Taking Risks, Building Fast: Ontario's Venture Capital Space October 2013

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  • Taking Risks, Building Fast:

    Industry experts look at Ontarios thriving Venture Capital space.

    October 2013

  • 2

    Michelle McBane

    Investment Director

    Investment Accelerator Fund

    Suresh Bhat

    Venture Capital Associate

    Extreme Venture Partners

    Moderator:

    Mark Evans

    ME Consulting Owner

    Panelists:

    Ian Carew

    Director

    Northleaf Capital Partners

    Simon Chong

    Managing Director

    Georgian Partners

    David Unsworth

    Partner

    RBC Venture Capital

    Participants

  • 3

    Introduction

    Invest in Ontario brought together 5 top venture capital specialists for a

    roundtable discussion about Ontarios capital fund climate for new start-

    up companies. A key component of the discussion was how the Ontario

    Venture Capital Fund (OVCF) and the Ontario Emerging Technologies

    Fund catalyzed the industry and is helping innovators to attract

    investment.

    The following Q & A provides the perspective from the VC panelists and

    what they believe is working to support more successful starts-ups in

    Ontario.

  • 4

    How is the current Ontario Venture Capital

    landscape conducive to a new business start-up?

    In 2008, the Ontario Venture Capital Fund (OVCF) was established

    to provide capital funds to start-ups making the availability of

    capital much easier.

    The $250 million Ontario Emerging Technologies Fund invests in 3

    key sectors;

    Cleantech

    Life Sciences and Advanced Health Technologies

    Digital Media and Information/Communication Technologies

    Today, seed capital and angel investors are available, along with

    larger fund amounts for expansion capital

    Now there is a range of funding available across all financial stages

    for a company -- from seed capital through to growth and expansion.

  • 5

    In what ways has the Ontario landscape changed

    that would benefit my business?

    Our whole ecosystem is better at the early and seed-stage investing

    Ontario has become a lot better at getting very young, very

    aggressive and very talented entrepreneurs coming out of our

    engineering programs and getting their companies through that first

    initial stage of financing.

  • 6

    What unique opportunities does Toronto offer a

    start-up?

    Ontario is known for enterprise software and has had big outcomes

    with companies such as Algorithmics

    Toronto specifically has every single financial service, so you know

    how to deal with enterprise software in terms of engineering support,

    sales, retail, oil and gas, manufacturing, everything. You are selling

    to BIG companies.

    Access to the best and brightest talent pool with over 40 top

    universities and over 30,000 graduates in computer science

    engineering each year.

    For example, BumpTops founder created a desktop user application

    that was spun out of his Masters thesis at University of Toronto.

    When he graduated he got commercial funding and eventually was

    acquired by Google.

  • 7

    How many funds are available in Canada?

    In Canada you dont need 50 or 100 funds, only 10 or 20 that are

    really focused on the best investment opportunities.

    Theres a pool of $205 million ($90 million from Ontario and $115

    million from other institutional capitals) of leveraged capital.

    These funds span across seed funds, early stage investors, late

    stage funds a nice mix to generate returns.

  • 8

    The OVCF has a third party manager that can make decisions to

    allocate the money to the best funds based on returns potential.

    Through longer term support. It is going to take five to eight years to

    generate returns.

    However, the funds need to invest their capital, they need to

    generate returns, as that's what's going to drive other investors into

    the asset class. This longer-term support is critical to giving the

    industry a chance to mature and grow.

    How do the federal and provincial government

    programs support Ontario start-ups?

  • 9

    As an entrepreneur, what funding does Ontario

    offer me?

    Funds such as the Investment Accelerator Fund from Ontario

    provides active seed funds (over 65 deals in the last 4 years).

    Follow-on funds can be up to 5 times the amount for a seed-stage

    fund for high quality companies.

    Many of the successful angels and entrepreneurs coming out of the

    ecosystem come back, create new companies and reinvest thus

    the ecosystem loop effectively churns out more successful

    companies, wiser entrepreneurs, and second, third, and fourth type

    entrepreneurs.

    Ontario programs offer opportunities to work closely with other

    entrepreneurs and bring other eyes, mentors and high quality advice

    to the companies increasing their chance of success.

  • 10

    What amounts of funds are available?

    Accelerator programs for extreme start-ups provide mentorship and

    from $50,000 - $200,000 right away without a lot of due diligence if

    the start-up has a good team, are working on something thats really

    interesting, and there's a big market opportunity they get a chance

    right away.

    For every dollar reinvested, theres been almost $30 in follow-on.

  • 11

    What type of financial incentives are available in

    Ontario?

    Access to funds through the BDC (Business Development Bank of

    Canada) -- one of the most aggressive and most active venture

    capitalists in Canada and a Crown Corporation.

    Access to funds from OVCF, which has been key in all deals raising

    funds of critical mass in Ontario in the last 5 years.

    Very generous tax credit programs.

    The R&D tax credit offers for every dollar spent on an accredited

    activity in technology development, the company gets up to $.35

    back.

    No interest payment loans. The FedDEV Investing in Business

    Innovation (a $175 million fund) offers companies a loan, with no

    interest payment terms over 60 months.

  • 12

    How does Ontario VC funding compete with USA?

    Very favourably. The OVCF program has 8 funds; each of them

    have deep domain expertise, deep operating expertise and are

    competitive on a North American basis.

    These investments are made because these are the best companies,

    not because they have to focus on local markets.

    An example from the Ontario portfolio is Fixmo. This started as 2

    people working on mobile security. It was seeded here in Ontario

    initially and when they reached a point where they could scale, they

    got really good interest from the Valley and Kleiner Perkins invested.

    Fixmo started off small here in Canada, and then

    investors helped scale it with an investment of $40 million.

    Fixmo is an example of how something can be built here, but

    can then access investors outside of Canada, to go to the next

    level.

  • 13

    Is the growth capital handled domestically or

    syndicated with US Venture Capitalists?

    It depends on the amount of funds required

    If you need $15-$25 Million, then the fund has to be more than $300

    million.

    For example, RBC Venture Partners has 2 funds focused on

    enterprise software that could provide all the funds, but its in the

    best interest in many cases to bring in a US syndicate partner to lead

    that growth equity and to get diversification because they bring

    expertise to help the company expand into the US.

  • 14

    What other advantages does Ontario offer start-ups

    versus the USA?

    Talent! Toronto is a better place than the Valley for initial start-ups

    because in his mind (Canadian data entrepreneur) we had better and

    cheaper technical talent.

    The University of Toronto and University of Waterloo have a

    mentality of building companies. The university doesn't take a portion

    of the company and the invention. Whatever comes out is taken by

    the entrepreneur, with the intent that they will give back to the

    university.

    As well, U of T has very strong tech transfer and software

    engineering programs and are building really great pools of people.

    (Continued)

  • 15

    What other advantages does Ontario offer start-ups

    versus the USA?

    The support network and the ecosystem, (both provincial and

    privately funded programs) educate the next generation of

    entrepreneurs and take them to that next level -- to expand what's

    going on in universities to a practical level.

    Availability of accelerators (i.e. Extreme, JOLT, and HYPERDRIVE)

    to provide a really good opportunity to learn how to build a company.

    Loyalty/Retention of talent:

    It's rare that people leave a company after three or four months --

    versus the jumping around that you often hear about in the Valley.

    People are here for the long haul and they're very loyal to the

    company that they're building.

  • 16

    Why Ontario?

    Because your dollars go a lot further -- at that very critical early

    stage when youre not generating any revenue and you dont have

    cash flow to keep going.

    Ontario hel