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OpEd: Should the Canadian Government Fund VC?

Rags to Riches | Vass Bednar | Feb 15, 2023

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The market’s reality check is a welcome forcing function to rethink venture funding in Canada.

  • A little while ago - all in one week - jobs cuts were announced at Lightspeed Commerce Inc., Clutch, Hootsuite, Thinkific Labs Inc. and Clearco. For the latter two, it was their second round of layoffs.
  • Some of venture capital in Canada is dependent on the taxpayer, because government programs like the Ministry of Innovation, Science, and Economic Development’s Venture Catalyst Initiative (VCI) funnelling fund from the state. That means that everyday people are backing some of the bets that venture capitalists make in Canada.

See:  A Look at VCCI-2: Canada’s Venture Capital Catalyst Initiative Version 2

  • Reporting: The money is tricky to track because of the ‘fund of funds’ structure. Consider Clearco: their Series A was partially supported by HarbourVest, and they got funds from the VCCI in 2017 and 2022. There’s hundreds of millions of taxpayer dollars going through funds, to funds-of-funds, to different companies. There’s accountability to the partners of course - but the flow of funds itself is murky.
  • Vass suggests:  This moment in the market’s cycling should invite Canada to rethink how it intervenes in venture capital and private equity markets. Governments should choose to get out of the business of venture funding, for that lies at the crux of our national innovation failure: the reality that banks and businesses are hardly backing risk with substantive funds of their own.
    • Capitalism is the better way:  Venture capitalists should take the bold risks of investing because they are properly incentivized to succeed. If a VC gets sloppy and loses massively on an investment, that’s their problem. There is nobody to bail them out because there is no need to – the primary responsibility of VC funds are to their limited partners (LPs), and they are supposed to take the highest risks in capitalism.

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