Comments on: Canada’s Venture Capital Crisis http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/ Insight and Analysis from North of the Border Sat, 22 Nov 2008 16:20:11 +0000 http://wordpress.org/?v=2.6.1 By: Robert W http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-56738 Robert W Wed, 23 Apr 2008 16:36:58 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-56738 Not sure where John Varghese is getting his figures from but Professors MacIntosh and Cumming have done a series of papers that illustrate the utter uselessness of Labour-sponsored funds. I just completed a venture capital course with Prof. MacIntosh at UofT Law and there is no doubt these must cease to exist and never return. Search for their papers at SSRN. We should be cheering their demise not trying to "fix" them. Not sure where John Varghese is getting his figures from but Professors MacIntosh and Cumming have done a series of papers that illustrate the utter uselessness of Labour-sponsored funds. I just completed a venture capital course with Prof. MacIntosh at UofT Law and there is no doubt these must cease to exist and never return. Search for their papers at SSRN. We should be cheering their demise not trying to “fix” them.

]]> By: Will Ashworth http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6865 Will Ashworth Thu, 13 Sep 2007 12:18:22 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6865 I am totally against the Ontario government funding tech start-ups on the backs of hard-working retail investors. I invested in a LSVCC and it's been nothing but a major disappointment. What makes you think LSVCC's can be operated profitably a second time around? The short answer is it can't. This is flawed business model and those who work in the business are simply trying to save their well-paying jobs. My solution: do a better job selling the institutional money on the financial merits of investing in early stage financing. Retail investors should be investing in solid, profitable companies, where they have a better than 50 percent chance of making a return on their capital. I am totally against the Ontario government funding tech start-ups on the backs of hard-working retail investors. I invested in a LSVCC and it’s been nothing but a major disappointment.

What makes you think LSVCC’s can be operated profitably a second time around?

The short answer is it can’t. This is flawed business model and those who work in the business are simply trying to save their well-paying jobs.

My solution: do a better job selling the institutional money on the financial merits of investing in early stage financing. Retail investors should be investing in solid, profitable companies, where they have a better than 50 percent chance of making a return on their capital.

]]> By: John Varghese http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6859 John Varghese Wed, 12 Sep 2007 17:57:22 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6859 Mark Your article is very timely and relevant. First I need to disclose that I am biased and conflicted on the topic as a Portfolio Manager and Co-Owner of the VentureLink Group of Labor sponsored funds. My overall proposal: fix it, don't shoot it. Remember, If $100,000,000 is raised, the tax cost is $15,000,000 to Ontario. Assuming $75,000,000 is available to invest, that is 5 to 1 leverage. What program comes close to replicating that? The facts speak for themselves in terms of the decreases in early stage investing in Ontario over the past five years. In every cycle one needs to invigorate at the early stage to drive future cycles. Failing to do so will have longer term far reaching implications on our economy and productivity. Less capital available will lead to less entrepreneurial risk being taken which will then further the gap between Canada and the rest of the world. We cannot keep pace, especially in light of more and more buyouts of Canadian companies by multi-nationals if we don't generate more made in Canada solutions. Ontario, as a province and country are proud that we have a world class technology hot bed in Waterloo. We are proud of the technology market in Ottawa. 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. Perhaps lost in the shuffle is that since being formed, LSIF's in Ontario have invested in over 600 companies that have created over 27,000 jobs. Ontario is the only province that has taken away the credits. Quebec has not done so. The Funds de Solidarite FTQ is well over $6 bln under management and growing by about $500 million a year. It stands to reason that Ontario in the context of venture investing will fall behind if we stay the course. Others have pointed out that the suggested replacement solutions are not doing enough.... It has been easy to take shots at the LSIF industry. If one does a analysis of venture capital returns for LSIF's vs. "Traditional" Venture Capital in Canada, you would be surprised to find that the returns for both over the past five years are comparable. There is room for both to exist. We are still seeing the effects of investments made in 1999 to 2001 and are just starting to make our way out of that. It is also important to look at the program from the investors perspectives. Advisors have been able to generate RRSP's using the incremental tax credits for people who might not otherwise have done so. The after tax cost for a $5,000 investment would be less than $1,900. Now if they used the taxcredit to make further payments to mortgages etc, then the return is even more enhanced. VentureLink has shown that LSIF's can be successful. We have two funds that are providing investors a good return and thus advisors are able to use us as an effective part of their tax planning with their clients. Our financial services fund has since inception been earning 18% on the invested deals. Our Diversified Income Fund is also producing double digit returns. Not all funds are the same... Glad to chat further if you like. Cheers John Varghese Managing Partner VentureLink Funds #801-1 Richmond Street West Toronto, Ontario, M5H 3W4 p: 416-681-6371 c: 416-706-2312 f: 416-681-6661 Regards www.venturelinkfunds.com Mark

