Backgrounder. Venture Capital Action Plan Performance Metrics

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Amber Watson
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1 September 28, 2016 Backgrounder Venture Capital Action Plan Performance Metrics In 2013, the Government of Canada announced the Venture Capital Action Plan (VCAP), a market-oriented approach to putting Canada s venture capital industry on the path to sustainability and increasing the availability of financing for innovative Canadian firms. Through VCAP, the Government has invested: (1) $340 million to establish four large, private sector led funds-of-funds (Northleaf Venture Catalyst Fund, Teralys Capital Innovation Fund, Kensington Venture Fund and HarbourVest Canada Growth Fund) (2) $50 million directly in four existing high-performing Canadian venture capital funds (Lumira Capital II, Real Ventures III, CTI Life Sciences II and Relay Ventures III) Under VCAP, the Government s investment of $390 million has attracted significant investments in the venture capital industry in Canada. In particular, the four VCAP funds-of-funds attracted investments from a diverse set of investors that included pension funds, high-net-worth individuals, corporations, banks, and the governments of Ontario and Quebec. Including the federal government investment, the four funds-of-funds raised $1.356 billion. Of that total, $904 million came from private sector investors. Canadian-based sources account for 95 percent of the capital, while 5 percent was from American and European investors. In total, investments under VCAP have to date translated into $453 million committed to 126 Canadian companies, with much more expected as the capital is invested by fund managers in the years to come. VCAP aims to make Canada s venture capital industry more globally competitive, while ensuring that Canada s high-potential firms have the resources they need to grow and create jobs.

2 2 Key VCAP Metrics Section 1: VCAP Funds-of-Funds Program Overview Metrics in this section relate to the activities associated with the four VCAP funds-of-funds. VCAP Funds-of-Funds Fundraising Table 1: Capital Raised by the VCAP Funds-of-Funds Fund-of-Fund Committed Capital Northleaf Venture Catalyst Fund Teralys Capital Innovation Fund Kensington Venture Fund HarbourVest Canada Growth Fund $300 million $375 million $306 million $375 million The four funds-of-funds raised $1.356 billion from public and private sector investors, including approximately $340 million from the Government of Canada. Chart 1: Type of Investors Participating in VCAP High-net-worth individuals $202.1M invested (15%) Asset management firm $53.1M invested (4%) Corporate strategic $102.5M invested (8%) Retail funds $125.6M invested (9%) General partners $10.7M invested (0.8%) Endowment $15M invested (1%) Financial institutions $207.5M Invested (15%) Govt of Canada $339.5M invested (25%) Provinces $112.5M invested (8%) Pension funds $187.5M invested (14%)

3 3 Table 2: Nationality of Investors Participating in VCAP Number 1 of Commitments Investors (C$M) % of Canada (private sector) % Canada (public sector) % Europe % U.S % Grand 30 1, % 1. Number excludes high-net-worth individuals and family offices. Portfolio Allocation Across the Four Funds-of-Funds Table 3: Breakdown of Direct and Indirect Investments by the Funds-of-Funds Commitments (C$M) % of Direct investments in Canadian companies % Direct investments in non-canadian companies % direct investments in companies % Commitments to Canadian funds % Commitments to non-canadian funds % fund commitments % * Commitments converted at March 31, 2016, exchange rate. 1. Canadian Funds defined as having primary office in Canada and a majority of investment professionals residing in Canada.

4 4 Funds-of-Funds Commitments to Canadian VC Funds Table 4: Distribution of Fund-of-Fund Commitments Across Canada Location of Fund Manager HQ # % of C$M % of BC 1 6% % AB 2 12% % SK 0 0% 0.0 0% MB 0 0% 0.0 0% ON % % QC 3 18% % NL 0 0% 0.0 0% NB 0 0% 0.0 0% NS 0 0% 0.0 0% % % 1. Includes 2 Ontario funds managed by one fund manager, which total $168M in commitments. Table 5: Primary Stage Focus of Canadian Fund-of-Fund Commitments Primary Stage Focus # % of C$M % of Seed 2 12% % Early venture 9 53% % Late venture 1 6% % Growth stage 5 29% % % % *Non-Canadian commitments converted at March 31, 2016, exchange rate Table 6: Primary Sector Focus of Canadian Fund-of-Fund Commitments Primary Sector Focus % of Grand % of Grand # C$M Energy and clean tech 4 24% % ICT % % Life sciences 2 12% % Grand total % % *Non-Canadian commitments converted at March 31, 2016, exchange rate. 1. Funds receiving commitments to date have been concentrated in the ICT sector. The remainder of the program is expected to be heavier in other sectors.

