VANCOUVER — Canada's venture capital industry is having trouble attracting as much investment as it would like, and it wants governments to help attract money from pension funds by providing loan guarantees.
Provincial or federal governments should consider offering loan guarantees worth up to 30 per cent of any amounts that venture capital funds are able to raise on their own, the industry says. This backstop would make investment in startup ventures safer for the conservatively managed pension funds, it argues.
“People who can raise money in the marketplace should get the boost,” said Rick Nathan, President of Canada's Venture Capital & Private Equity Assoc. [CVCA] during an conference in Vancouver Thursday.
The government loans would be repaid in full once the venture funds are able to recoup money invested in any startup company that decides to go public or merges with another firm.
“This would attract more pension money into the funds, and allow them to grow more quickly,” Mr. Nathan added.
The push for government loans comes amid concerns that the Canadian venture capital sector is not doing as well as it should be, in comparison with other jurisdictions, including the United States.
As of June 30, 2005, the 10-year net annual return reported for the sector in Canada is 3 per cent, according to a report released Thursday by the CVCA. That compares with 27.6 per cent in the United States and 6.5 per cent in Europe.
According to the report, a large part of the difference in returns is attributable to the fact that the Canadian industry is much younger then the U.S. and European industries. Also, the fact that most Canadian venture capital funds are small, limits the amount of money they are able to invest to build companies.
The report says the sector could improve the allocation of money to venture capital managers by directing the money to the best-performing managers and by creating larger pools of money.
It also said the industry needs to focus on winners, by cutting off non-performing companies quickly and funding firms who prove successful with investments comparable in size to U.S. companies.
© The Globe and Mail
