Venture capital in Manitoba
A new venture capital fund aims to help young companies expand and grow the economy while convincing Manitobans to forget about one of the most notorious investment vehicles in the province’s history.
The freshly-minted Venture Capital Fund (VCF) has received $50 million from the provincial government. The fund’s independent board is expected to announce its CEO in early summer, who will then be charged with disbursing the seed capital to partner funds in Manitoba. Those funds, in turn, will decide which companies receive funding.
“In horse racing terms, we’re looking for jockeys. The jockeys are looking for the horses,” says Michael Swistun, secretary to the new Economic Development Board, the provincial body spearheading the initiative.
“The fund will act as a catalyst to be leveraged by different fund managers that want to come to Manitoba. It’s up to those management teams to find the investments. There will be no political interference. These will be professionally managed independent funds based purely on trying to get a return.”
Venture capitalists across the board are quick to point out the fund’s independence in order to differentiate it from the Crocus Investment Fund, a once-popular but controversial labour-sponsored fund that stopped trading in 2004 and was subsequently wound down, erasing millions of dollars from Manitobans’ retirement savings.
Marshall Ring, CEO of the Manitoba Technology Accelerator, says the new fund levels the playing field with other provinces across the country.
“This isn’t just about investing and growing businesses, it’s also about helping Manitoba be a head-office economy,” he says.
“We could say to a venture capital fund, ‘you’re not in Manitoba but if you put a decision-maker and a desk in the province and allocate $10 million of your own capital here, we would match up to $10 million.’ We would then have a new fund in Manitoba ready to deploy $20 million of capital.”
The venture capital void left in the aftermath of Crocus’s downfall has had a significant impact on the Manitoba economy as many businesses have pulled up stakes and relocated wherever the funding flowed more freely.
“This is absolutely something that is needed in Manitoba. This is a pure venture capital fund, a fund of funds model,” says Bram Strain, president and CEO of the Business Council of Manitoba, adding that the VCF is based on numerous successful examples across the country.
Indeed, Manitoba has about 3.5 per cent of Canada’s population but is only attracting about one per cent of the country’s venture capital money.
“This is absolutely something that is needed in Manitoba. This is a pure venture capital fund, a fund of funds model,”
says Bram Strain, president and CEO of the Business Council of Manitoba
According to the Canadian Venture Capital and Private Equity Association of Canada (CVCA), there was a grand total of two venture deals in Manitoba during the first three months of 2022 totalling $1 million. Saskatchewan, meanwhile, had six deals worth $107 million while Ontario funds signed 86 deals worth $2.3 billion.
Swistun says he knows of businesses that get off the ground in Manitoba but are told when they go out to raise money that a condition of receiving venture capital funds is moving their head office to Calgary, Vancouver or Saskatoon.
“We could keep those opportunities here if there was capital available,” he says.
SkipTheDishes, the trailblazer in food delivery services that is based in Manitoba, has expanded to other jurisdictions because that’s where the money was, he says.
“The potential of the fund in Manitoba is “limitless,” says Strain.
“It could fund start-ups, second-stage companies, expansion of existing facilities, succession planning and purchasing of companies. If you look in the start-up world alone, any company could grow to become the next SkipTheDishes,” he says, pointing to Callia Flowers, a Winnipeg-based Canadian success story in online flower delivery, that’s now expanding into the U.S.
Ring says there is no question that lessons have been learned from the Crocus debacle but is quick to note the VCF is a different structure.
“This isn’t the government picking winners. This is the government, through a whole lot of consultation with private industry, coming up with a strategy that leverages the skills of private equity investors to help our companies grow,” he says.
Also, unlike Crocus, VCF is not directed at retail investors. Instead, it’s expected the vast majority of investors will be high-net-worth individuals, family offices and people who have the ability to invest in venture capital.
“Venture capital isn’t for people who can’t afford to take the loss,” Swistun says.
Finally, he notes VCF is an “ever-green” fund that will operate regardless of which political party is in power in Manitoba.
“Venture capital isn’t for people who can’t afford to take the loss.”
Michael Swistun, secretary to the new Economic Development Board
“When you take the politicization out of it, you get some really good results. Governments aren’t particularly good at picking winners,” he says.