Canadian government doubles down on VC

The federal government’s recent C$500m capital injection into the country’s venture industry follows a two-year lull in fundraising for Canadian venture capital.

The Government of Canada is bullish on venture capital.

The Canadian federal government’s C$500 million (€383 million; $502 million) commitment to Canada’s venture industry last week marks a substantial reinvestment in the asset class following a string of government capital injections and long history of programmes supporting venture capital.

During the past four years, the Canadian government has allocated a total of C$475 million to the Business Development Bank of Canada for venture capital activities. The government included C$75 million for venture in its 2008 budget and in 2009 allocated C$50 million for activities in Southern Ontario, plus and an additional C$350 million for venture over three years.

For more than 20 years, Canada’s federal government has also offered the Labour Sponsored Venture Capital Corporations tax programme, which offers a tax credit for those who participate in “high-risk investments”. The programme spends an estimated $125 million on the tax credits per year, according to Government of Canada spokesperson Michel Cimpaye.

The Canadian government also stimulates equity investments in Canadian start-ups through the Investing in Business Innovation programme, which helps risk capital investor networks and their associations attract new investment and supports the growth of angel investment funds.

“Another example is Export Development Canada…which places equity investments in support of Canadian exporters and investors,” Cimpaye told Private Equity International.

While fundraising for venture capital in Canada has been virtually flat for the past two years, with just C$1 billion raised in both 2010 and 2011, according to Canada’s Venture Capital & Private Equity Association, deal activity last year rose 34 percent compared to 2010, reaching C$1.5 billion.

“The quality of opportunities throughout the country is extremely high right now,” OMERS Ventures managing director Derek Smyth told Private Equity International earlier this month. “I’ve been in the venture industry for eight years and it’s the highest that I’ve ever seen in terms of quality of opportunities.”