Province pledges $15M to regional venture capital fund

By Polly Leger – Telegraph Journal | link to original article

A $50-million regional venture capital fund could quench Atlantic Canada's capital “drought.”

Over the weekend, New Brunswick pledged $15 million to a regional venture capital investment fund floated by Nova Scotia in April. Nova Scotia set aside $15 million from its 2011-12 budget for the privately operated fund, which does not yet exist.

Armed with $30 million from the two provinces, the fund's private managers will raise another $20 million in capital to top off at a “substantial” $50 million, said Patrick Keefe, vice-president of Innovacorp, Nova Scotia's provincial innovation fund.

“Venture capital is an important foundational part of a thriving, knowledge-based economy,” Keefe said. But Atlantic Canada is lacking risk capital investment, he said.

“This is a very positive step forward in addressing that gap,” Keefe said.

The fund, currently unnamed, is in its “early days” Keefe said, and currently has no infrastructure or management set up. However, Keefe said, the goal is to have the fund up and running by early 2012, with $50 million ready to dole out by the second quarter of next year.

Premier David Alward said the fund would work with Atlantic Canadian companies with “high growth” potential.

“We are looking at commercialization of businesses that are especially in the areas of technology, IT, advanced learning and biomedicine,” he said.

By taking a gamble on startup companies, the hope is to nurture companies so they can compete globally. Alward said the province's $15 million will not be invested until the details of the fund's management have been established.

Calvin Milbury, CEO of the New Brunswick Innovation Foundation, said both his group and Innovacorp, a Nova Scotia Crown corporation, have been involved in the discussion surrounding the new fund.

He said the regional fund is a “shot in the arm” for companies in dire need of capital to expand. The executive said a tentative plan has a two-tier system. Provincial innovation foundations such as his will invest seed money in startups, he said. Once the fledgling companies have proven themselves, they will be recommended to the regional venture capital fund for money in order to stretch their wings. This tiered system would considerably lower the risk to the regional fund, he said.

Richard Rémillard, executive director of Canada's Venture Capital and Private Equity Association (CVCA), said a “perfect storm” has dried up Canada's venture capital investment over the last decade.

“We're in a real drought,” he said.

According to a statement released by the CVCA, the Canadian venture capital industry raised only $819 million in 2010, the lowest in 16 years. The ability for funds to raise capital has fallen just as steadily, the executive said.

Paul Gunn, CEO of Soricimed Biopharma Inc., a drug and diagnostic development company based in Sackville, said because of a lack of venture capital in the province his company has always relied on private-sector financing. He compared investors to puzzle pieces, and said provincial funding had been a sizeable missing piece for his startup.

“For us, it's one of the pieces that have been missing, the provincial financial support piece.”