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Paul Lem, CEO of Spartan Bioscience Inc., poses with Spartan RX, a box the size of a shoebox that delivers DNA test results. (Dave Chan For The Globe and Mail)
Paul Lem, CEO of Spartan Bioscience Inc., poses with Spartan RX, a box the size of a shoebox that delivers DNA test results. (Dave Chan For The Globe and Mail)

The ambitious turnaround project for Canada’s venture-capital industry Add to ...

What’s still missing, though, is capital. Veteran Ottawa tech executive Adam Chowaniec estimates that Canada needs an extra $1-billion a year in VC financing to be competitive with the U.S. Meanwhile, entrepreneurs who get their businesses up and running and need to raise between $1-million and $10-million in venture financing face the biggest funding challenges, Mr. Duboc said. At that level, Mr. Ruffolo said, there are just a half-dozen VCs in Canada capable of funding the space. And he counted just two – OMERS and Charles Sirois’ Tandem Expansion – that can write cheques for investments of $10-million or more. “Basically, if you don’t hit one of us, you’re going to the U.S.,” he said – where venture capitalists often pressure Canadian companies to relocate south of the border.

The lesson from Israel

Sitting in his Ottawa office in late August, Mr. Duboc cast the image of a confident “dollar-a-year” adviser bringing fresh outside thinking to government. “An important aspect of the success of Americans is the acceptance, almost celebration, of failure that happens in America,” he said. “That does not happen in Canada.”

The 50-year-old Mr. Duboc has known success and failure. In the early 1990s, he co-founded Loyalty Group, parent of the Air Miles reward program, then worked as a merchant banker before founding Edgestone in 1999. He and his partners raised more than $1-billion and established the firm as one of Canada’s top private equity investors.

Edgestone’s star faded after it sold for $155-million in 2006 to GMP Capital, which looked to Mr. Duboc and his partners Gil Palter and Stephen Marshall to stay on. But relations soured; neither side felt the other lived up to their end of the bargain. GMP pushed Edgepoint to raise funds, while the financial crisis put a chill on private equity. “At the end of the day, GMP had a very different view of the way forward than we had,” Mr. Duboc said. The three partners left GMP as employees in 2010 but continued to manage the fund. However, with their departure, Edgestone‘s fees declined, and GMP had to take an $80-million writedown. Mr. Duboc and his partners have since resumed control of Edgestone. A call to GMP was not returned.

Mr. Duboc says he lived up to every commitment he made. “Good deals go bad, and when they do, and people have to write off sums of money, everyone will snipe and say, ‘Not my fault,’ ” he said. “The world simply changed, and no one could perceive it in 2006 when the business was sold.”

Back in Ottawa, Mr. Duboc has the full confidence of Mr. Flaherty, and is working through submissions from more than 200 entrepreneurs, investors and funders he met this summer across Canada and in the U.S. There are many ideas to sift through. The C100 suggest financing university co-op programs like the one at the University of Waterloo, which has produced many Silicon Valley stars. They, like others, caution against spreading the money too thinly over too many provinces or industries. Some, like Mr. Chowaniec, say $400-million isn’t nearly enough to make a dent.

While Mr. Duboc isn’t revealing his recommendations yet, he and Mr. Flaherty draw some inspiration from Israel’s successful “Yozma” (Hebrew for “initiative”) program, which gave birth to that country’s venture capital industry 20 years ago.

As Israel absorbed a massive inflow of skilled Russian immigrants in the early 1990s, the government decided to help the many startups that struggled to grow. So it offered through Yozma to invest $100-million in 10 venture capital funds – as long as they could raise matching dollars. In return, they could buy out the government’s stake at cost plus interest within five years. Nine did, and the program was a huge success. Today there are about 70 VC funds, with the 10 largest managing more than $540-million (U.S.) each, according to Dun and Bradstreet Israel.

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