2018 Private Capital Trends: Insights From The Experts

April 19, 2018 | By: Jon Jackson

On April 18, the Canadian Venture Capital and Private Equity Association (CVCA) hosted its second annual CVCA Exchange event in Toronto. The event takes a deep dive into the latest private capital data and expert panelists spotlight notable trends in private equity, venture capital, limited partner and regulatory environments.

Expert panelists included representatives from Real Ventures, VERTU Capital, BDC Capital and KPMG LLP. This article captures insights from information discussed at this exclusive event

VC Perspective: Foreign Capital – Asian Investment Into Canada

Kicking off the event, JS Cournoyer, Partner, Real Ventures spoke about Asian investment coming into Canada. The CVCA reported at the end of Q2 2017, that Real Ventures raised USD $100M in new funding from a syndicate of companies including Chinese internet giant, Tencent Holdings.

According to Cournoyer, Asia has been growing massively in the last twenty years. In this time, Asia’s GDP has tripled. Asia is home to over 5 million millionaires and has funded $70.8B in venture capital funding last year compared to $71.9B in the United States.

China’s currency devaluation and economic slowdown are encouraging VC and family offices to seek investments abroad to diversify their portfolios. Institutional investing is increasingly looking global for world class opportunities in politically friendly regions.

What are the characteristics of Canadian investments that have caught their eye?

  • Canada has strong political and economic global relationships
  • Canada is recognized as a hotbed of talent—a large segment of Canada’s population is highly educated and of that percentage, a high percentage are educated in STEM.
  • Canada is a central innovator in key disruptive technologies: with names like Geoff Hinton, Yoshua Bengio, Richard Sutton, Elon Musk, Vitalik Buterin and Alexandre Blais who are either Canadian or have been educated in Canada.
  • Natural resources (Land, Minerals, Oil and Intellectual Property)
  • Friendly and safe
  • Proximity to US and Western Europe

Cournoyer also spoke about the individual investment strategies of China, Singapore, South Korea and Japan.

PE Perspective: Intersection Between PE & Technology Investing

Lisa Melchior, Founder, VERTU Capital delivered a presentation on the intersections in Canadian private equity and technology investing. According to Melchior, there’s great opportunity in this specific focus.

Driving the interest in ICT investment from private equity is a supply and demand imbalance with more and more active generalist PE funds compared to PE funds focused on the ICT sector. Also contributing to the interest, is the ICT sector is growing in Canada and its currently underrepresented on the public indices; with under 5% represented today.

Adding to the opportunity for PE funds to focus on ICT, on average, Canadian companies that are VC-backed, exit at enterprise value less than $100M. This, combined with a culture in Canada that allows corporates to swallow up Canada’s great technology companies (as opposed to a focus on building them), is adding to the opportunity in the space. Driving the point home, Melchior says, even if the great tech companies aren’t purchased by corporates the companies that do cross into PE tech territory are typically purchased by US PE firms.

“Activity level (deal flow) is rising in venture capital; which is all good news. There will be more and more opportunities for private equity tech investors in this country,” Melchior concluded.

LP Perspective: Government-Backed Initiatives

Karl Reckziegel, Vice President, Funds and Co-Investments spoke from the BDC Capital perspective and really focused on the need to develop and scale mid-sized Canadian companies. Mid-sized companies in Canada account for 12% of Canada’s GDP, 16% of Canadian jobs and 17% of R&D.

Reckziegel points out that in the mid 2000s, Canadian mid-sized companies were trending in the wrong direction and the country was losing around 1000 mid-sized companies per year. Since around 2010, Reckziegel has noted an improvement, but says it’s not enough.

Helping to bolster Canadian mid-sized companies are a few federal government initiatives which include the recently awarded supercluster initiative. Reckziegel notes it’s early days, but the program should have a positive effect on creating and growing mid-sized companies. In addition to the supercluster initiative, Canada’s Trade Commissioner is promoting a global expansion and explaining how Canada is open for business.

The third initiative that’s helping to create and scale mid-sized businesses in Canada, is the second iteration of the Venture Capital Catalyst Initiative (VCCI; formerly VCAP). VCCI looks to leverage $1.5B in the market. With the momentum in the private capital market, BDC Capital is confident that VCCI will get the fundraising and is expected to kick off mid 2018. Two key aspects of the VCCI are $350M in the first stream; a fund of funds model. The remaining $50M is for underrepresented groups (such as women-run businesses and indigenous or immigrant entrepreneurs).

Finally, additional funding was introduced by the federal government in Budget 2018 for the Women In Technology investment platform. The platform is designed to support growth-focused women-led technology companies in Canada. The total program commitment is now $200M and Michelle Scarborough is leading the initiative.

The article above is a summary of insights from information discussed at the CVCA’s Exchange Central & Eastern Canada event on April 18. CVCA event attendees have the benefit of hearing about more in-depth case studies and receiving speaker presentations following events.

The CVCA thanks KPMG LLP and Goodmans LLP and Satov Consultants for generously presenting and sponsoring this event.

CVCA Exchange Western Canada is taking place on Apr. 24 at the offices of BLG in Vancouver and will feature a complete private capital market deep dive, expert venture capital and private equity perspectives and a fireside chat on the current Canadian regulatory climate. Register here to attend this exclusive event.

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