June 11, 2008

ONTARIO: A CATALYST FOR INNOVATION

Through Ontario’s $3 billion Innovation Agenda, the McGuinty government is committed to strengthening Ontario’s ability to support innovative, high-growth companies in the province.

An excellent example of this is the Ontario Venture Capital Fund (OVCF), which brings together institutional investors and government – as limited partners - to support emerging, innovative companies in Ontario.

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.

Companies are most in need of venture capital to survive and prosper during start-up and growth phases. The average survival rate for start-ups is quite low, often because they lack the experience and skills needed to attract and partner with long-term investors.

Funding for innovative companies has declined dramatically in Ontario since its peak in the dotcom era of the late-1990s.

• In 2007, first time venture capital financing — the first investment a company receives — reached a 12-year low in Ontario. 
• Early stage venture capital — funding to emerging Ontario companies looking to grow — declined from $1.5 billion in 2000 to $236 million in 2007.
• This decline in Ontario venture capital has coincided with greatly lowered investment by institutions such as pension funds and insurance companies. In 2000, institutional investors represented 21 per cent of venture financings. This has dropped to one per cent or less in the period from 2005 to 2007.

As institutional investors with large amounts of capital have largely retreated from this investment area, innovative Ontario companies have had to look outside the province for investment.

Built on Best Practices

To address this challenge, Ontario consulted with the venture capital industry and examined best practices in over 30 jurisdictions. This research helped to inform the principles that have shaped the Ontario Venture Capital Fund:

• Partnership: To address the lack of investment and expertise for innovative companies, Ontario is acting as a catalyst to reengage institutional investors.
• Market-driven: Market-driven and returns-oriented approaches to innovation investment generate the strongest results in terms of economic development, new companies and new jobs.
• A Fund of Funds: To maximize the impact on the Ontario venture capital sector, and tap into investment expertise in the province, the fund needs to support the best venture capital funds — those with a track record of identifying and supporting successful, high-growth innovative companies. By investing in those funds, the OVCF will help strengthen the entire sector and make it attractive to ongoing, sustainable investment. 

Managed for Success

To generate the kinds of returns needed to attract the sustained support of institutional investors, the fund must be managed by an experienced fund manager with a track record of success.

The lead limited partners in the fund have unanimously selected TD Capital Private Equity Investors as the general partner and manager of the fund.

TD Capital has been investing globally in private equity since 1969. It has invested in more than 200 buyout, venture capital, mezzanine and special situations funds and direct co-investments with more than 70 leading private equity fund sponsors.

TD Capital currently manages over $2.5 billion in private equity commitments through its global fund of funds program and a series of separately managed accounts with customized investment strategies tailored to meet the needs of individual institutional investors. TD Capital’s 37-person team is locating in Toronto, Canada and London, UK.

Growing Ontario’s Fund

With the Fund established, the next step is to pursue a second round of investment, with the goal of attracting additional investors to the fund.

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See also:

• News Release: $205 Million Investment Fund To Grow Jobs Of The Future
• Backgrounder: Fund Details
• Backgrounder: What The Partners Say