A new government-backed venture capital fund has been launched with a goal of keeping Canadian entrepreneurs at home instead of seeking money and potential stardom in Silicon Valley.
The Kensington Venture Fund has so far raised just over half of its $300-million goal and is seeking out promising funds and companies in the technology, clean tech, IT, telecommunications, and digital media sectors, with a focus on "under-served" markets in Western Canada.
"We find there is a lot of risk capital in Canada, but mostly it has been directed at the oil and gas sector and mining. Our challenge and the goal with this program is to get those kinds of investors who have an appetite for risk to shift some of that into the venture sector, in early-stage technology," Mr. Nathan said in an interview from the sidelines of the Canadian Innovation Exchange in Toronto.
He said too many investors are hanging on to bad memories of the Dot Com bust at the turn of the century or investments in failed Canadian tech companies such as Nortel.
"It's a new cycle we're in now. The last several years have seen the growth of mobile, social and the cloud," said Mr. Nathan, who is also former chair and president Canada's Venture Capital and Private Equity Association.
There's also a lot of activity in Western Canada, particularly in the energy tech sector and in clean tech, he said, which is why the fund will be focused there.
Unlike in Central Canada, Mr. Nathan said more money in Western Canadian is going directly into companies and not funds, which suggests the investments are coming from sources such as the U.S. and individual investors.
"To me that spells an under-served market with real opportunity," for funds, he said. "We're also going to be investing in Ontario and Quebec of course, but Western Canada is an interesting part of our strategy."
With $160-million raised so far, Mr. Nathan said the fund is ready to start making investments in startups, while continuing to seek out investors from the private sector. Investors in the fund so far include each of Canada's five largest banks as well as Richardson GMP, OpenText Corp., and some individual investors.
The remaining 33 per cent of the funding is coming from the federal government as part of its Venture Capital Action Plan (VCAP) announced in 2013. This is the third VCAP announcement to date, alongside the NorthLeaf Venture Catalyst Fund announced earlier this year and the Teralys Capital Innovation Fund announced last week.
In a statement, finance minister Joe Oliver said Canada needs a strong venture capital system to help helps increase private sector investments in startups across Canada.
"We all want the next global leaders – and the jobs that will come with them – to be founded here in Canada," Mr. Oliver stated.
The goal is to keep those potential leaders in Canada, instead of being drawn to Silicon Valley, which is a dominant global hub of venture capital investment for start-ups.
"There is this massive gravitational pull to California that draws companies from all over the world," said Mr. Nathan.
One of the reasons is access to capital in Silicon Valley, which gives startups more fuel to grow and thrive.
"It's not a bad thing to see companies acquired by large U.S. players," Mr. Nathan said. "It would just be nice and better for the country as a whole to see some of the buyers be Canadian and some of the big companies be established and sustained here at home."
He said successful Canadian startups get to a point where they have an important decision to make: Sell or raise money to grow bigger.
"If the money isn't here, it's an easy decision," Mr. Nathan said. "With the money in hand now, a lot of these companies have a chance to get a lot bigger by staying here at home."