TORONTO, Oct. 1 /CNW/ - This morning, a group of leading Ontario-based
venture investors called upon the leaders of the four Ontario political
parties to address the acute shortage of venture capital for Ontario-based
According to results released by the Canadian Venture Capital and Private
Equity Association (the "CVCA") on August 14th, venture capital investment in
Ontario experienced a sharp decline in the second quarter ended June 30, 2007.
$131 million was invested in 34 companies during Q2 2007, down 58% from
$309 million in Q1 2007 (of which $160 million was a single investment and
partial sale transaction for Guelph-based Geosign). Q2 2007's figure was also
35% below the $201 million invested in Q2 2006, for example.
According to the CVCA, the specific decline in Ontario is "most
noticeable when measured against activity in other regional North American
markets. Investment activity in Ontario dropped behind much smaller markets,
such as Colorado, Minnesota, Virginia, Florida and North Carolina." Quebec
finished the quarter in 11th place, with 71 companies receiving $149 million
during Q2 2007. Ontario came in 14th place.
For the first half of 2007, Quebec received $321 million while Ontario
firms received $440 million (again, one firm received $160 million of that
$440 million). Quebec firms received 73% of the funding of Ontario firms,
despite having 62% of the population base. Removing the one $160 million
outlier transaction, Quebec firms received 15% more funding despite having a
far smaller population base.
Firms in British Columbia attracted $175 million of venture funding
during the first half of 2007, as compared to Ontario's $280 million
(excluding the outlier transaction), despite having approximately one third of
Ontario's population according to the 2006 census.
"Since 2002, Ontario has experienced a dramatic decline in venture
capital investing", said Mark McQueen, President & Chief Executive Officer of
Wellington Financial LP, one of Canada's leading venture debt funds with over
$200 million under management, "and there is no end in sight." "In 2002,
Ontario attracted $1.4 billion of venture capital, according to Thomson
Financial," continued Mr. McQueen. "In 2003 and 2004, the number was in the
range of $600 to $650 million. In 2005, it fell to $578 million. In 2006, it
fell again to $483 million. Through the end of August 2007, excluding one
unusually large investment/sale transaction, we've seen just $237 million of
"During the past two years, more than $1 billion of new capital has been
raised for Quebec-based venture funds. Ontario VCs, by comparison, have raised
approximately half that amount during the same period. Is the dichotomy the
result of Ontario having the highest provincial corporate tax rates, the
Provincial government's destruction of the labour-sponsored fund market, or
lethargy on the part of pension fund investors? Probably a combination of all
three. Provincial politicians certainly can't blame the dollar, nor the
NASDAQ" said Mr. McQueen. "With an election underway, 50,000 manufacturing
jobs lost this year alone, and tepid success commercializing University
research, where is Ontario's strategy to attract more investment capital?"
"Last year we hit the lowest point in 10 years in terms of new Ontario
entrepreneurs funded," said Les Lyall, Senior VP of GrowthWorks. "This is a
direct result of the decline of available venture capital in the province. The
situation is only going to get worse until the retail venture capital tax
credits are reinstated by the Ontario government and we can provide the much
needed venture capital to make Ontario a friendly environment for
entrepreneurs to cultivate their businesses."
Added John Varghese, Managing Partner of VentureLink Funds: "The Ontario
LSIF market has raised over $2.7 billion, with almost 40% of that deployed in
Ottawa area. The Waterloo area has also greatly benefited from LSIF investing.
I would argue that we would not have attained these centres of excellence
without the investments made by labour-sponsored funds. It has been lost on
our candidates that since inception, Ontario LSIFs have invested in over
600 companies that have created over 27,000 jobs."
"US investors who are thinking about making investments in Ontario
companies like to co-invest with local VC funds," said Ken Wigglesworth,
Senior Managing Director of Rising Tide Fund, a Silicon Valley based expansion
capital fund with offices in Ottawa. "Unfortunately, as the supply of venture
capital in Ontario declines, US investors are having a harder time finding
local firms to partner with. I am concerned that the current contraction of
the domestic VC supply could lead to a similar contraction of US investment in
About Wellington Financial LP
Wellington Financial LP is a privately held specialty finance firm
providing operating lines of credit, term, venture and amortizing loans up to
$40 million. Wellington Financial LP is currently deploying a $400 million
investment program via its third fund. The fund's clients vary in size and
business model, but generally have current year revenue of approximately
$5 million. Wellington Financial LP is managed by a partnership controlled by
fund management and Clairvest Group Inc. (CVG:TSX), who jointly have
contributed a large financial stake to Fund III. Limited partners include
several of Canada's largest institutional investors, crown corporations,
financial institutions and pension funds. Please visit the fund website at
www.wellingtonfund.com, or the Wellington Financial team blog at
About Growthworks (www.growthworks.ca)
GrowthWorks(TM) managed funds provide investment capital for Canadian
companies and tax-advantaged investment opportunities for Canadian investors.
GrowthWorks manages over $800 million in assets through the Working
Opportunity Fund (EVCC) Ltd., GrowthWorks Atlantic Venture Fund Ltd.,
GrowthWorks Commercialization Fund Ltd. and GrowthWorks Canadian Fund Ltd.
GrowthWorks identifies, analyzes and structures investments in companies with
high growth potential. Particular emphasis is placed on IT, Life Sciences and
Advanced Manufacturing sectors. Building on over 15 years of investment
expertise, GrowthWorks is a leader in Canadian venture capital management.
With over $250 million under management, VentureLink Funds is a diverse
group of labour-sponsored funds ("LSIF"). The group was a pioneer in bringing
funds focused on mezzanine debt to the LSIF market, a conservative approach
that provides investors benefit from the security of debt positions along with
the growth potential of participating equity.
Rising Tide Fund
Rising Tide (formerly Newbury Partners) is a global private equity fund,
investing $10 million to $50 million of expansion capital per investment in
healthy, established companies. The fund targets investments in rising tide
markets such as digital media and content delivery, and in businesses that
enhance the quality of life of individuals through ever-improving
productivity, connectivity, entertainment, security and healthcare. Rising
Tide is headquartered in Silicon Valley with Senior Managing Directors in
Ottawa, Canada, Europe and the Middle East. The Investment Team has over
75 years of CxO-level experience in technology, and over 75 years of investing
experience over twelve diverse funds.
For further information:
For further information: Mark McQueen, President & CEO, Wellington
Financial LP, Tel: (416) 682-6000, firstname.lastname@example.org; Les Lyall,
Senior Vice-President, Growthworks, Tel: (416) 934-7753