Your article is very timely and relevant. First I need to disclose that I am biased and conflicted on the topic as a Portfolio Manager and Co-Owner of the VentureLink Group of Labor sponsored funds.

My overall proposal: fix it, don’t shoot it. Remember, If $100,000,000 is raised, the tax cost is $15,000,000 to Ontario. Assuming $75,000,000 is available to invest, that is 5 to 1 leverage. What program comes close to replicating that?

The facts speak for themselves in terms of the decreases in early stage investing in Ontario over the past five years. In every cycle one needs to invigorate at the early stage to drive future cycles. Failing to do so will have longer term far reaching implications on our economy and productivity. Less capital available will lead to less entrepreneurial risk being taken which will then further the gap between Canada and the rest of the world. We cannot keep pace, especially in light of more and more buyouts of Canadian companies by multi-nationals if we don’t generate more made in Canada solutions.

Ontario, as a province and country are proud that we have a world class technology hot bed in Waterloo. We are proud of the technology market in Ottawa. 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. Perhaps lost in the shuffle is that since being formed, LSIF’s in Ontario have invested in over 600 companies that have created over 27,000 jobs.

Ontario is the only province that has taken away the credits. Quebec has not done so. The Funds de Solidarite FTQ is well over $6 bln under management and growing by about $500 million a year. It stands to reason that Ontario in the context of venture investing will fall behind if we stay the course. Others have pointed out that the suggested replacement solutions are not doing enough….

It has been easy to take shots at the LSIF industry. If one does a analysis of venture capital returns for LSIF’s vs. “Traditional” Venture Capital in Canada, you would be surprised to find that the returns for both over the past five years are comparable. There is room for both to exist. We are still seeing the effects of investments made in 1999 to 2001 and are just starting to make our way out of that.

It is also important to look at the program from the investors perspectives.
Advisors have been able to generate RRSP’s using the incremental tax credits for people who might not otherwise have done so. The after tax cost for a $5,000 investment would be less than $1,900. Now if they used the taxcredit to make further payments to mortgages etc, then the return is even more enhanced.

VentureLink has shown that LSIF’s can be successful. We have two funds that are providing investors a good return and thus advisors are able to use us as an effective part of their tax planning with their clients. Our financial services fund has since inception been earning 18% on the invested deals. Our Diversified Income Fund is also producing double digit returns. Not all funds are the same…

Glad to chat further if you like.

Cheers

John Varghese
Managing Partner
VentureLink Funds

#801-1 Richmond Street West
Toronto, Ontario, M5H 3W4
p: 416-681-6371
c: 416-706-2312
f: 416-681-6661
Regards

http://www.venturelinkfunds.com

]]> By: Wellington Financial Blog - News, Views & Purviews » Blog Archives » Brutal venture capital stats for H1 2007 part 3 http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6853 Wellington Financial Blog - News, Views & Purviews » Blog Archives » Brutal venture capital stats for H1 2007 part 3 Wed, 12 Sep 2007 10:37:55 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6853 [...] thank you to Mark Evans for pursuing the topic of weak VC investing trends in his blog post “Canada’s venture capital crisis“. While the model isn’t perfect, he is right to support the need to permanently extend [...] [...] thank you to Mark Evans for pursuing the topic of weak VC investing trends in his blog post “Canada’s venture capital crisis“. While the model isn’t perfect, he is right to support the need to permanently extend [...]

