On May 3, 2013, the federal Minister of Finance announced that the Government of Canada is soliciting expressions of interest in funding to be offered under two new initiatives aimed at strengthening Canada's venture capital industry. In particular, the Government is seeking applications from (i) investment fund advisors interested in becoming "General Partners" and "Managers" of one of several venture capital "funds of funds" to be established or recapitalized by the Government (the "Fund of Funds Initiative"), and (ii) "high-performing venture capital funds" seeking Government investment (the "VC Funds Initiative").
However, eligibility to participate in these new programs is limited and the deadlines to submit expressions of interest are rapidly approaching. Potential applicants under the Fund of Funds Initiative must submit expressions of interest, in prescribed form, by June 3, 2013, while funds interested in obtaining Government investment under the VC Funds Initiative must submit expressions of interest, in prescribed form, by May 27, 2013.
The fund of funds initiative
Under its "Venture Capital Action Plan", the Government is proposing to (i) create up to two new private sector-led funds of funds to make investments in venture capital funds, and (ii) recapitalize up to two existing venture capital funds of funds. As part of this initiative, the Government is now seeking applications from firms to act as "General Partners" and "Managers" of such funds of funds.
It is contemplated that each of the relevant funds of funds will manage $300 million to $400 million in capital and that the Government will contribute $1 to each fund for every $2 contributed by other investors (subject to certain specified maximum capital contributions). The Government has further indicated that it will also offer "appropriately attractive incentives to private sector investors."
The Government is considering three potential investment strategies for the relevant funds of funds: (i) a "broad" investment strategy with no emphasis or focus on a specific sector or industry; (ii) an investment strategy focused on opportunities for venture capital investment in the information and communications technology sector; and (iii) an investment strategy with some emphasis on opportunities for venture capital investment in the life science and/or clean technology sectors. Each fund chosen to participate in the Fund of Funds Initiative will be permitted to invest in a venture capital fund only if such fund's manager has a substantial presence in Canada and has committed to investing, at a minimum, one third of its total capital in Canadian-domiciled firms.
The selection of successful candidates for participation in the Fund of Funds Initiative will involve multiple steps and the level of information to be provided in the initial expression of interest is extensive. Among other things, applicants are expected to demonstrate that they have relevant knowledge or direct investment experience in the Canadian market, along with the ability to attract long-term capital investments.
Although an applicant for participation in the Fund of Funds Initiative may be either Canadian or foreign-based, it must have a "substantial presence in Canada" in order to be considered for funding. The Government defines "substantial presence in Canada" as, at the very least, having (or being prepared to establish) a principal office in Canada that is an "active investment office" staffed with Canadian-resident senior investment professionals, at least one of whom belongs to the fund manager's investment committee or other body tasked with making the firm's investment decisions in respect of the fund.
Successful applicants under the Fund of Funds Initiative will be required to commit a portion of their own resources to the subject fund and solicit the support of other private sector investors.
A firm may not act as "General Partner" and "Manager" for more than one fund of funds chosen to participate in the Fund of Funds Initiative.
The VC funds initiative
In addition to establishing and recapitalizing venture capital funds of funds, the Government is also seeking to commit up to $50 million, in aggregate, to five existing, private sector-managed venture capital funds based in Canada.
Like the Fund of Funds Initiative, the selection of successful candidates for funding under the VC Funds Initiative will involve multiple steps, and the information to be provided in the initial expression of interest is extensive. Among other requirements, successful applicants must be focused on what the Government terms "key growth sectors where Canada can be competitive" and must have either held a first closing or have the ability to demonstrate substantial commitments to hold a first closing in the near term.
Further, applicants for funding under the VC Funds Initiative must have a "substantial presence in Canada". For this purpose, the Government has stated that having a "substantial presence in Canada" includes, at the very least, having a principal office in Canada that is an "active investment office" staffed with Canadian-resident senior investment professionals who represent a majority of the persons responsible for making the firm's investment decisions in respect of the particular fund.
The Government has indicated that firms eligible to submit applications under the VC Funds Initiative include those with the primary investment objective of making early stage venture capital investments, with some expansion capital or growth equity investments during such investments' life cycle.
Further information and next steps
The Government will appoint a private-sector advisory panel to assist the Government in selecting participants in both the Fund of Funds and VC Funds Initiatives.
Interested parties should visit the Department of Finance's website at http://www.fin.gc.ca/n13/13-067-eng.asp to obtain further information on the Initiatives, including a full description of the required contents and format of initial expressions of interest. Potential applicants are also encouraged to monitor the Department of Finance website for changes in the Initiatives and for the release of additional information.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
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