Province inching forward with venture capital fund

Opinion

Hey there, time traveller!
This article was published 16/12/2021 (1105 days ago), so information in it may no longer be current.

In two successive Manitoba throne speeches the words venture capital have been uttered.

In 2020 it was fairly coy. The Premier’s Economic Opportunities Advisory Board was being asked to “examine the need and role for a provincial venture capital investment fund.”

This year, it was more direct, strident even — “We will proceed with a venture capital framework.”

That sounds like the province is past the stage of being convinced that it is necessary and would shortly be in the process of getting the ball rolling.

And indeed, on Thursday, a spokesperson for Premier Heather Stefanson said, “Preliminary discussions on the governance structure and financial requirements are already underway.”

Even if it is safe to say the provincial government has finally recovered from its Crocus hangover — the Crocus Investment Fund went into receivership 16 years ago — there are probably some political bruises that are still showing, so a cautious approach is to be expected.

None of the plans have been disclosed, but the premier’s spokesperson did say, “we look forward to sharing more details early in the new year.”

That sounds like the project has been taken off the back burner.

What is being contemplated is not clear, but high-level recommendations from the Business Council of Manitoba have been on government decision-makers desks since Brian Pallister was still in office.

Bram Strain, the Business Council’s CEO, said it has recommended to the province that it should invest about $150 million over five years and that, under private sector professional management, that should be enough incentive for private-sector investment into the fund to equal or as much as double the province’s investment.

The Business Council’s recommendations is that it should be a pure venture fund. Investment decisions would be made strictly on a business case and would have no political agenda other than “to spur Manitoba’s entrepreneurial spirit by promoting policies that support start-up and small business growth, and get new products to market” as Stefanson’s spokesperson said.

In an interview, Strain said, “We suggest that a private sector board would run it and really what it would do is, literally, pick winners. Our theory is simple. Grow the pie, don’t tax the pie more. Grow it so it increases the tax base in total.”

At the end of the day any kind of third-party investing is about picking the winners, which is obviously much easier said than done.

Over the past couple of decades there has been a cascade of venture capital and private equity money flooding into global markets, but by just about any calculus, Manitoba has not gotten its fair share.

The idea that just because the province will commit however many millions of dollars, will be enough incentive to attract private investors to step up, remains to be seen.

But Strain and the Business Council believe that will be incentive enough because they believe much of the rest of the fund’s capital could — and should — come from high net worth individuals and not institutional investors.

“We believe within the high net worth investor community there is a lot of money that could be leveraged,” said Strain. “We think there is a lot of appetite in the private sector. People that are from Manitoba love Manitoba. We all know that.”

Mike Pyle, the CEO of Exchange Income Corp. and one of the members of the Business Council who helped draft its venture capital recommendations, said, “The way I would describe it is priming the pump.”

With the government providing the initial investment stake — for which it will expect to get a return just like every other investor in any other venture capital fund would expect — and as a return on investment starts to emerge, that money will then be redeployed.

“It then becomes an engine,” said Pyle.

If nothing else, the province might have to resort to shame, to some extent, for motivation. Manitoba is now one of the only provinces in the country whose provincial government is not in the venture capital game.

One of the concerns about the dearth of capital has been that growing companies from Manitoba are being forced to leave the province to access the funds they need although there is not a lot of evidence of that actually happening.

In the last few years both the Manitoba Technology Accelerator and North Forge Technology Exchange have built up effective angel capital networks, providing early stage seed capital to get companies off the ground.

But that type of investment is typically with companies that have not yet started to generate revenue.

North Forge’s network — which includes investors from across the country and internationally — is less than a year old and has already invested in 10 startups.

Joelle Foster, the CEO of North Forge, said that a larger venture capital fund is much needed.

“If it comes to fruition it would be a wonderful segue for our founders to move forward,” she said. “It would definitely complement the ecosystem.”

martin.cash@freepress.mb.ca