5 5 Financial Returns Table 7: Performance of the VCAP Funds-of-Funds Portfolio (Program Inception to March 31, 2016) Amount Capital % Cash Fair Value (C$, 000s) Committed Called 1 Called Distributed 2 Value 3 Value 4 To Paid-In 5 Funds-of-funds 1,356, , % 7, , , x 1. Capital called is the cash that the funds draw down for their activities. 2. Cash distributed is the amount returned to investors. 3. Fair value refers to the value of the remaining investment. 4. Value = Fair Value + Cash Distributed. 5. Value to Paid-In = Value Capital Called. Section 2: VCAP High-Performing Venture Capital Funds Program Overview Metrics in this section relate to the activities associated with the four high-performing venture capital funds, which together received a commitment of $50 million under VCAP. Commitments to High-Performing Funds Table 8: Government of Canada Investment in the VCAP High-Performing Funds Fund Committed Capital Lumira Capital II Real Ventures III CTI Life Sciences II Relay Ventures III $10 million $10 million $15 million $15 million Table 9:Primary Stage Focus of Canadian High-Performing Fund Commitments Primary Stage Focus # % of C$M % of Seed 1 25% 10 20% Early venture 2 50% 30 60% Late venture 1 25% 10 20% Growth stage 0 0% 0 0% 4 100% %

6 6 Table 10: Primary Sector Focus of Canadian High-Performing Fund Commitments Primary Sector Focus % of Grand # C$M % of Grand Energy and clean tech 0 0% 0 0% ICT 2 50% 25 50% Life sciences 2 50% 25 50% Grand total 4 100% % Note: One of the high-performing funds was also supported by a fund-of-funds; therefore, a total of 20 funds have received funding under VCAP. Financial Returns Table 11: Performance of the Government of Canada VCAP High-Performing Funds Investment (C$, 000s) Amount Committed Capital Called 1 % Called Cash Distributed 2 Fair Value 3 Value 4 Value To Paid-In 5 High performing funds 50,000 14, % ,401 15, x 1. Capital called is the cash that the funds draw down for their activities. 2. Cash distributed is the amount returned to investors. 3. Fair value refers to the value of the remaining investment. 4. Value = Fair Value + Cash Distributed. 5. Value to Paid-In = Value Capital Called.

7 7 Section 3: Overall VCAP Program Overview Metrics in this section relate to the overall activities associated with the four VCAP funds-of-funds and the four high-performing venture capital funds that received VCAP investment. Commitments to Canadian Venture Capital Funds Table 12: Primary Stage Focus of Overall VCAP Commitments to Funds-of-Funds and High-Performing Venture Capital Funds Primary Stage Focus # % of C$M % of Seed 3 15% % Early venture 10 50% % Late venture 2 10% % Growth stage 5 25% % % % *Non-Canadian commitments converted at March 31, 2016, exchange rate. Table 13: Primary Sector Focus of Overall VCAP Commitments to Funds-of-Funds and High-Performing Venture Capital Funds Primary Sector Focus % of Grand # C$M % of Grand Energy and clean tech 4 20% % ICT 12 60% % Life sciences 4 20% % Grand total % % *Non-Canadian commitments converted at March 31, 2016, exchange rate. 1. One of the high performing funds was also supported by a fund-of-funds; therefore, a total of 20 funds have received funding under VCAP.

8 8 Investments in Canadian Companies This includes investments by high-performing funds, funds-of-funds and underlying funds. Table 14: Distribution of Overall VCAP Investments in Companies Across Canada Number of Companies Investments Location of Company HQ # % of C$M % of BC 10 8% % AB 5 4% % SK 0 0% 0.0 0% MB 2 2% 1.0 0% ON 62 49% % QC 42 33% % NL 0 0% 0.0 0% NB 1 1% 2.5 1% NS 4 3% 3.2 1% % % Chart 2: Primary Stage Focus of Overall VCAP Investments in Canadian Companies Seed $43.5M invested (10%) 78 companies (62%) Early venture $28.1M invested (6%) 12 companies (10%) Growth stage $306.8M invested (68%) 26 companies (21%) $453M 126 companies Late venture $74.5M invested (16%) 10 companies (8%)

9 9 Chart 3: Primary Sector Focus of Overall VCAP Investments in Canadian Companies Life sciences $146.8M invested (32%) 16 companies (13%) Energy and clean tech $105.0M invested (23%) 6 companies (5%) $453M 126 companies ICT $201.1M invested (44%) 104 companies (83%)

2016 Provincial data NL PE NS NB QC ON MB SK AB BC Canada* Canadian marketplace

Appendices 2016 Provincial data NL PE NS NB QC ON MB SK AB BC Canada* Canadian marketplace People with protection (thousands) 420 110 730 610 7,400 10,900 1,000 900 3,000 3,300 28,000 Weekly benefits paid