Kudos for Tories on venture capital front

PETER MOREIRA

BEING a conscientious member of the media, I’m going to tell you this week about something positive about the provincial government: it is doing a good job guiding the growth of venture capital in the province.

I’m doing this because the Tories — officially, at least — want to blame the media for the MacDonald government’s popularity plunging like a grand piano dropped from a penthouse apartment. So, in a positive light, I won’t mention skyrocketing property assessments, the government paying a quarter of a million annually for political pamphlets, too many ministers paying too much for their luxury cars, rising electricity prices, the high cost of living, the weak assessment of the province’s finances released by the Finance Department recently, the rising cost of the Commonwealth Games bid, the lack of economic reforms, or other facts that the Tories might think we nasty journalists mention just to skewer their government.

Nope, the weaselly Tories are going to have to find someone else to blame for their pathetic showing in the polls, because the government is actually doing a good job in raising the profile of venture capital in the province.

Venture capital, for everyone who doesn’t know, is a form of investment that helps young, growing companies. In a nutshell, if a company has exciting prospects, groups of venture capital firms will band together to invest in the company. Their investment will allow the company to operate until it’s profitable, and quite often the VC investors undergo several rounds of investment before the company will make it on its own.

There’s good news and bad news on the venture capital front in Nova Scotia, indeed in Atlantic Canada. The bad news is we’re not doing very well at it. The good news is we’re getting better than before and the governments of New Brunswick and Nova Scotia deserve the credit.

According to NovaKnowledge, the industry body set up to foster knowledge industries in Nova Scotia, the province raised $7 million in venture capital financing in 2004 — a truly dismal amount. That number more than doubled to $17.5 million in 2005 and then almost doubled again to $30 million in 2006.

Given the exciting entrepreneurs in the province, it’s altogether realistic that NovaKnowledge may meet its goal of seeing Nova Scotia raise its total venture capital investment to $50 million by 2010. And that would be a great thing for the local economy, because one of the big problems cited by entrepreneurs is the difficulty they have in raising capital.

Now look at some of the critical fundraisings in 2006 that helped the province to reach that $30-million level.

In October, Halifax-based medical device company EastMed Inc. secured $1.5 million in initial financing from InNOVAcorp and BDC Venture Capital’s Technology Seed Investments fund.

That same month, another Halifax company, the medical technology company Medusa Medical Technologies closed a $4-million round of financing from InNOVAcorp, Canadian International Capital Inc. and other investors.

In June, offshore oil and gas company Welaptega Marine Ltd. of Halifax signed a financing deal worth $1.5 million with InNOVAcorp and BDC Venture Capital.

And in February 2005, Halifax-based voice verification security firm Diaphonics Inc. nailed a $3.5-million round of financing from such investors as Covington Capital of Toronto, InNOVAcorp, BDC Venture Capital of Montreal and Nova Scotia Business Inc.

If you notice the name InNOVAcorp cropping up again and again, it’s no coincidence. This provincial government agency provides office space, advice, laboratories and, in some cases, venture capital financing to about 85 young businesses.

Just another government handout? Far from it. InNOVAcorp has been selective about the companies it has invested in. And its investments have taken place in concert with other institutions, usually from outside the province, and that is the key to fulfilling the dream of developing a bigger venture capital pool in the region.

Venture capitalists hate to invest in a company on their own. They like to form syndicates to diversify their risk, and then if a company is successful, they like to draw in more investors for subsequent rounds of funding.

But with the lack of players in Atlantic Canada, private-sector investors are reluctant to come into the region without an established partner willing to come in with them. BDC Venture Capital — the venture capital arm of the Business Development Bank — has been a willing participant, but the investment by InNOVAcorp and NSBI has helped to lure in private-sector investors like Covington and GrowthWorks.

Like InNOVAcorp, NSBI is proud to highlight its investments in growing Nova Scotian businesses, including $1.75 million in Kytogenics Pharmaceuticals Ltd.; $3 million in DHX Media Ltd. (formerly The Halifax Film Company); $2.8 million in Unique Solutions Design Ltd.; $3 million in TechLink Entertainment International Ltd.; $1.7 million in Diaphonics Inc.; and $1 million in DynaGen Technologies Inc.

Atlantic Canada is grossly under-represented in venture capital financing. It accounted for just two per cent of the venture capital investments in Canada in the fourth quarter of 2006, according to Thomson Financial, but that’s a darn site better than the one per cent level of a year earlier.

Virtually all of the growth came from Nova Scotia and New Brunswick and — surprise — they are the only two provinces in the region with provincial government bodies committed to venture capital investments. These bodies are absolutely essential if this important source of government funding is going to grow here.

( pmoreira@herald.ca)

Peter Moreira is a freelance writer living in Glen Haven.