Table of contents
1.Introduction
As we emerge from the COVID-19 crisis, a priority of the Government is to put Canada's economy on a stronger footing, both for Canadians today and for future generations. We can help build this stronger, more resilient economy through smart, forward-looking investments. In an era of fast and profound change, Canadians need to be adaptable and resilient to spot the opportunities to create jobs, drive growth across all industries and improve lives. Innovation is the path to inclusive growth. It fosters a thriving middle class and opens the country to new economic, social and environmental possibilities.
Access to capital is a vital component in supporting innovation and growing Canada's high-potential, innovative companies. Venture capital (VC) is a specialized type of equity financing that takes educated risks on great ideas and talented people by investing capital in high-growth potential companies to develop their ideas into marketable products, and scale their operations to reach a greater market (domestic and international). In addition to capital, VC investors bring operational experience, technical knowledge, networks and mentorship to the firms in which they invest.
Because of the funding and expertise it provides, a strong and steady stream of VC is an essential element in the success of many of Canada's potential future technology leaders.
Announced in Budget 2021, the Government of Canada will make available up to $450 million for a renewed Venture Capital Catalyst Initiative (VCCI). Building on the momentum of the previous investments from the Government, this new commitment will help increase the availability of capital for Canada's high-potential innovative firms, including those in the life sciences sector and for entrepreneurs from underrepresented groups, such as women and racialized communities. Additionally, investments by the funds-of-funds stream under the renewed VCCI will continue the Government's efforts in helping scale companies and enabling VC investors to increase support for the late stage growth of VC-backed businesses. As with previous programs, the renewed VCCI will be administered through the Business Development Bank of Canada (BDC) and will make investments directly in VC funds and funds-of-funds.
2.Roles and responsibilities
The Department of Innovation, Science and Economic Development (ISED) and BDC will play complementary roles in administering the renewed VCCI PMF. The organizations and their respective roles and responsibilities in the design, implementation, and monitoring of renewed VCCI are provided in Table 1.
| BDC | Acting as a Limited Partner (LP): BDC, as an agent of Government, fulfills the duties typically associated with those of an LP. These duties include: signing letters of intent, memorandum and LP agreements; holding the rights, obligations and interests in the LP agreements; serving on LP advisory committees; and attending all required meetings. Administrative Duties: Given the scope and significance of the renewed VCCI, BDC will dedicate appropriate resources to ensure it is positioned to act in a timely and effective manner in fulfilling its responsibilities. Within the well-established practices in place at BDC for making VC investments, BDC flows the funds it receives from the Government for the renewed VCCI into selected investment vehicles, including providing capital to general partners (GPs) according to the Limited Partners Agreements negotiated with the investors, and eventually receives proceeds from those investments. Accountabilities: BDC is responsible for monitoring the renewed VCCI, including keeping officials from the departments of Finance Canada and ISED informed on developments related to the initiative. This includes reporting on the outcomes of annual general meetings with GPs, LPs and recipient companies. BDC will provide renewed VCCI-related financial data at regular intervals. |
|---|---|
| ISED | ISED was the lead department in the design and implementation of the renewed VCCI; ISED provided research and held national consultations, together with BDC, to inform the design and development of the renewed VCCI; Will support a selection committee, whose members will be selected from the private sector and be established by the Deputy Minister of ISED, to evaluate incoming proposals and provide recommendations on which applicants to select for the renewed VCCI; and As the Department responsible for BDC, ISED will work with BDC to monitor the renewed VCCI's progress towards delivering on its objectives. |
3. Performance Measurement Framework
The purpose of this PMF document is to outline the metrics that will be used to evaluate the renewed VCCI's performance in delivering on its objectives and outcomes.
3.1 Program objectives
In implementing VCCI, the Government aims to:
- Translate innovation into economic growth and support the development of the venture ecosystem across Canada, for the long term;
- Increase the availability of VC to help high-potential companies grow;
- Bolster the growth and success of the Canadian life sciences sector;
- Enhance access to VC for underrepresented groups, such as women and racialized communities;
- Enhance and promote diversity, equity, and inclusivity in the Canadian VC ecosystem;
- Improve the sustainability of the Canadian VC ecosystem and spur private sector investment by generating market-aligned financial returns;
- Deepen the pool of experienced VC fund managers by building Canadian talent and investment and supporting the development of emerging fund managers; and,
- Leverage private capital and attract new or additional investment to Canadian VC.
3.2 Measurement model
The measurement model illustrates the renewed VCCI's policy rationale, the activities planned under the renewed VCCI, and the expected outputs and outcomes from those activities.
3.2.1 Policy rationale
In 2021, $14.7 billion VC dollars was invested in Canada according to Canadian Venture Capital and Private Equity Association (CVCA) data. This is the highest level of VC investment to date. VC activity in Canada has grown significantly over the past decade.
Much of this growth is attributed to the Government of Canada's support for VC. This includes the initial VCCI and its predecessor, Venture Capital Action Plan (VCAP). The renewed VCCI program is expected to support the positive long-term trend seen in Canada since the implementation of the aforementioned VC programs and support the progression towards a sustainable Canadian VC ecosystem.
3.2.2 Activities
The renewed VCCI consists of the following activities:
- A funds-of-funds stream that allocates $350 million to applications from funds-of-funds with the objective of maximizing returns through balanced investments, supporting skilled VC fund managers, attracting substantial private sector capital, increasing the availability of VC to support the growth and scale-up of leading Canadian companies, and supporting the development of a strong pipeline of new and diverse technology leaders. In addition to achieving these investment criteria, applicants were asked to incorporate strategies that aligned with the broader goals of the renewed VCCI to address emerging issues, including:
- Engaging in activities and programs that enhance or accelerate the long-term development of the Canadian venture ecosystem;
- Supporting fund managers from underrepresented groups, such as women and racialized communities;
- Supporting emerging fund managers;
- Investing in key underserved sectors, such as life sciences;
- Addressing underserved Canadian regions; and,
- Enhancing access to VC by attracting new investors or investor classes, both Canadian and international, to Canadian VC.
