Promise of free debt upon him. The $450 million pledged to the venture capital sector in the 2021 federal budget to help create and grow new technology companies across the country is finally ready for distribution. Ottawa is giving fund managers a few weeks to apply and make promising investments before the end of the year.
The Canadian venture capital and innovation sector has been waiting for an announcement for several months. Looking at the economic news of the past few months, this influx of new capital is starting to pressure. “What is happening in Ukraine, the pressure caused by the situation in China on supply chains, inflation, all of this may already have an impact on financing activity in certain investment sectors,” notes Réseau Capital CEO Guillaume Caudron.
Quebec’s venture capital and development investment activity for the first quarter of 2022 does not clearly reflect the slowdown that observers fear in the sector, even if indicators point to access to capital that will become more complex. In the coming months, adds Guillaume Caudron. “One quarter does not allow us to draw conclusions about the state of the sector, but the context forces us to remain vigilant.”
Looking at the direction the stock markets have taken in recent weeks, one can imagine that private investment will be more cautious in the future. “There is still capital available start and promising projects. In the medium term, what is of concern is the funds’ ability to refinance themselves in order to continue investing,” sums up the director of Réseau Capital.
Funds of funds 350 million
This is where the Ottawa advertisement comes in handy. The program is called Venture Capital Stimulation Initiative (VCCI) It includes an envelope of $350 million that will be reserved for investment funds, which will then be able to distribute that capital to other funds that specialize in more specialized areas of venture capital. Interested mutual funds must apply by June 23.
In Quebec, Teralys Capital is an example of such funds being called “fund money”. Teralys also participated in a previous Ottawa program dating back to 2013 called Venture Capital Action Plan. Under this program, private funds were required to raise $2 of private funding for every dollar received from Ottawa. Since this formula worked well the first time around, Ottawa decided to raise the bar this time by requiring $2.25 in private capital for every dollar received from ICCR.
Of concern in the medium term is the funds’ ability to recapitalize to continue investing.
In addition to the $350 million program, the program includes two additional envelopes of $50 million each for specialized funds. The first amount will be reserved for a maximum of seven life sciences mutual funds. The second amount will be used to help a maximum of five “inclusive” funds targeting social groups underrepresented in the Canadian tech scene: women, nonbinary people or LGBT people, as well as Aboriginal entrepreneurs or entrepreneurs from racial communities. . Applications for these funds will be accepted until next September.
In total, Ottawa wants venture capital funds to raise $1.8 billion through its new program.
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