Venture capital plays an important role in promoting a more innovative economy by providing the investment and resources needed for high-potential small and medium-sized business to grow. Some of Canada’s top innovative businesses - such as Blackberry, OpenText, and Sierra Wireless - benefitted from venture capital investments at key stages of their growth. Canada requires a strong, sustainable venture capital industry to support high-potential young businesses, to ensure that they are able to grow into globally competitive firms that drive job-creation, innovation and economic growth.
As noted by the 2011 Expert Review Panel on Research and Development, Canada’s venture capital industry has been challenged on a number of fronts. In recent years, persistent poor returns have led to low fundraising and have limited the amount of capital available to fuel the growth of Canadian start-up businesses.
Recognizing the importance of the venture capital industry to Canada’s future productivity growth, Economic Action Plan 2012 announced resources to support Canada’s venture capital industry, including $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
Over the Summer and Fall, the Government conducted extensive consultations with key stakeholders to determine how to structure this support to best contribute to the creation of a sustainable, private sector-led venture capital sector in Canada. During the consultations, stakeholders emphasized the need to implement private sector-led initiatives that demonstrate the return potential of the Canadian venture capital market to investors.
Based on the results of the consultations, the Prime Minister announced in January 2013 the Venture Capital Action Plan, a comprehensive strategy for deploying the $400 million in new capital over the next 7 to 10 years, which is expected to attract close to $1 billion in new private sector investments in funds of funds. The Plan recognizes the need to demonstrate that Canada’s innovative firms represent superior return opportunities, and that private sector investment and decision-making is central to long-term success. In particular, the Venture Capital Action Plan is making available:
- $250 million to establish new, large private sector-led national funds of funds (a funds of funds portfolio consists of investments in several venture capital funds) in partnership with institutional and corporate strategic investors, as well as interested provinces.
- Up to $100 million to recapitalize existing large private sector-led funds of funds, in partnership with willing provinces.
- An aggregate investment of up to $50 million in three to five existing high-performing venture capital funds in Canada.
- Additional resources to continue developing a robust venture capital system and a strong entrepreneurial culture in Canada.
The availability of venture capital financing is just one driver of a successful private sector-led venture capital sector. It is equally important to foster a strong entrepreneurial culture and well-established networks that link investors to innovative companies. These complementary elements help entrepreneurs and young firms to develop their innovative ideas into strong business plans and access new markets and customers.
To support the Government’s efforts to strengthen venture capital in Canada, Economic Action Plan 2013 announces new initiatives to complement the Venture Capital Action Plan and promote the broader venture capital system.
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For more information, consult the BDC Venture Capital website.