- A life sciences stream that allocates up to $50 million to promote the growth of this strategically important sector by investing in VC fund managers that invest primarily in the life sciences.
- An inclusive growth stream that allocates up to $50 million to increase access to VC for underrepresented groups, including women and racialized communities.
Complementing the efforts of the inclusive growth stream, the renewed VCCI aims to enhance diversity, equity and inclusion (DEI) across the VC ecosystem. Applicants are expected to demonstrate how their strategies advance these objectives and will be required to report on DEI metrics of the fund managers and entrepreneurs they support.
3.2.3 Outputs
The VCCI program will result in the following outputs:
- Translate innovation into economic growth by helping high potential companies grow;
- Bolster the growth and success of the Canadian life sciences sector;
- Enhance access to VC for underrepresented groups, such as women and racialized communities;
- Enhance and promote diversity, equity, and inclusion in Canadian VC;
- Improve the sustainability of the Canadian VC ecosystem and spur private sector investment by generating market-aligned financial returns;
- Deepen the pool of experienced VC fund managers by building Canadian talent and investment and supporting the development of emerging fund managers; and,
- Attract participation from private sector investors in VC funds.
3.2.4 Outcomes
The major outcome expected from the program is to build on the momentum of previous federal VC programs to demonstrate to the private sector that investing in the VC asset class has the potential of positive returns, thereby increasing ongoing investment activity in Canadian VC funds. This entails investing in high-potential Canadian firms and the realization of profitable returns from these investments. Ultimately, successful investments made by the renewed VCCI-supported funds that result in positive returns could reinforce investor confidence in the VC asset class and strengthen the growth of this industry.
Greater support for traditionally underserved Canadians will increase diversity and inclusion in the Canadian VC industry and a focus on life sciences will help deliver much needed capital to this important sector. This growth and expansion will lead to a stronger, more robust ecosystem.
The renewed VCCI will introduce the collection of diversity statistics. This data on the Canadian VC ecosystem can help the VC industry establish early diversity benchmarks and guide inclusivity initiatives. The BDC will be responsible for gathering this data from funds receiving renewed VCCI support, and their method of collection will be aligned with standards endorsed by the CVCA and Institutional Limited Partners Association.
3.3 Performance Measurement Framework
| Expected results | Indicators | Source | Baseline | Target | Frequency |
|---|---|---|---|---|---|
| Translate innovation into economic growth by helping high potential companies grow | The long-term economic and financial performance of the Canadian companies, including life science technology companies, backed by the renewed VCCI in terms of employment growth and growth in revenue/sales, including exports | ISED and Statistics Canada, using the list of company names from BDC | Similar non-VCCI-backed companies in Canada | Outperform baseline firms | In 2030, 2035, 2040 |
| The long-term innovation performance of Canadian companies, including life science technology companies, backed by the renewed VCCI in terms of the number of employees and R&D spending | ISED and Statistics Canada, using the list of company names from BDC | Similar non-VCCI-backed companies in Canada | Outperform baseline firm | In 2030, 2035, 2040 | |
| The proportion of Canadian companies supported by the renewed VCCI that achieve a merger or acquisition exit event (M&A) or having an initial public offering (IPO) | BDC | 50% of investments of liquidated VC funds have an exit by IPO or M&A | 25% in 2035 | In 2035, 2040 | |
| Increase the availability of VC | The number of funds-of-funds supported by the renewed VCCI | BDC | VCAP-backed 4 funds-of-funds | 4 or more | Annually until target met |
| The proportion of Canadian companies supported by all renewed VCCI streams that are life sciences companies | BDC | 12%Footnote 1 | Outperform baseline | Annually starting 2030 | |
| Improve the sustainability of the Canadian VC ecosystem and spur investment by generating market-aligned financial returns | Financial return of the renewed VCCI (pooled gross internal rate of return of the entire funds-of-funds) | BDC | n/a | 7% | Annually starting in 2030 |
| Deepen the pool of experienced VC fund managers by building Canadian talent and investment, and attract new expertise and capital to Canada's VC market | Proportion of underlying Canadian VC fund managers supported under the renewed VCCI that have raised follow-on funds | BDC | n/a | 40% in 2030 50% in 2035 | In 2030 and in 2035 |
| Attract participation from private sector investors in VC funds. | The total amount of investment in funds-of-funds supported by the renewed VCCI | BDC | n/a | $1.4B | Annually until target met |
| Improve diversity balance in Canadian VC fund managers | The percentage of women and non-binary senior investment professionals out of the total number of senior investment professionals of the fund managers supported | BDC | 19% of VC partners were womenFootnote 2 | Outperform baseline | Annually until all funds invested |
| The percentage of senior investment professionals identifying as member of a traditionally underserved groupFootnote 3 out of the total number of senior investment professionals of the fund managers supported | BDC | 23% of VC partners identified as racialized CanadiansFootnote 4 10.3% of VC partners identified as LGBTQ2+Footnote 5 | Outperform baseline | Annually until all funds invested | |
| Improve diversity balance in Canadian VC-backed entrepreneurs | The percentage of women and non-binary individuals on the management teamFootnote 6 | BDC | 13%Footnote 7 | Outperform baseline | Annually until all funds invested |
| The percentage identifying as a member of a traditionally underserved groupFootnote 8 on the management teamFootnote 9 | N/A | N/A | N/A | Annually until all funds invested |
The set of metrics that will be used to measure the performance of the renewed VCCI is listed in Table 2.