The Royal Bank of Canada (RBC) has revealed plans to raise and anchor a new, $1-billion USD ($1.4-billion CAD) fund to back scaling Canadian technology companies.
The news: RBC announced the RBCx Growth Fund on Wednesday morning. The fund will make direct equity investments in growth-stage domestic tech firms “with the potential to scale into global powerhouses,” and provide access to commercialization opportunities, strategic partnerships, and other forms of support that RBC claims are often unavailable via traditional investors. The bank plans to pour up to $300 million USD ($416 million CAD) of its own capital into this fund, and secure the remainder from third parties.
From the source: “For decades, Canada has produced an outsized share of world-class entrepreneurs and tech talent who want to build global companies at home,” RBC president and CEO Dave McKay said in a news release. “But when they’re ready to scale, too often they get pulled elsewhere. The RBCx Growth Fund I is about changing that by putting capital and partnership behind our most promising homegrown innovators.”
The context: According to the Canadian Venture Capital & Private Equity Association (CVCA), American investors play an outsized role in financing the growth of Canadian tech firms. Citing PitchBook data, RBC said that over the past decade, 33 percent of domestic growth rounds have been led by Canadian investors. That’s a far cry from the 74 percent of US growth rounds led by US investors during the same period. The CVCA (which has been calling for the federal government to concentrate its upcoming $750-million venture envelope on growth-stage firms) has argued that this dynamic creates a higher risk of those companies relocating to the US or being acquired by US businesses. A recent Council of Canadian Innovators study backs that up, determining Canadian tech firms are exiting to foreign buyers when it’s time to scale.
Final thought: With the RBCx Growth Fund, the bank hopes to keep “more of the ownership, influence and economic upside” of Canadian firms in Canada. Sid Paquette, head of RBCx, RBC’s tech and innovation banking arm, has been tasked with leading the fund, which will prioritize companies developing enterprise software (like applied AI and cybersecurity), healthtech, frontier tech (spanning aerospace, defence, and quantum computing), cleantech, and AgTech solutions. RBC reportedly intends to pitch foreign investors on the initiative at Prime Minister Mark Carney’s Canada Investment Summit next week. The bank claims the fund has “already attracted significant interest” from prospective limited partners.
Feature image courtesy RBC.