KITE Invest looked at Canada’s investment outlook and went to Mike Woollatt, the CEO of the Canadian Venture Capital & Private Equity Association (CVCA), the voice of Canada’s venture capital and private equity industry, for the answers. The CVCA is focused on improving the private capital ecosystem by broadening industry awareness and providing market research, networking, and professional development opportunities. They also advocate on behalf of the industry to ensure sound public policy that encourages a favourable investment environment. The CVCA works alongside its members, who represent the vast majority of private capital firms in Canada, to improve the industry and drive innovation and growth.
KITE Invest: In terms of the CVCA’s members, generally speaking, what have been the main sector trends? (in and outside of Canada)
Mike Woollatt: Overall Canada has a very diverse private capital industry. We’re known as a commodities leader, and our energy sector (particularly in Alberta and Saskatchewan) is driving innovation by investing in carbon capture and storage. And game changing technologies being developed around Canada’s oil sands are creating world leading cleantech VC funds.
We’re also world leaders in ag-tech, have a very strong life sciences industry, and have a large number of global software companies in Canada. In fact, on the technology side, being close neighbours to the U.S. means a much higher rate of exits because our technology start-up community already has strong links there.
VC has grown steadily over recent years. Last year alone more than $2 billion was invested in venture capital– the highest since the peak and subsequent drop in 2007.
However, there are troubling signs. While venture capital investment continues to grow, it still remains relatively underfunded in Canada. Fundraising by VC firms for the first nine months of 2014 has declined by more than 29 per cent since the same period last year. So that remains concerning. We’d like to see more international investment to bring those numbers up.
On the private equity side – we’re home to some of the largest direct investors in infrastructure globally, and the financial performance of our top PE funds rival tier one funds in both the U.S. and Europe.
On aggregate, private equity in Canada is going from strength to strength. Investment activity in Canada’s buyout and related private equity market continues to grow. The first nine months of 2014 saw a sharp uptick in terms of both deal values and volume. That should continue.
KITE: In your opinion, what are the reasons for this increasing confidence in VC in Canada?
MW: The private capital industry in Canada as a whole is maturing. Investment is much more spread out across sectors and regions than it was 10 years ago, and we’ve had many more successes to point to. In fact, Ontario, Quebec and British Columbia currently rank within the top 15 for VC investments in North America.
We also know that VC backed companies outperform, outcompete and outlast non-backed firms. In a 2013 study done with the Business Development Bank of Canada, we found that VC backed firms had stronger revenue (almost 2.5 times the sales growth), far greater employee growth, higher value employment, more invested in research and development, and a higher long term survival rates than non-backed firms.
There’s good reason to be confident about VC in Canada.
KITE: As VC tends to be linked to early-staged funding, has the Association aligned itself with the business angel community?
MW: While our focus is on venture capital and private equity, it would be remiss to exclude the angel investment community. Some of our members are in fact angel investors, and we’re in contact with them through the various networking and professional development opportunities the CVCA coordinates. It is good for us to hear from them too, and we value their input.
KITE: As the new CEO, how and what direction do you intend to direct CVCA?
MW: The private capital industry in Canada has largely flown under the radar and been underrepresented as an opportunity for both domestic and international investors. My mandate is to change that. The data in private capital, while available and reasonable, needs greater attention. Up until now, research in the Canadian industry has been relatively limited and has lagged other countries.
We’re seeking to change this, and have recently launched our own “InfoBase” – a comprehensive database of venture capital and private equity deals, both past and present, in Canada. This service is available free to our members, and is seen as a valuable benefit for joining our association.
As well, on the international side, our efforts to reach out beyond our borders for funding have largely been haphazard and uncoordinated. We’re working to change this as well by launching our own international trade missions. We are shooting to have six in the next year alone. We were recently in London and Zurich, and still have Dubai, Geneva, Hong Kong, Tokyo and Singapore upcoming. We are really leveraging our government connection and secondment from the Department of Foreign Affairs who works out of our office.
We can help the industry grow by telling more stories about how successful it is. That is a priority for me.
KITE: What insight and assistance are you bringing to CVCA’s public policy initiatives and the Canadian Women in Private Equity committee?
The CVCA actively engages with the Canadian government to ensure that the private capital industry’s needs are understood when policy is being developed. When the private capital industry is successful, the wider Canadian economy benefits because venture capital and private equity drive growth and innovation. To that end, we advocate on behalf of the industry to encourage sound public policy that encourages a favourable environment for investment. As an example, we are working with the Government on a variety of their initiatives, including the Venture Capital Action Plan, the Start Up Visa program, and the incoming Immigrant Investor Venture Capital Fund.
On the women in private equity side – as is the case in many other countries, women in Canada are underrepresented in private equity. This is a solvable, yet complex issue that the association should be playing its part in assisting. Our Canadian Women in Private Equity (CWPE) committee was formed to promote the entry, advancement, development and retention of women in this industry through a variety of networking opportunities. In 2014 they organized four events across Canada. This was so successful that they are aiming to create CWPE branches in Vancouver, Calgary and Montreal to complement our Toronto-based committee so we have representation Canada-wide. Our aim is to see more women working in private equity and venture capital, period.
KITE: On behalf of CVCA’s membership is there any final message that you would like to communicate to investment opportunities?
MW: Canada is an excellent place for investment across a variety of alternative asset classes. We have a stable, predictable, cost-effective environment for business investment and growth, as well as favourable government policy, tax rates, and co-investment opportunities. We also have a domestic private equity market that has consistently generated world leading returns for limited partners. And we’re competitive on the VC side, with an ecosystem that is one of the top markets for U.S. VC capital.
In short, we’ve got a lot going for us- we just need to do a better job telling our industry’s story. That’s where the CVCA can play a strong role, and we’re seized with doing just that.