Performance Measurement Framework

Venture Capital Action Plan


1. Introduction

In January 2013, the Prime Minister announced the Venture Capital Action Plan (VCAP) which included resources for establishing and recapitalizing large, private sector-led funds-of-funds. A fund-of-funds pools capital for investments in a portfolio of venture capital (VC) funds. VCAP also included resources to invest directly in up to five high-performing VC funds.

VCAP is a new market-oriented approach to put Canada's VC industry on the path to sustainability and increase the availability of financing for innovative Canadian firms. It aims to make Canada's VC industry more globally competitive, while helping ensure that Canada's innovative high-potential firms have the resources they need to grow and create jobs.

Under VCAP, the Government announced up to $400 million in new capital. This capital was expected to further attract significant private sector investments in VC in Canada. In particular, VCAP has committed:

  • Up to $350 million to establish or recapitalize up to four large scale private sector-led funds-of-funds in partnership with institutional and corporate strategic investors, as well as interested provinces; and,
  • An aggregate investment of up to $50 million in a few existing high-performing VC funds in Canada.

This document presents the performance measurement framework (PMF) proposed by Innovation, Science and Economic Development Canada (ISED) and Finance Canada, in consultation with the Business Development Bank of Canada (BDC), to measure the performance of VCAP. It consists of three components: expected VCAP outcomes, inputs required to achieve these outcomes, and the measurable outputs that will form the basis of the program evaluation.

2. Roles and Responsibilities

Finance Canada, ISED and the BDC each play complementary but different roles with respect to the VCAP performance measurement framework. The organizations and their respective roles and responsibilities in the design, implementation and the monitoring of VCAP are provided in Table 1

Table 1: Roles and Responsibilities

Table 1: Roles and Responsibilities
Business Development Bank of Canada (BDC)

Acting as a Limited Partner (LP): The 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 VCAP, 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 VCAP 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 VCAP, 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 VCAP-related financial data at regular intervals.

Innovation, Science and Economic Development Canada (ISED)

ISED was responsible for providing analytical support and advice to the Department of Finance on VC, particularly during the early stages of the design of VCAP.

Since BDC is part of the ISED portfolio, ISED is responsible for working with BDC to monitor VCAP's progress towards delivering on its objectives.

Finance Canada

Finance Canada was the lead department in the design and implementation of the VCAP;

Finance Canada provided research and supported the consultations on VC which were led by the Special Advisor on VC appointed by the Minister of Finance;

It supported the VC Expert Panel, appointed by the Minister of Finance, that provided advice and recommendations on VCAP's selection processes, including those used to select the high-performing funds and the GPs to manage the funds-of-funds;

It worked in collaboration with ISED officials on BDC's role as the Government's agent in the implementation of VCAP;

Finance Canada engaged external legal counsel, as required, through the Department of Justice to represent it in negotiations with General Partners (GPs) and other entities, and to generate the legal documentation to establish the funds under VCAP; and,

It engaged with private sector investors and provincial governments to invest in the funds-of-funds that were established under VCAP.

3. Performance Measurement Framework

The purpose of this performance management framework (PMF) document is to outline the metrics that will be used to evaluate the performance of VCAP in delivering on its objectives and outcomes.

3.1 Program Objectives

In implementing VCAP, the Government aims to:

  • Act as a catalyst in the development of a sustainable VC eco-system led by private sector investments that includes:
    • Participation by domestic and international private investors; and,
    • Large-scale venture capital funds managed by the private sector;
  • Increase the number of successful Canadian companies by encouraging private sector investments in early-stage risk capital and helping to ensure high-potential innovative firms have access to financing; and,
  • Contribute to the development of a deeper pool of experienced fund managers in Canada, including by attracting foreign expertise and capital to Canada's VC market.

3.2 Measurement Model

The measurement model illustrates VCAP's policy rationale, the activities planned under VCAP, and the expected outputs and outcomes from those activities.

3.2.1. Policy Rationale

When VCAP was developed, a number of challenges were identified in Canada's VC industry. Concerns were raised by various stakeholders, including by the Expert Panel on Federal Support to Research and Development led by Mr. Tom Jenkins. That Expert Panel argued that weaknesses in the VC industry made it difficult for young firms to grow and reduced the benefits of public investments in research, development and innovation. Specifically, concerns were raised about the low financial returns that VC investors earned in Canada; an over-reliance on Government-backed funds; the reluctance on the part of institutional investors to invest in innovative early-stage firms; and the shortage of experienced fund managers that could lead successful VC funds in Canada.

