UPDATE 2-Canada sets plan to resuscitate venture capital sector
* The C$400 mln was announced in budget
* Ottawa wants to keep entrepreneurs, woo back investors
* Venture fundraising has dropped since dot-com bubble
* Gov't wants to attract foreign expertise and capital
By Leila Lemghalef
MONTREAL, Jan 14 (Reuters) - Canadian Prime Minister Stephen Harper announced a plan on Monday to provide C$400 million ($408 million) in venture capital to stem the loss of young entrepreneurs to the United States and to rekindle investor interest in providing start-up funds for new ventures.
The money comes in response to consultations that showed venture capital returns have been poor across the world and venture-capital fundraising in Canada has declined since 2001 following the burst of the dot-com bubble.
Governments have been the dominant source of venture capital funding in Canada recently, and a government statement on Monday said the consultations found that reasonable government incentives would be needed "to attract institutional investors who have left the asset class in Canada over the past decade".
"We will provide the resources needed to put Canada's venture capital industry on the path to sustainability and ensure Canada's high-potential firms have the resources they need to succeed," the statement quoted Harper as saying.
One of the goals is to deepen the pool of experienced fund managers in Canada, "including by attracting foreign expertise and capital to Canada's venture capital market," the statement said.
The overall amount was announced in the March budget, but the government has now decided how to allocate the funds over the next seven to 10 years. The breakdown is as follows:
- C$250 million to establish two new, private-sector-led national "funds of funds" that will invest in other venture-capital funds, in partnership with institutional and corporate strategic investors as well as with interested provinces;
- Up to C$100 million to recapitalize existing large private sector-led funds of funds in partnership with willing provinces;
- Up to C$50 million in three to five existing, high-performing venture-capital funds in Canada.
"The principal focus here is on young entrepreneurs and the fact that we are losing young entrepreneurs and their businesses to American enterprises, to larger enterprises," Finance Minister Jim Flaherty, flanking Harper at a news conference, said.
"We know of thousands of young entrepreneurs in Quebec and across the country that need the kind of support that is contemplated."
Montreal in particular is a hub for start-up companies involved in video games.
The government is also planning at some point to create a new start-up visa to attract high-tech and other entrepreneurs to immigrate to start new companies. Venture capital funds would identify candidates for the visas.
Harper, a Conservative who once railed against corporate welfare, said that his philosophy was the reason the venture-capital package is stressing that the private sector will take the lead in the program.
"We don't want governments to choose winners and losers by political criteria, and therefore we're working with the private sector," he said.
Peggy Nash of the left-leaning opposition New Democrats said the new funding would have little meaningful impact in addressing a sector that has been underperforming for a decade.
"The prime minister's venture-capital plan amounts to just peanuts and won't get the job done," she said.