Ontario Premier launches $300M venture capital fund in Waterloo

Ontario Premier Kathleen Wynne made a stop at Kitchener-Waterloo’s largest tech incubator Communitech this afternoon to announce the launch of a new public-private venture capital fund for the province’s tech sector.

The new fund, known as the Northleaf Venture Catalyst Fund, has raised over $217 million in commitments, with the provincial and federal government each pledging up to $50 million. Both levels of government say they will invest $1 for every $2 invested by the private sector.

With that agreement, the province says the fund could rise up to $300 million.

“We knew that there were two ingredients that fast growing tech companies need to grow into global players. They need smart people, of which Ontario has no shortage, and they need venture capital,” said Wynne.

The fund will be managed by Northleaf Capital Partners, a global private markets investor based in Toronto.

“We look forward to implementing the fund’s long-term strategy of constructing a portfolio of high-potential venture capital funds with the scale and resources to execute their plans, support successful high-growth companies and deliver world-class returns,” said Jeff Pentland, Northleaf Capital Partners managing director.

The fund is based on a federal initiative to boost venture capital for Canada's innovation sector. The government seed money is meant to foster private sector involvement.

"This is going to lead to a whole new crop of funds," said Iain Klugman, CEO of technology hub Communitech, in an interview with CBC's The Lang & O'Leary Exchange. He estimates 10 to 15 new funds, with different specialties, will emerge from the initial capital.

Klugman said venture capital is currently concentrated in Silicon Valley, New York and Boston, when tech firms are spread across North America. This will help U.S. firms focus on Canada's technology clusters, he said.

"Many U.S.-based funds are always looking to lead from someone who is on the ground, boots on the ground. So this I think will spur more investment from U.S. funds...Someone to keep their eye on it that they can work with," Klugman said.

The fund is based on the existing Ontario Venture Capital Fund, which was launched in 2008 and was the first time the provincial government partnered with the private sector to attract venture capital.

“There were critics who questioned whether this was the right move,” said Wynne. “We proved our detractors wrong. Our $90-million investment leveraged over $870 million in private capital, and that capital has had a real impact on our economy and people’s lives.”

She also claims the fund helped to create and retain 1,500 jobs in Ontario.

Minister of State Gary Goodyear was also present at the announcement to represent the federal government.

“Unfortunately, all too often our nation’s small and medium-sized entrepreneurs and enterprises lack the very fuel to drive their success and that of course is venture capital,” said Goodyear.

Michael Litt, founder of Kitchener-based video analytics company Vidyard, says he welcomes the news that the government is supporting such a fund and that the private sector will be managing it.

However, he points out there is a more pressing need for continued funding in startups after an initial investment has been made.

“My concern is that, there’s an abundance of seed stage capital and there’s lots of growth capital, but there’s no second round capital available,” said Litt. “There’s not that many investors that are willing to make the leap of faith in investing in a company that’s just past the seed stage.”

After Wynne’s funding announcement, Waterloo-based software company OpenText announced it would be creating a new venture fund with financial partners that will have $100 million of capital.

Known as the OpenText Enterprise Applications Venture Fund, its goal is to financially back business application development and spur innovation and entrepreneurship in Canada. OpenText expects the fund to begin operating in about six months.

“A $100-million fund may invest in roughly 20 companies.” said Mark Barrenechea, president and CEO of OpenText.

While he could not yet name any companies who will receive the funding, Barrenechea says it will likely go to ones that are ready to take the next step in growth.

“We’re not going to dismiss very early stage startups,” Barrenechea told CBC News. “But we’ll probably look for what would typically be a stage two company, that the idea’s been established and a first version has been created.”