The Business Development Bank of Canada’s venture capital arm (BDC) and MaRS Investment Accelerator Fund (IAF) were each established at a time when Canadian venture and seed capital were in short supply. However, since Canada’s innovation ecosystem has been criticized for its inability to create world-class companies, this Impact Brief has been published to look at these mechanisms more closely. In particular, we thought it would be worthwhile to examine IAF’s and BDC’s ability to pick and nurture world-class companies. Here’s what we found.
- Both entities are effective at picking companies with world-class potential.
- The IAF is more successful when investing in companies that are under three years old.
- BDC is statistically better equipped to pick winners because it can invest significantly later, either when companies are more established or even as late as Series C and D rounds.
- With an average seed stage investment of $1.59 million compared to over $3 million for BDC, the IAF does not appear to provide enough capital to maximize a firm’s growth.
- Both groups have investees with strong employment growth rates. However, as a result of the lower seed-stage rounds, IAF investees are, on average, half the size of BDC investees.
- The IAF may not be maximizing its potential for impact. With inadequate funds invested early on and without a co-ordinated strategy with Ontario Growth Capital (OGC), the IAF may be producing suboptimal results.
- If BDC were to adopt the creation of world-class companies as its objective, it would need to re-examine its current approach to investing.
The federal and many provincial governments are devoting considerable resources to developing Canada’s technology sector. What they are not doing is effectively using the data that come from their investments to do improve the capabilities of companies across the country. We could have at our disposal data that come from hundreds of investments to determine best practices, publish the results, and train entrepreneurs and investors on what does and does not work to improve our chances of success. If our governments are investing hundreds of millions of taxpayer dollars in companies to boost the technology sector, then investing to develop knowledge may yield significant return in terms of improvements in the system.
You can get a full copy of the report here.