Thursday, March 19, 2009

Ontario Government Announces New "Emerging Technologies Fund"

I am writing this at the edge of the Grand Canyon, which is as good a place as any for discussing this morning's press release from the Ontario Ministry of Research and Innovation. The Ministry has thrown a lifeline to many of my clients,but it looks like in so doing it may have pushed local venture capital off the abyss.

The Ministry, which has proved itself a tremendous friend of the researcher (just take a look at the millions that have been pledged in support of innovation and university research), today turned its seductive charms to entrepreneurs, announcing that, starting this July, it will match dollar-for-dollar any investment made by "qualified" VCs or private sector investors in a green tech/digital media/IT business wth a significant business base in Ontario. John Wilkinson has never looked so handsome to me and my clients.

What the Ministry clearly has also done is taken a step away from any support for local venture capital. As Mark McQueen notes, there was no consultation by the Ministry with local VCs. Some speculate that this is because there is a rising belief at the Ministry that Venture Capital as an asset class in Canada cannot success, and therefore the best option is to use a matching program to attract foreign investment. I hope that's not the case; if so, I'd like access to the secret list of foreign investors who have indicated that they woud invest here (or anywhere) in the current economic clime.

The details (which I'm betting have not been yet hammered out) have to navigate a minefield of issues. For example, who is a "qualified" VC? Are angels eligible for matching money, and if so, what attributes must an angel have? Some of the most successful angel deals I have been involved in were led by angels who do not participate in the NAO , or local angel groups - would they be excluded from matching money? How does this initiative line up with the thinking of the Ontario Securities Commission on exempt trades by accredited investors and friends and family?

Whether this is a stopgap measure by John Wilkinson, or a first step into a new kind of government investing, these details are critical. An inclusive matching program could mean great things in the near term. A limited one could effectively create yet another cartel of local investors. Watch carefully.

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