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Venture Capital Catalyst Initiative

Investing in great ideas

Overview

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 future generations. Innovation is the path to inclusive growth. It fosters a thriving middle class and opens the country to new economic, social and environmental possibilities.

As part of Budget 2021, the Government of Canada is making historic investments to support Canadian entrepreneurs in their efforts to start up, scale up, and become the next generation of Canadian anchor companies. Specifically, new funding for the Venture Capital Catalyst Initiative (VCCI) will build on earlier investments to ensure Canadian businesses continue to enjoy access to a globally competitive venture capital ecosystem capable of nurturing entrepreneurial talent and creating high-quality, middle-class jobs.

Venture capital (VC) is a specialized type of equity financing that takes educated risks on great ideas and talented people by investing capital in young, high growth-potential companies to give them the opportunity to develop their ideas into marketable products. Canada's VC ecosystem has experienced considerable growth in recent years with 2019 setting a new record in total investment, $6.2 billion of VC investment in Canadian start-ups. As a result, Canada is now ranked third for VC investment according to the Organisation for Economic Co-operation and Development (OECD). The Canadian Venture Capital and Private Equity Association (CVCA) attributes much of this growth to the Government of Canada's support for VC, including through the Venture Capital Action Plan (VCAP) and earlier investments made under the VCCI (Budget 2017).

Building on the momentum of these investment, the Government of Canada's renewed commitment to the VCCI 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. This will be accomplished through the introduction of three new streams under VCCI:

  • National funds-of-funds;
  • Dedicated support for VC investment in life science technologies; and,
  • Inclusive Growth, aimed at increasing support for underrepresented groups, such as women and racialized communities.

Public Engagement on Design

On behalf of the Minister of Small Business, Export Promotion and International Trade, supported by Business Development Bank of Canada (BDC), the Department of Innovation, Science and Economic Development Canada (ISED) is seeking advice from industry leaders to inform the development of policy on Government support for Canadian VC investment.

The discussion paper titled ''Designing the renewed Venture Capital Catalyst Initiative'' is intended to guide discussions and invite submissions on the design of parameters and implementation of VCCI.

All stakeholders — from governments, industry experts and investors to Canadians — are invited to submit their written views to ISED's VCCI secretariat at capital@ised-isde.gc.ca until September 24, 2021.

National Funds-of-Funds

Through the renewed VCCI, the Government of Canada will support a number of private sector-led funds-of-funds which will inject significant capital into the Canadian VC ecosystem. This stream will be designed to maximize returns through diversified investments, support skilled VC fund managers, and attract substantial private sector capital. To accomplish these objectives, ISED is seeking advice on the following elements that could be included in a call for expressions of interest for funds-of-funds:

  • Size and number of funds-of-funds;
  • Amount of private sector capital to be leveraged;
  • Incentives to attract private sector investors;
  • Steps to enhance Canadian geographic focus;
  • Addressing current gaps in the VC ecosystem;
  • Defining eligible VC investment opportunities; and,
  • Investment strategy, capabilities, network and experience of fund-of-funds managers.

Investing in Life Sciences

While Canada's life sciences sector has seen significant growth in investment activities over recent years, many new and innovative ideas in this space can be capital intensive and require considerable support. As a result increasing the availability of capital in the sector has been identified as a priority under Budget 2021 which has proposed to dedicate $50 million through the renewed VCCI to support VC investments in life science technologies.

In order to maximize the impact of its investment, ISED is seeking input on design parameters that would advance the core objectives of VCCI and maximize the positive impact of this funding on the Canadian life sciences sector.

Investing in Inclusive Growth

Like many industries, the VC ecosystem faces concerns over the underrepresentation of women and visible minorities. In particular, entrepreneurs from these demographic groups are less likely to seek equity financing and when they do, they are more likely to be turned down or to receive relatively less money for their businesses. With the Budget 2021 announcement of $50 million to create an Inclusive Growth Stream within the renewed VCCI, the Canadian VC industry now has an opportunity to set an example and demonstrate global leadership in how to deal with this issue.

To this end, ISED is seeking input on design parameters that would maximize the impact of this funding for traditionally underrepresented entrepreneurs.

VCCI 2017

Introduced in Budget 2017 and expanded in the 2018 Fall Economic Statement, the Government of Canada invested $371 million through three streams. VCCI Stream 1 invested in large funds-of-funds that will support Canadian VC fund managers, while VCCI Stream 2 invested in emerging and diverse managers, underserved regions and sectors, and alternative fund structures. VCCI Stream 3 invested in VC funds investing primarily in clean technology firms.

One of the objectives of VCCI is to improve gender balance among Canadian VC fund managers and companies. As part of their submissions, applicants under all streams were required to submit gender balance strategies demonstrating how they will enhance diversity and increase the participation of women across the VC ecosystem. All recipients will be required to report on statistics relating to the number of women fund managers and entrepreneurs supported.

VCCI will leverage private sector and other capital to inject a total of over $1.8 billion into the VC marketplace, growing Canadian companies and supporting thousands of middle class jobs. More information on these streams can be found at VCCI 2017.

Performance Measurement

The purpose of this performance measurement framework (PMF) is to outline the metrics that will be used to evaluate the performance of VCCI in delivering on its objectives and outcomes. The Department of Innovation, Science and Economic Development Canada is committed to releasing annual reports based on the performance metrics.

Related links

Contact

If your organization is interested in learning more about the VCCI program, please contact the VCCI Secretariat at capital@ised-isde.gc.ca.

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