Backgrounder

November 14, 2007

ONTARIO VENTURE CAPITAL FUND

The McGuinty government is strengthening Ontario’s ability to support innovative, high-growth companies in the province to expand business opportunities and create jobs.  The government has signed a Letter of Intent with leading Canadian institutional and corporate investors to create a $165-million, Ontario-focused venture capital (VC) fund.

Together, the investors will select an experienced, third-party manager to oversee this market-driven fund-of-funds.  Ontario will invest $90 million in the fund, with the balance coming from the partner institutions.

The Need for a Fund

Innovative firms need capital — and entrepreneurial expertise — from investors who are prepared to take on higher risks in pursuit of higher returns.

It is when an innovative firm is in its start-up stage that it most needs capital to survive and grow.  The average survival rate for start-ups is quite low, often because they lack the skills needed to attract and partner with investors.

Ontario generates a large number of start-up companies, but few companies grow to a point where they can secure venture capital financing.  As a result, these same companies often relocate to other jurisdictions where they can get the capital and investment support they need.

Ontario’s fund is designed to address these shortcomings, creating a climate that attracts talented fund managers and large investors and ensures that our province’s emerging companies can find the capital they need to grow in Ontario.

Venture Capital and Ontario’s Innovation Economy

This initiative is part of the McGuinty government’s Ideas to Market strategy, a $160 million investment being made over four years by the Ministry of Research and Innovation (MRI).  Announced in the 2006 budget, the strategy recognizes that fostering a culture of innovation takes more than simply research talent – it takes investment and skilled entrepreneurial management.

In addition to the $90 million VC investment, Ideas to Market is comprised of the $24 million Innovation Demonstration Fund and the $46 million Market Readiness Program.

The Ideas to Market strategy uses these programs to encourage early investment and management expertise for promising "born in Ontario" innovative enterprises.  It will help them attract later-stage investment, succeed with their innovations and stay in the province to create jobs and compete in the global marketplace.

Ideas to Market aims to capitalize on the emerging opportunities resulting from MRI’s commitment of more that $330 million to commercialize new technologies.

Definitions

• Venture Capital (VC): money and resources made available to start-up firms and small businesses with exceptional growth potential.
• Fund-of-Funds: investment vehicle designed to invest in a diversified group of investment funds.
• Private Equity: capital invested in private companies. Typically, references to private equity encompass both early stage (venture) and later stage (buyout) investing.
• Institutional Investment: includes pension funds, insurance companies, endowments, charitable foundations, mutual funds, and other non-bank financial institutions that are often key suppliers to private equity funds.

For information about private investment opportunities in round two, please contact John Marshall, director, Outreach, Promotion, and Business Development Branch, 416-325-6644 or via email at john.w.marshall@ontario.ca.