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The investment arm of Business Development Bank of Canada is launching a $200-million venture fund aimed at correcting a lack of domestic early-stage investment in “deep-tech” startups across the country.

The Deep Tech Venture Fund, or DTVF, will invest in early-stage Canadian companies attempting to bring products in technologically complex sectors such as quantum information sciences, photonics (technology that uses light), semiconductors and artificial intelligence to market.

The fund, which BDC is announcing Wednesday, is the latest development in the federally backed financier’s effort to commercialize Canadian intellectual property. It was conceived out of discussions between the Crown corporation and more than 60 startups, funds and academics across the country, fund leader Thomas Park said.

“With respect to deep tech, they did not want a replay of what happened to AI back in the late 2000s when AI was sort of a deep tech, yet to be commercialized technology,” Mr. Park said.

“Because the [venture capital or VC] ecosystem was so young and there was … a dearth of funds available, much of the technology, the academics and IP were essentially captured by foreign funds and foreign tech companies.”

As one of Canada’s most active financiers and an early investor in Burnaby, B.C., deep-tech startups, D-Wave Systems Inc., a quantum computing company, and fusion energy developer General Fusion, BDC Capital knows “full well” how much time it takes to convert research to a commercially viable product, executive vice-president Jérôme Nycz said.

“In the case of D-Wave, we’ve been at it for 18 years … and now, just recently, in the last five years or so, you’re starting to see commercial traction,” he said. “So, that was a realization that you need deep pockets [and] long-term investors to be able to support these companies at the seed stage and … through Series A, Series B [early venture capital rounds] and so forth.”

To ensure companies with the highest growth potential are properly funded, DTVF will have a unique operating model, Mr. Park said, partnering with a number of government agencies to help companies in its portfolio navigate the procurement process. The fund will also differ from typical 10-year VC fund models in the lifespan of its investments.

“What makes it difficult for a lot of VC funds to invest in more deep-tech … companies is the long time horizon that’s needed,” he said. “This fund is structured to be at least 12 years with potential of four additional years of fund-life extension. So, we really are a long-term investor in these technologies.”

In addition, Mr. Park said, the DTVF will set aside two dollars for every one it invests initially, as opposed to the standard 1-to-1 ratio at other venture capital firms, so it can support deep-tech startups in subsequent rounds of funding, as needed.

The fund’s team will be rounded out by a group of researchers, investors and procurement specialists, including BDC veterans Duncan Stewart, Charles Lesperance and Robert Simon.

“It’s an uncommon team, but it’s the right team to identify early-stage seed investments and Series A opportunities,” Mr. Nycz said. “[They have] the know-how of how to develop technology and ... how to connect with procurement agencies and large corporates.”

This investment in deep tech by BDC, Mr. Park said, will help the sector reach its “enormous” potential. “What we do in the near term is going to have an impact on the long term,” he said. “In terms of potential, it’s very high. In terms of quality of research, especially certain fields in photonics and quantum technology, Canada ranks as one of the top countries in the world.”

BDC has previously spun out funds in high-growth sectors such as information technology and biotechnology while increasing its focus on underfunded areas, including women-led technology companies and startups which are innovating in legacy sectors.

The fund hopes to rally Canadian investors to back deep-tech startups in the country and broaden the pool of entrepreneurs starting ventures in the space.

As of July, 2019, 27 of 122 worldwide investments in quantum technology backed Canadian companies, of which only 11 were made by Canadian firms, according to BDC’s analysis, and roughly six in 10 Canadian deep-tech startups are currently at the seed stage while nine in 10 are seed or Series A.

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