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‘The first commitments are imminent’ for Northleaf Venture Catalyst Fund, which invests in support networks for early and mid-stage companiesFuse

Canadian entrepreneurs will find more money in their own backyard now that a new fund has been set up to invest in the country's private-sector-led venture capital market.

The NorthLeaf Venture Catalyst Fund (NVCF) will invest in venture capital funds that support early and mid-stage companies. A total of $217.5-million has been invested in the fund so far, with a goal to increase the amount to $300-million. About two-thirds of the money is from the private sector, with the Ontario and federal governments splitting the other third.

Both governments have agreed to chip in another $1 for every $2 committed to the NVCF by private sector investors, to a maximum of $50-million each.

NVCF is being managed by Toronto-based Northleaf Capital Partners, an independent, employee-owned global private markets investment firm that manages more than $5-billion in private equity, venture capital and infrastructure commitments. Northleaf was picked by industry and Ottawa, following an extensive review process, based on its knowledge and experience in the Canadian private equity market.

It will manage the fund on behalf of the two government partners as well as private industry backers, including the Canada Pension Plan Investment Board, Canadian Imperial Bank of Commerce, National Bank of Canada, BMO Financial Group, BDC Capital Inc., Ontario Capital Growth Corp., OpenText Corp., Royal Bank of Canada, Bank of Nova Scotia, and Toronto-Dominion Bank.

Jeff Pentland, managing director of Northleaf Capital Partners, says managing the fund is not only a good business opportunity for his firm, it's also a way to help strengthen entrepreneurship in Canada.

Why is this program needed?

There has been a vicious cycle that has developed in Canada. Returns haven't been great, which has made it difficult to attract investors into the space, which means the venture capital managers in Canada don't have the ability to support companies they purchase, particularly with later-stage capital. This is an intelligent way of trying to break that cycle by creating the conditions where we can demonstrate that it can be profitable to invest.

What is the goal of this type of funding model?

The goal of a program like this is to have it succeed so it's not required any more. The objective of the fund is to deliver attractive returns to investors, and in doing that, to be a catalyst for the self-sustainability of the industry. That is how we are going to attract more private capital into the ecosystem and the industry overall.

Where is the money going?

The capital will be committed in smaller pieces, say between $10-million and $30-million commitments in underlying funds, over a three- to four-year investment period. That will create a focused portfolio of venture capital and growth equity funds. We'll then manage those funds. These can be 12- to 14-year funds.

We won't be the sole funders of any of the underlying funds either. They will also go out and find other capital. NVCF will invest primarily in Canadian venture capital and growth equity funds and direct co-investments in innovative Canadian companies. Industries we are focusing on include info technology, life sciences and clean technology.

Why should taxpayers support this type of program?

Being able to invest on commercial terms in the best venture capital funds and fund managers across the country – there's a very real probability this is going to make money for all of the investors, including the government entities. That is what we've seen so far with the Ontario Venture Capital Fund.

If the policy objective is to support this part of the economy, this is a good way to do that. It's highly likely it will not only support top-tier venture funds in Canada, but also drive a return on the investment.

Have you chosen any venture funds yet?

We are in the final stages of the due diligence process on at least a couple of funds. The first commitments are imminent. Northleaf has been investing in venture capital and private equity funds both in Canada and globally for over 40 years, and it has developed a rigorous and disciplined due diligence process for screening, analyzing and executing on venture capital investment opportunities. We will apply this same due diligence approach in selecting high potential fund managers and direct co-investments.

How do people apply for funding?

We play in this space already. If we haven't found a venture fund manger in Canada, they've found us and it's the nature of the industry that there are new ones popping up all of the time. As the manager of NVCF, Northleaf is interested in understanding and getting to know all of the investment options available to it. Venture capital fund managers should contact Northleaf with information on their funds.

How should entrepreneurs view this new fund?

The very best ideas in the venture community at the company level in Canada are capable of attracting capital from all over the world. There is a probably a better chance for Canadian entrepreneurial initiatives to be able to attract capital again within their networks. The fact that there is more money in the Canadian ecosystem is going to be good thing for Canadian entrepreneurs.

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