Working Ventures, the first and largest Canadian venture firm to be sponsored by the Canadian Federation of Labour and subsidized by the federal government, recently announced the formation of its second private equity investment vehicle, Working Ventures II.
While the firm?s original investment fund ? a CA$720 million vehicle spawned in 1990 ? invested across industry sectors throughout Canada, the new fund will target early-stage information technology plays in Ontario. Its fund-raising efforts, too, are limited to that eastern province.
With 123 companies in its portfolio ? from manufacturers to biotechnology firms to electronics companies ? Working Ventures I was able to mitigate risk and produce a five-year return on investment of 5.37%. By concentrating its investments in Internet, e-commerce, software and communications plays, the new fund will raise its risk profile to produce results in line with venture capital standards, said Ron Begg, chief executive with Working Ventures.
“We?re shifting the focus to where we saw our success,” said Jim Hall, senior vice president and chief investment officer with the Toronto-based firm. “Up until ?95, there was not much of a market or good sector experience for technology investment in Canada. Deal flow began to pick up and spill over from the U.S. in ?95 and ?96. Now 80% to 90% of all Labour-sponsored funds are technology investments.”
The new fund is expected to complete its first round of investments before the end of the month. Individual investments will not exceed $15 million and are likely to average $4 million per round of funding.
The Labour-sponsored investment program was conceived in the mid-1980s and came into being in 1990 to open the venture markets to individual investors and encourage investment in Canada?s small businesses. Labour-sponsored funds now account for half of all venture investment in Canada, Begg said, while the remainder comes from traditional venture capitalists and corporate investors.
Individuals can also buy shares in the venture funds as they do in mutual funds. An individual can invest up to CA$5000 in one of the funds annually and, if he holds on to his stake for at least eight years, take home a 30% tax credit for their investment. Working Ventures I has 115,000 individual shareholders.
Although fund-raising on the new vehicle will continue over several years, it will close at CA$200 million. At the same time, Working Ventures II is in the market for U.S. investment partners. Not only can a U.S. partner expand a Canadian portfolio company?s market share and distribution network, Hall said, but good Canadian deals often chase smart money in the U.S. before they tap local investors.
Still, countered Begg, Working Ventures? local experience and broad base of shareholders have created a strong investment brand with upside potential that moves across borders.
“We?re back to looking at the basics: looking at the people, looking at what the pricing is on the deal, if there?s good solid co-investors, good corporate governance and a good-solid business model that explains how they?ll build a business and how they?ll make money,” he said.
Carolina Braunschweig can be contacted at Story Feedback.