]]> By: Colin Smillie http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6837 Colin Smillie Tue, 11 Sep 2007 12:30:52 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6837 My experience with the LSF's was that because of the tax break fund managers seemed to think that they could just perform poor with little consequence. I think this is true with most situations where you remove the risk of the vendor, you get poor investment decisions. My experience with the LSF’s was that because of the tax break fund managers seemed to think that they could just perform poor with little consequence. I think this is true with most situations where you remove the risk of the vendor, you get poor investment decisions.

]]> By: Mark Evans http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6827 Mark Evans Tue, 11 Sep 2007 01:25:30 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6827 Stuart: I'm suggesting that LSF is one of many tools that could be use to jump-start the VC landscape in Ontario. There is no silver bullet but there needs to be a variety of different programs to make things happen. Stuart: I’m suggesting that LSF is one of many tools that could be use to jump-start the VC landscape in Ontario. There is no silver bullet but there needs to be a variety of different programs to make things happen.

]]> By: Stuart MacDonald http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6824 Stuart MacDonald Mon, 10 Sep 2007 23:31:57 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6824 Are you *seriously* suggesting a return to Labour Sponsored Funds? Yikes, Mark. I agree that the Canadian VC world wouldn't be best described as vibrant (though there are some smart players out there, and we are fortunate to have them) but I can't imagine that a return to the tax-break driven Labour Sponsored thing is the way to do goose the system. And, what about the Canadian startups getting funded in the US? It's a two way street, right? - Stuart Are you *seriously* suggesting a return to Labour Sponsored Funds? Yikes, Mark.

I agree that the Canadian VC world wouldn’t be best described as vibrant (though there are some smart players out there, and we are fortunate to have them) but I can’t imagine that a return to the tax-break driven Labour Sponsored thing is the way to do goose the system.

And, what about the Canadian startups getting funded in the US? It’s a two way street, right?

- Stuart

]]> By: Dave Forde - The Connector http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6817 Dave Forde - The Connector Mon, 10 Sep 2007 13:51:20 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6817 Maybe the "conservative" Canadian way won't work, even if the Ontario government steps up, and it will be US VCs or companies such as you mentioned with Google who come to the rescue. I did a post on Infobright who received $8M of funding last week which was lead by a US-based VC after none of the Canadians would step up to the plate they way they needed. Maybe the “conservative” Canadian way won’t work, even if the Ontario government steps up, and it will be US VCs or companies such as you mentioned with Google who come to the rescue. I did a post on Infobright who received $8M of funding last week which was lead by a US-based VC after none of the Canadians would step up to the plate they way they needed.

]]> By: Alex http://www.markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6816 Alex Mon, 10 Sep 2007 11:53:45 +0000 http://markevanstech.com/2007/09/10/canadas-venture-capital-crisis/#comment-6816 I think in addition to more capital, Ontario and other places in Canada should create an environment that is different from other startup nests like Silicon Valley and New York to prevent brain-drain and also lure international startups. Successful companies in the United States like shoeboxed.com actually had their starts somewhere else (Berlin in this case but others in London). There, these companies can set themselves apart from the dime-a-dozen variety found in California. The question is: how are we fostering an environment of innovation and support for these initiatives. I think in addition to more capital, Ontario and other places in Canada should create an environment that is different from other startup nests like Silicon Valley and New York to prevent brain-drain and also lure international startups. Successful companies in the United States like shoeboxed.com actually had their starts somewhere else (Berlin in this case but others in London). There, these companies can set themselves apart from the dime-a-dozen variety found in California.
The question is: how are we fostering an environment of innovation and support for these initiatives.

]]>