VC industry is approximately 30 years old, Hill says its ability to mature has been hampered by economic cycles, poorly timed government interventions and its relatively small scale. The end result has been a high turnover of fund managers that interrupted attempts to establish a workable model that investors could rally around. It’s estimated that less than 5% of Canadian fund managers have been in the industry for 15 years or more, robbing new entrants of experienced mentors and the continuity required for the 10- to 12-year funding cycles typical of most tech-based firms.

Compounding the problem is a risk averse investment culture in Canada that has precluded participation by many institutional investors such as pension funds and corporations. Too often, they failed to see the value in connecting with smaller innovation firms and academic institutions where so much of Canada’s research is conducted.

Corporate Innovation and Venturing Program

The CIVP was launched earlier this year in Toronto at BDC’s Canadian Corporate Innovation Summit. Its genesis stems from the observation that Canadian corporates are not as involved as their US, UK and other counterparts in the VC ecosystem. Other than a few large firms such as OpenText and Blackberry, few Canadian companies have VC arms or investment activity, which isolates them from the source of new ideas, talent and partnerships.

“This program allows companies to see new technologies being developed outside their walls which help them to secure future business … We talked to a lot of large corporates and there’s generally a low awareness of options available to them. We’re advertising it as a one-stop shop and the reaction so far has been very good,” says Hill. “Universities are an IP (intellectual property) storehouse but many companies don’t realize this and universities are anxious to make these connections. We do the introductions.”

GP Academy

BDC’s decision to focus on managerial training comes at a good time for the industry. In 2016, VC investment totalled $3.2 billion, up 41% from the previous year and the highest tally recorded since the height of the dot come and telecom booms in 1999. According to the Canadian Venture Capital & Private Equity Association, 2016 also saw a significant increase in deal size with the top 10 deals totalling $984 million.

The idea for the GP Academy was sparked by Ela Borenstein, a member of the Kauffman Fellows Program “class of 17” who invited Hill to speak  at her cohort’s graduation. Borenstein, then a GP with BDC’s Health Venture Fund and now a BDC Capital program director, says Hill was “energized by what he saw” and worked with Kauffman Fellows’ president to bring the program to Canada. It’s the first time the 20-year-old program has been launched outside of the US.

“The academy offers four modules over 18 months versus Kauffman Fellows’ seven modules over two years. The price in Canada is also far cheaper — $10,000 versus US$80,000,” says Borenstein.

When creating the GP Academy, Borenstein recruited the assistance of Sydney Finkelstein, director of the Tuck Executive Program (TEP) at Dartmouth College, Hanover NH, to modify the curriculum on leadership in concert with Kauffman Fellows, including a series of events branded FUNDamental Principles.

“Canadian GPs are a small tranche and they don’t engage much with one another, with the exception of life sciences … We need to catch up as a country and accelerate maturation and learning,” says Borenstein. “We look at maturing firms, succession planning and branding. We hope to spark this desire for education so companies put their people in the Kauffman program. It’s a large time and cost commitment.”

Borenstein says the beauty of the GP Academy is that it’s “all about the entrepreneur”, coupled with an environment that is structured to encourage interaction both as people and investors to “tear down walls” and establish enduring relationships for both experienced and greener fund managers.

“I can call up my Kauffman Fellow classmates and ask them anything without judgement. It’s like therapy,” she says. “The goal of the Canadian academy is to create an environment so people interact more easily.”

Hill says the track record of the US program shows that the 500+ participants over the past 20 years often end up investing together. Most are from the US but managers from dozens of other countries have also participated.

“They’ve formed a global network and BDC has entered a consulting arrangement for Kauffman to work with us,” says Hill. “It’s a sweetheart deal; never done anywhere else in the world. Canada is the first of hopefully many countries.”

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