Much venture capital funding in Atlantic Canada comes from government sources. That can have its drawbacks, so the challenge is to attract more private-sector investment to bring badly needed diversity to the region say some investors.
Brightspark Ventures believes diversity is vital to creating a more robust startup community in Atlantic Canada and throughout the country.
Run by managing partners Sophie Forrest and Mark Skapinker, the firm has been investing in the Canadian VC industry since 1999. They started out traditionally, managing funds from big firms and institutions, but they discovered there was a gap to be filled.
“We’ve always been very entrepreneurial at Brightspark … so we’ve always looked at everything and tried to optimize and make the best of out of it,” says Forest “So about two and a half years ago, we thought ‘we will not raise our funds and we’ll capitalize on this new opportunity where wealthy individuals want to get access to venture capital deals and we have the ability to do that.’”
Brightspark now structures its investments by allowing individual accredited investors to invest with them in their deals. The model also helps their portfolio companies by giving them a network of investors they don’t necessarily have to manage.
Though allowing wealthy individuals access to VC deals was a big reason for changing their model, the other was to help bring more variety to the venture capital industry in Canada.
“[We] also did not want to go the route of raising a larger traditional fund again because the market was shifting even further than in the past to be more government-funded, which was not attractive to us,” Forest says.
“So we decided to do that and said ‘You know what? There’s a challenge in Canada with the venture capital industry. One of those challenges is that there’s not enough private money being invested in those companies and we can solve that while at the same time capitalizing on the great opportunity for us’”
Forest says government does play an important role in venture capital. However, it often comes with additional needs compared to privately run VC funds. With private money, the objective is to help companies become successful and scale fast while providing the investors a good return.
“When you get government funding, that objective is still there obviously, but there can be other objectives. Other objectives could be geography focus … it could be jobs … it could timing. There can be many things that have an impact on this potential of creating returns. Sometimes it’s positive, but sometimes it can just change the objectives.”
David Crow, a director at Toronto-based Danger Capital, echoes that concern about government-dominated venture capital. He says when governments use non-professionally managed funds or economic development agencies to invest, there are challenges, including government turn-over.
“So what happens to most economic development agencies, or the non-professionally managed, is their value of their funds is determined by the annual or a four-year election cycle budget,”…