March 19, 2009
The McGuinty Government and its Ministry of Research and Innovation (MRI) deserve enormous credit for yesterday’s pre-budget announcement of a $250 million co-investment fund for Ontario’s emerging technology companies.
This initiative is both important and timely, given that the shortage of risk capital has become a critical choke point for Ontario tech companies. It is also bold and forward looking, given the severe and immediate fiscal pressures from all sectors and regions of the province.
The Emerging Technologies Fund will partner and invest side-by-side with venture capital and private sector investors. The fund will target young Ontario companies in the province’s focus areas: cleantech, digital media/information technology and life sciences/advanced healthcare. The partnership model means that the fund will follow the screening, selection and due diligence processes of qualified technology investors — allowing for market-based investment decisions. Because the fund will invest on the same terms as its private sector partners, its participation will not distort the cost of capital. This model sidesteps some of the pitfalls of public sector or economic development investment instruments, which often have negative or unintended consequences in subsequent years.
The co-investment model also makes it possible for investors to stretch their own scarce capital. This means they can fund more companies, and they can make sure that the high potential companies in their portfolios raise large enough funding rounds to position them for market success as the economic momentum turns.
The Emerging Technologies Fund initiative will help to ease the immediate, near term risk capital gap in Ontario, and is set to make direct investments in companies starting in July this year. Getting capital to companies as soon as possible is absolutely critical in the current environment. The fund will reinvest its returns in new opportunities — creating an evergreen investment pool for the long haul.
From a lifecycle perspective, the fund is positioned adjacent to Ontario’s investment in and support for seed stage companies, delivered through the Market Readiness Program and other commercialization initiatives. It also complements the $205 million Ontario Venture Capital Fund (OVCF), anchored by the Government of Ontario and supported by OMERS, RBC, Manulife, BDC and TD Bank. The OVCF is a fund of funds – designed to invest its pool of capital in different venture capital funds, which in turn invest in companies. Its goal is to help build a more robust VC industry in Ontario – a process that will take some time.
Ontario’s intervention to augment the supply of risk capital at this critical juncture will help to maintain the innovation momentum in the community. We simply cannot afford to skip or lose a generation of promising companies. It also supports an innovation strategy that addresses the needs of emerging companies in a collaborative, systematic and holistic way -– from the commercialization of academic research, to the launch of new ventures and the different stages of growth and expansion that follow.
Ontario will control its economic destiny by investing in and building its innovation economy –- one company at a time, each creating high value jobs right here in Ontario. There are no magic bullets or shortcuts. But courage and a long term view are to be celebrated in these remarkable times.
Read the press release: “MaRS commends provincial budget: key economic initiatives strengthen innovation“