The fund of funds managers for the latest (and possible final) round of the Venture Capital Catalyst Initiative (VCCI) have been named.
HarbourVest Partners, Teralys Capital, Kensington Capital Partners, and Northleaf Capital have been chosen to dole out the $350 million that was committed in the federal Budget 2021. Each of the four firms also managed the previous round of VCCI capital.
The federal backing now means each firm will raise new funds, with the government stating hopes to see a collective investment pool of around $1.4 billion CAD.
According to The Logic, which was the first to report the news, the firms are required to raise three times as much private capital as they received in government financing. The government has not disclosed how much each firm has been allocated, though split four ways each firm theoretically could have received around $87 million.
VCCI is managed by the Business Development Bank of Canada (BDC).
The four firms are expected to disburse at least 60 percent of their allotted capital to Canadian venture funds, and no more than a quarter to direct investing in companies.
With the request for proposals for this latest round of VCCI in May came discussions about whether or not it would be the final round of support through the program. The concerns stemmed from a Globe and Mail interview with Canadian Venture Capital and Private Equity Association (CVCA) CEO Kim Furlong, who said at the time she thought “this is the last time we’ll see a major fund-to-fund initiative from the federal government.” Furlong added she would “not go back and ask for another general fund.”
The announcement came less than two years after Furlong called for the renewal of VCCI, saying that Canada’s innovation sector would be “severely weakened” without it.
This news led to stakeholders wondering whether Furlong’s statements were more a reflection of what she has been told by the federal government than what the CVCA actually wants, with others expressing belief to BetaKit that the program wasn’t dead at all.
Speaking on The BetaKit Podcast earlier this year, RBCx’s Anthony Mouchantaf highlighted the importance of VCCI. “What we know for fact is that these programs have driven S&P-beating returns for taxpayers … so taxpayers are coming ahead on a purely financial return basis, and they’ve played a critical role in establishing, growing, and scaling probably some generational businesses. And if we are going to think about futureproofing the country this is without a doubt the most proximate, effective way of doing it.”
The VCCI program was first created in 2017 as a successor to the prior Conservative government’s venture-capital action plan (VCAP), which was launched in 2013. Budget 2017 earmarked $400 million over three years for the VCCI program. At the time, five funds rather than four were chosen to disburse the capital, with Hamilton Lane joining the current fund managers.
The United States-based investment firm later pulled out of VCCI after being delayed in raising its fund within the allotted time. Sources that BetaKit spoke with at the time noted that this was due to delays in finding a Canadian-based fund manager and a failure to receive approval from the Ontario Securities Commission to raise funds.
In each of their first VCCI-backed funds, Teralys hit its raise target in December 2018, closing $400 million, with Kensington, Northleaf, and HarbourVest each reaching final closes in 2019.
According to the federal government’s public shared metrics on the first round of VCCI, the four funds of funds raised $1.176 billion overall, including $840 million from private investors.
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According to that report, of the initial $350 million committed by the federal government, $279 million was called upon by HarbourVest Partners, Teralys Capital, Kensington Capital Partners, and Northleaf Capital. The report doesn’t indicate if the remaining capital was ever used.
As each of the four firms looks to raise new funds, Kensington told The Logic that it is aiming to roughly double its size compared to the $150 million of its last fund, and back about 15 venture funds.
Through its initial $300 million USD VCCI-backed fund, Northleaf invested in funds like Inovia Capital, StandUp Ventures, Georgian Partners, Garage Capital, Information Venture Partners, Golden Ventures, and Version One Ventures. It first launched its dedicated Canadian venture capital program in 2008, with the launch of the Ontario government-sponsored Ontario Venture Capital Fund. Today, the firm oversees about $800 million USD in dedicated venture capital.
Boston’s HarbourVest raised $326 million for its first VCCI-backed fund and has been very active as a firm since, most recently closing HarbourVest Fund XII at over $3 billion USD.
Teralys Capital raised $400 million for its VCCI-backed fund, which marked its second fund to date after the firm secured $375 million for its initial fund in 2016.
In addition to the $350 million commitment that the Government of Canada announced today, there is an additional $100 million that still needs to be allocated through VCCI to direct investing funds.
In Budget 2021, the government promised $450 million overall, with the $100 million divided equally between a life sciences stream and an inclusive growth stream. Applications for the life science stream closed on September 7, while the first round of the inclusive growth stream remains open until November 30.
Prior streams included cleantech, which allocated $50 million to Renewal Funds, Cycle Capital Management, and ArcTern Ventures. A stream for alternative investment models dolled out $50 million to seven funds: Garage Capital (Waterloo, ON); Build Ventures (Halifax, NS); TandemLaunch (Montreal, QC); Highline Beta (Toronto, ON); AmorChem (Montreal, QC); Brightspark (Toronto, ON); and Pique Ventures (Vancouver, BC).
