Supports government championing, not sole-sourcing
A leading representative for TD Bank says more venture capital is needed in Canada, supporting the provincial government’s decision to set aside public dollars to kick-start two new venture capital funds.
TD Bank Group’s chief economist, Craig Alexander, spoke to the St. John’s Board of Trade Thursday at Glendenning Golf Club in St. John’s abou the province’s decision to kick-start new venture capital funds. — Photo by Ashley Fitzpatrick/The Telegram
However, TD Bank Group’s chief economist Craig Alexander also warns against too much public money being placed into venture capital, saying the goal should be to attract more private capital to the higher-risk investments.
Alexander spoke to reporters on the topic following a luncheon address to the St. John’s Board of Trade Thursday at the Glendenning Golf Club about various aspects of the economy.
“There’s been work done by Industry Canada which is really fascinating because it looks at the performance of gazelles — gazelles are rapidly growing businesses — and it looks at Canada and the United States and what they found was that in terms of start-ups and companies that are sort of one to two years old, Canada actually has more gazelles proportionally by size than the United States. But then, when you get to businesses that are three to five years old, the number of gazelles in Canada collapses,” he said.
“The reason is that a lot of start-ups are financed by people using their own assets.
“Sometimes they’ll mortgage their house or it’s support from family members giving them money to start their business, and that’s often where the start-up or seed money is for the business. But when you get to five years, that’s where often you need more investment, more capital.”
Usually at that stage, companies are looking to grow to a point where they need more staff, more equipment or other resources, he noted.
“The business doesn’t have the track record to be a safe investment, often, for Canadian banks. And you don’t want Canadian banks behaving like a venture capitalist that invests in 10 companies knowing that eight of them are going to fail, but if you get the one or two that turns into Apple or Microsoft, you make a lot of money. Venture capital is not what you want Canadian banks to do because there’s too much risk.”
That said, he repeated, there is not enough venture capital in Canada.
“Other than bringing foreigners into the market to try and provide capital, it’s hard for the Canadian businesses, the gazelles, the fast-growing small businesses to get capital domestically,” he said.
“I don’t think it’s the role of government to provide venture capital, but I think that they can champion venture capital by providing a bit of money, to try and raise awareness and maybe showcase — if they get a few successes — they can show how venture capital can succeed and then that maybe attracts private venture capital.”
Alexander said other governments in Canada are trying to show leadership by using new funds to promote the growth of Canadian venture capital, as is the federal government.
In Budget 2014, Newfoundland and Labrador set aside $10 million for a regional venture capital fund. Details on a planned provincially-focused fund have yet to be announced.