More on the $1.35B initiatives from Quebec for the Venture Capital industry

21Mar09

It feels good to hear more about these type of initiatives.

In addition to the $825M fund of fund and the $500M later stage fund initiatives, announced earlier this week by the Quebec government (read more here) Quebec will be put in place 3 new seed funds for an additional aggregate amount of $125M… or more. Managers of these funds are still to be confirmed, via a committee put in place by the MDEIE.

We NEED seed funds, as they take-on different level of risks and they provide different level of value-add to promising entrepreneurs. And yes, I believe that no private fund should be financing technology or research! Private funds should only be financing innovation within the hands of committed, new and recurring, entrepreneurs. By seed funding too many start-ups we end up breaking the ecosystem and flooding it with too much noise. But, as a society, we do need to provide capital to entrepreneurs that have the ability to grasp what needs to be done to launch a successful and further fundable company.

Key success factors for profitable seed funds include: its capability to link itself up to one or many follow-on funds and to develop a strong network of partners and collaborators (which isn’t obvious due to the limited amount of management fees a seed fund has).A seed fund should never look at a deal alone, it can close a deal alone, but it should always be looking into opportunities in conjunction with other investors and partners, in order to initiate relationships early on.Within the High Technology & Venture Capital ecosystem, we find many parties playing critical roles such as: tech transfer offices, seed funds, coaching and incubators, early stage funds, later stage funds, buyout & PE, bankers…(and I personally believe its important not to “wear” too many hats). Failing to feed the ecosystem adequately is a big problem, and I’ve witnessed it many times in the past, either we see players trying to hold multiple roles and do more than what is expected from them and thus, they put themselves into direct conflict of interest with other players; or better yet, are the players (by fear of not getting the best deal possible in the world and potentially losing out on a huge return) try to limit the exposure of their deal flow to other parties in order to close the deal by themselves and to then only open up the gate of collaboration once the company is in desperate need of cash!

Coming back to the new Quebec initiatives to bolster venture capital across Canada, note that the $825M fund is a fund of funds, and once the management of this fund of fund is identified (soon enough I presume), it will be investing in top tier venture capital fund managers focused on different industries as well as different stages of investment. This is really good news for entrepreneurs!

In my view, Minister Raymond Bachand did an amazing job because if consulted (over a reasonable period of time) with practically every player of the food chain in Quebec, many others across Canada as well as going out and discussing models with foreign collaborators. He is smart – he did his due-diligence. The next few years will be interesting and I expect Quebec to show strong leadership in reviving the venture capital industry across Canada, thus reviving available funding of our best entrepreneurs!

 

Read more: “A new $825M Fund for Venture Capital to be put in place by Quebec Government – Chris’s posterous” –http://chrisarsenault.posterous.com/a-new-825m-fund-for-venture-ca#ixzz0AONvm5DF

Added April 1st To read: $5 billion to end up in the hands of Canadian entrepreneurs, nothing less!



7 Responses to “More on the $1.35B initiatives from Quebec for the Venture Capital industry”

  1. Let’s hope whoever manages these funds are not government employees, as it would be a disaster. And let’s hope it will not be VCs either, because their process is not working for entrepreneurs as it is today.
    While throwing money at the problem is a good thing, it should come with a real plan to change the way things are done today, because it is all based on a competitive model, with a winner-take-all process that leaves a lot of entrepreneurs out with no help. Not to mentioned all the wasted time to try to get funding and being rejected.

    A good model for what should be done is what I described on the Entrepreneur Commons website (http://www.entreco.org), and what Mark Reid also suggested, which is to apply the microfinance model to seed investment:

    Take entrepreneurs, provide them with a mentorship program that includes self-help teams where entrepreneurs can review each others plan and invited guests who can bring their own experience into the mix.
    Once you have such a program going, and very soon after it is started, you will be able to identify who is good and who needs to do their homework on the business. And entrepreneurs among themselves will also have a very clear idea of who deserves money and who should wait. So after the initial 8 to 12 weeks program, you can just ask entrepreneurs to rank each others, and then you can give investments to the top 30% to 50% depending on how much risk you want to take.
    With this model, you are talking cooptation rather than competition, everybody learns while going through the process, and there is no rejection, just awards to the best ones, based on the entrepreneurs decision rather than on the judgment of some expert.

  2. Interesting concept. But is it realistic to believe that this model would work? I understand what you want to achieve and what you want to avoid, but I wonder if your proposed model is feasible. Fund management is a business in its self and the partners only make money once they returned the capital plus a minimum threshold and then then share in the profits where a large majority goes to the investors and a minority stake is shared between the partners of the fund.

    So if we take your model and extended it to how a business operates. Would it be reasonable for a business to give its customers their product, and let the customer decide of the pricing, specifications and value of the product? That would be awesome because companies would then be delivering products that fit the needs and answers to the pains of th market. But is it realistic to believe that the level of collaboration and resources required to get to such point is possible?

    Second, no two entrepreneurs are alike. Entrepreneurs are unique by default, that’s what makes them entrepreneurs. The succesful ones are those capable of clearly understanding an opportuity in the market and are able to apply as well as fine tune their vision into an unfair advantage compared to other similar offering and therefore, allows them to succeed by transitioning from a start up mode into a growth company making profits.

    Food for thought!

  3. In this case, fund management is limited to making sure the entrepreneurs have places where they can meet, and that they do meet on a regular basis. The experts are the entrepreneurs themselves, so no extra cost here.
    This can be done with a very small staff, the model can easily scale, which is key if you are going to get into seed financing. Note that microfinance can scale very well that way. The team cost is covered by a management fee – 2% to start with, but it can probably be done for less once things are under way.

    The difference here is that instead of VCs making a lot of money for themselves we are looking at just financing a basic support infrastructure. Microfinance organizations and mutual guarantee funds (in Europe) are very sustainable, and there is a long track record to prove it. VCs can still play in their own field (later stage, the chosen few), and they would probably not be impacted much at the beginning, while this model resolves the seed financing issue.

  4. Interesting. I do feel this is being answered by different events, coaching and other means but not necessarily as you outline.

    Here is something somewhat in the same vein: Real-World Examples of Crowd-Sourced Businesses http://adjix.com/jpr3

  5. Great post Chris.

  6. Great post. i will definitely visit soon,,


  1. 1 How to help entrepreneurs: a plan for the Obama administration | National Startup Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: