United States-based investment firm Hamilton Lane has pulled out of the federal government’s Venture Capital Catalyst Initiative (VCCI), BetaKit has confirmed.
As first reported by The Globe and Mail, Hamilton Lane has decided that effective immediately it will no longer be participating in the federal innovation program that was meant to help inject around $1.5 billion into Canada’s venture capital ecosystem.
“Trying to raise this fund on a relatively short timeline proved difficult.”
A spokesperson for Hamilton Lane told BetaKit that the firm made the decision and informed the government of the move late last week.
Announced in Budget 2017, the Government of Canada earmarked $400 million over three years to the VCCI program, which is meant to inject more capital into the ecosystem by leveraging matching private sector funds. Firms were asked to apply for a portion of the funding. A third, cleantech stream was announced in the government’s 2018 Fall Economic Update, adding an additional $50 million to the program.
Hamilton Lane was one of the five fund-of-funds selected as a manager for stream one of VCCI in 2018. Those chosen also included fellow US-based firm HarbourVest Partners and three Canadian firms Kensington Capital Partners, Northleaf Capital Partners, Teralys Capital. The VCCI program follows the Consvative government’s venture-capital action plan (VCAP), which was launched in 2013. VCAP supported Hamilton Lane’s four fellow VCCI recipients.
For VCCI, the federal government divided up $350 million between the five fund-of-funds, with The Globe reporting that Hamilton Lane received around $80 million of that.
The fund managers were given till the end of 2018 to hit first close and another year to hit final fund targets. Teralys hit its target in December 2018, closing $400 million, with Kensington, Northleaf, and HarbourVest each reaching final closes in 2019.
Hamilton Lane was more delayed. The firm did not open a Canadian office until last April, when it brought on ex-OMERS director Mike Woollatt to lead the Canadia operations. At the time, multiple people familiar with the situation indicated to BetaKit that Hamilton Lane had been aggressively searching for boots on the ground following the VCCI funding.
Mario Giannini, CEO of Hamilton Lane, noted at the time that bringing Woollatt on board made the firm “well-suited to assist the Government of Canada in this important initiative.”
However, the fund manager still faced delays, only receiving approval from the Ontario Securities Commission to raise funds in May. And despite the government extending its deadline to June 30, Hamilton Lane found it difficult to raise funds.
“The Canadian venture fund of funds market was relatively saturated with four other players that had just raised funds,” Hamilton Lane’s spokesperson told BetaKit. “As a result, trying to raise this fund on a relatively short timeline proved difficult.”
The new VCCI program asks for fund managers to raise $2.50 for every $1 received from the federal government. Hamilton Lane pulling out of VCCI leaves the Canadian government falling more than $200 million short of its $1.5 billion target.
It is unclear at this point how the federal government plans to handle Hamilton Lane’s move. According to The Globe, no decision has been made on how to allocate the unused funds, with one source noting the possibility that it was too late for the four VCCI fund-of-funds to scoop up the additional money.
In a statement to BetaKit, the office of the Minister of Small Business, Export Promotion, and International Trade Mary Ng, who is responsible for the VCCI program, acknowledged that they were aware Hamilton has decided not to pursue a new fund.
The government office noted that “the vast majority” of the $450 million has already been formally committed, but did not outline a plan for the money left by Hamilton Lane’s departure.
“The remaining selected fund managers under all three streams have collectively raised over $1.7 billion so far,” the statement claimed. “These managers are actively investing in venture capital funds and high-potential companies across Canada. These investments will help maintain the strong growth in venture capital investment in Canada, which reached over $4.7 billion in the first nine months of 2019. This is a record amount of investment for this sector, which speaks to the attractiveness [of] our vibrant and growing Canadian businesses.”
Despite its decision to leave VCCI, Hamilton Lane plans to keep investing locally. “Hamilton Lane remains committed to the Canadian marketplace,” the fund manager’s spokesperson stated. “We will retain our office there and Mike Woollatt will continue to lead our efforts both with our investing and client partners in the country.”
Ng’s office acknowledged Hamilton Lane’s decision to maintain a Canadian office, stating that the government is encouraged that this will attract international venture capital to Canada.
UPDATE 12/03/2020: This article has been updated with a statement from the Office of the Minister of Small Business, Export Promotion, and International Trade.
Image courtesy Business Wire