Feds Announce $300 Million Northleaf Venture Catalyst Fund of Funds

Building on the Venture Capital Action Plan (VCAP), Canada’s federal government today has announced the Northleaf Venture Catalyst Fund, a new fund of funds with a target of $300 million. The government of Ontario also participated in the fund that will invest in early- and mid-stage technology companies.

Minister of state for the federal economic development agency for southern Ontario Gary Goodyear  reported a first close for the new fund at $217.5 million. $145 million is from the private sector and $36.3 million is from each of the governments of Canada and Ontario.

“I can tell you that federal government is committed to continuing our support of these invaluable contributors and contributions,” Goodyear said of Canada’s entrepreneurs. “Canada’s innovators have proven time and again that you are in fact up to the task of competing on that world stage. All we have to do is give you that opportunity, get out of your way and provide the tools and resources to do so.”

Northleaf Capital Partners was selected as the main private-sector manager with support from Waterloo-based technology firm OpenText (NASDAQ: OTEX), the Canadian Pension Plan Investment Board and several Canadian financial institutions.

The announcement comes 18 months after Canada’s Minster of Finance launched consultations to increase venture capital in Canada. It’s also been a year since Prime Minister Stephen Harper released details of both the key findings and the Government’s $400 million Venture Capital Action Plan (VCAP) in Montreal.

Now it appears that another major milestone has been achieved. This is the first of up to four separate fund-of-funds managers that could be awarded investment capital under the VCAP.

This is an idea who’s time has come, explained Goodyear. “There is no reason why Canada and our firm should continue to lag our OECD partners and private sector innovation performance, or productivity improvement,” he said. “We obviously have the people, we have the resources, we certainly have the ideas and at no point has the landscape for businesses growth been so fertile for Canadian companies…since the 1950’s”

Fund-of-funds are the investors behind the private venture capital firms who in turn provide financing to entrepreneurs and high-growth companies. This much needed money is flowing to the top of the venture capital funnel, said Toronto-based McRock Capital.

Northleaf Capital expects the $300 million to be ready by fall 2014, and the initial close was reported at $217.5 million. The Government of Ontario had previously announced a $50 million commitment to the VCAP through its Ontario Venture Capital Fund, and was also part of today’s new fund announcement announcing it would invest up to $50 million based on private sector matching.

Communitech’s Iain Klugman, OpenText’s Tom Jenkins and Ontario Premiere Kathleen Wynne were also on hand for the announcement.

McRock Capital’s Scott MacDonald said that “the financial participation by OpenText is of significant importance to Canada’s venture capital industry which has seen a decline in strategic corporate investors in the investment asset class for years,” and that the participation from CPPIB, the investment arm of the massive Canadian Pension Plan, “also signals strong support for the growth of the Canadian venture capital industry.”

Wynne largely praised her province rather than the collective action of the federal government (although it’s kind of expected). She explained that the government of Ontario was there to facilitate the entrepreneurs’ ideas. “We believe in the future, we believe in the capacity in Ontario to lead the way and thats what this announcement is about today, our ability to work with the federal government,” she said.

Of the Northleaf Venture Catalyst Fund, Wynne said it puts Ontario in “a very exclusive company, along with California,” and that her government understood early on that innovation talent in the province existed. Six years ago they partnered with the private sector and launched the Ontario Venture Capital Fund in 2008.

“We’re contributing up to $50 million dollars to it and that could leverage up to $300 million,” said the Ontario premiere. “The $217 million already leveraged demonstrates that we’re on the right track.”

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