According to a letter shared by the Canadian Venture Capital and Private Equity Association (CVCA), BDC Capital today launched the BDC Capital Bridge Financing Program meant to support venture-backed companies with matching investments.
“One of the important messages that I’ve been telling my members is, this is not the medium or long term that we’re dealing with.”
The idea behind the program is to support Canadian companies impacted by COVID-19 that may not qualify for many of the existing federal government relief measures. Three steps are being taken through the program; BDC is set to invest alongside venture firms and, according to the CVCA, BDC Capital will also accelerate more capital into General Partners (GPs) in Canada as well as increase its co-investment activity.
According to the CVCA letter sent to members and obtained by BetaKit, BDC Capital, the investment arm of the Business Development Bank of Canada, may match, via a convertible note, current financing rounds being raised through “qualified existing and/or new investors made in an eligible company.”
BDC Capital itself has yet to provide detail on the new program, though CVCA CEO Kim Furlong explained in an interview with BetaKit that BDC Capital is set to release more information during a webinar hosted for CVCA GP members on Tuesday. Individuals from BDC will be on the webinar to answer questions as well.
A source with knowledge of BDC operations who spoke to BetaKit on background noted that the Bridge Financing Program is not just for existing BDC Capital partners, but new ones as well.
Furlong explained that BDC Capital will be looking for opportunities to invest in certain GPs currently in market that are nearing a first close and also, through the co-investment portion, will be looking to potentially up the equity portion of investments with existing companies and GPs on a one on one basis.
According to the letter, in order to be eligible companies must be Canadian-based, venture-backed, and have raised at least $500,000 in external capital before applying. Importantly, companies must also be specifically impacted by COVID-19. It is noted that any matching investment from BDC Capital will be subject to due diligence review, agreement on terms of the investment, and approval by a BDC investment committee.
The program is something that the CVCA has been calling for, along with a number of other measures it hoped government would take to better support the innovation sector. Last week, The Logic reported that such a program was in the works and sources that spoke to BetaKit on background confirmed that BDC and the CVCA had been in talks and that a program much-aligned with the CVCA’s recommendations was imminent. Notably, BDC Capital executive vice president Jérôme Nycz is on the board directors for the CVCA.
In its letter, the CVCA noted it is pleased that BDC Capital has launched the program, adding that it is “ideal for high potential companies who have investor syndicates that are willing to support them.” Furlong echoed those sentiments, adding that the CVCA has been in regular talks with the Capital corporation, which has been open to feedback.
Some VCs BetaKit spoke with on condition of anonymity expressed concerns about the matching program, however. One noted that, so far, it seems BDC portfolio companies and partners are receiving more details on the program than non-partners. They expressed general fear that BDC’s LPs and portfolio will be favoured when it comes to receiving capital.
Another VC likened the program “a Trojan Horse” for BDC, arguing that the matching offer through convertible notes is a great way for BDC to get in on deals and companies they might not previously have had access to.
Furlong expressed to BetaKit that the matching convertible note program is “a tool [that can be] very quickly deployed.” With a maturity date of three years, she said, it gives companies enough time to turn the note into equity, be reimbursed, or paid out through an exit.
Angel investors have also expressed concern about the new BDC program. During a virtual roundtable hosted by The National Angel Capital Organization (NACO) today, CEO Claudio Rojas called out the program for focusing specifically on venture-backed companies. VCs lose out, he said, if angels are not supported, noting that it’s important for angel investors to have access to a similar program.
The CVCA claimed BDC Capital has already been in touch with some of its investment partners, but all venture capital firms are welcome to see if they are eligible for the program. Startups are being encouraged to speak to their shareholder or investors, and companies directly in BDC Capital’s portfolio should speak to their partner.
“One of the important messages that I’ve been telling my members is, this is not the medium or long term that we’re dealing with,” said Furlong. “The government is trying to deal with this situation at hand in terms of liquidity in a very short timeframe to make sure that we keep as many people employed in the companies that have the potential of really driving Canada’s economic growth as we come out of this crisis.”
BetaKit has reached out to BDC Capital for comment.