To help address some of these issues, and acting on private sector and stakeholders recommendations, the Government launched VCAP.

3.2.2. Activities

VCAP consists of the following two sets of activities.

  • The creation of four large private-sector led fund-of-funds. To establish public-private partnership, the Government will match private sector investments in these fund-of-funds on a one-to-two basis.  It will provide matching investments totaling up to $350 million in these fund-of-fundsFootnote 1. The fund-of-funds will use the majority of the capital that they raise to invest in Canadian private sector VC funds.
  • Investment in four high-performing Canadian VC funds. The Government has invested a total of $50 million in these funds. This has allowed those funds to close and start investing in companies while the funds-of-funds are being established.

3.2.3. Outputs

The VCAP program will result in

  • Improved fundraising by Canadian private VC funds;
  • Improved access to risk capital by high-potential Canadian firms,
  • A larger pool of quality VC fund managers;
  • Improved returns to investors; and,
  • Increased participation by private sector investors in VC funds.

3.2.4. Outcomes

The major outcome expected from the program is 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 VCAP supported funds that result in positive returns could lead to renewed investor confidence in the VC asset class and help the Canadian VC industry become self-sustaining.

3.3 Performance Measurement Framework

The set of metrics that will be used to measure the performance of VCAP is listed in Table 2.

4. Next steps

ISED will continue to work with the BDC to monitor the performance of the program, in accordance with the PMF outlined in this document. ISED and the BDC will collaborate on a public release on the performance of VCAP in 2016.

Table 2: Performance Measurement Framework
Expected Results Indicators Source Baseline Target Frequency
Act as a catalyst in the development of a sustainable venture capital ecosystem led by private sector investment that includes: Participation by domestic and international private investors; and Large scale venture capital funds managed by the private sector. Financial return of the VCAP funds-of-funds (pooled gross internal rate of return of the entire funds-of-funds). BDC n/a 7% Annual starting in 2021
The total amount of investment in funds-of-funds supported by VCAP. BDC n/a $1.2B Annual until target met
The number of venture capital funds-of-funds and high performing funds supported by VCAP. BDC n/a 4 of each Annual until target met
The number of large institutional investors (banks, pension funds, corporate investors etc.) investing as Limited Partners (LPs) in VCAP Fund-of-Funds. BDC n/a 10 Annual until target met
Increase the number of successful Canadian companies by encouraging private sector investments in early-stage risk capital and helping to ensure high potential innovative firms have access to financing. The long-term economic and financial performance of the Canadian companies backed by the Venture Capital Action Plan in terms of employment growth and growth in revenue/sales including exports ISED and Statistics Canada, using the list company names from the BDC Similar non-VCAP-backed companies in Canada Out-perform baseline firms In 2021, 2025 and 2030
The long-term innovation performance of the Canadian companies backed by the Venture Capital Action Plan in terms of number of employees and R&D spending. ISED and Statistics Canada, using the list company names from the BDC Similar non-VCAP-backed companies in Canada Out-perform baseline firms In 2021, 2025 and 2030
Contribute to the development of a deeper pool of experienced fund managers in Canada by attracting foreign expertise and capital to Canada's venture capital market. Proportion of underlying Canadian VC fund managers supported under VCAP that raise follow-on funds. BDC n/a 40% in 2020
50% in 2025
In 2020 and in 2025
The number of VCAP Fund-of-Fund managers new to the Canadian VC industry. BDC n/a 1 Annual until target met
The quality of key investment personnel, as measured by the financial performance of the majority of the investment professionals in funds backed by VCAP. BDC Total Value of Paid in Capital (TVPI) of 1.1x Majority of key personnel are in funds that out-perform baseline In 2021 and in 2025
The proportion of Canadian companies supported by VCAP that achieve an exit event of being merged or acquired (M&A) or having an initial public offering (IPO). DC 50% of investments of liquidated VC funds have an exit by IPO or M&A Note * 25% in 2022
50% in 2030
In 2022 and in 2030
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