Will $100M B.C. Tech Fund be Enough for Vancouver Startup Scene?

Content provided by Business in Vancouver

When Brent Holliday got a call from a headhunter in early December seeking a reference check on a “seasoned” fund manager he knows, the Garibaldi Capital Advisors CEO didn’t think much of it.

That was, at least, until the B.C. government announced December 8 it was launching a $100 million venture capital fund targeting tech startups.

“Now I’m starting to put two and two together,” said Holliday, whose Vancouver-based advisory services firm is focused solely on private tech companies.

When the B.C. Tech Fund launches in mid-2016 it will be run not by a civil servant but by a private-sector fund manager the province is in the midst of seeking.

Premier Christy Clark told reporters at the announcement the fund manager is expected to have a managing partner in B.C., most likely in Vancouver.

And other than requiring that the fund target B.C.-based startups exclusively, the premier said the government would have no influence on the fund of funds.

“If we put in place a civil servant to decide how the capital will be invested, we will be less successful than if we put [in] experts who do venture capital for a living to make the decisions about how they will invest this money,” Clark said.

The government has not revealed over what period of time it expects to spend the $100 million, only that it does not plan for the fund to last more than 15 years.

And while a portion of the fund will come from the provincial treasury, the government expects another portion to come from returns on investment beginning in 2023. The province did not provide Business in Vancouver with specifics on what the portions amounted to or what return on investment the government expected.

Clark said the government would unveil the rest of its B.C. Tech Strategy at the inaugural B.C. Tech Summit in January.

Vancouver-based angel investor Boris Wertz said there is always skepticism in the tech community when the government makes a funding announcement aimed at the startup community.

But he said hiring a private-sector fund manager to oversee the $100 million adds more credibility to the endeavour.

Under the government’s proposed fund of funds strategy, the fund manager would oversee a pooled investment to reduce risk without substantially reducing a return on investment.

“Fund of funds is not a super easy business,” said Wertz, the founder of Vancouver’s Version One Ventures. “So it’s always good to have people that are more specialized than [a civil servant] who has to get ramped up.”

The fact the government wants the private-sector fund manager based in B.C. bodes well for any potential success, Wertz said, but there are still a limited number of tools a government has at its disposal to influence a startup ecosystem.

“Other things need to happen, from our local universities stepping up their game to our local existing startups starting to grow and do well,” Wertz said. “Every startup ecosystem needs to get a little lucky at some stage.”

Bill Tam, CEO of the BC Technology Industry Association (BCTIA), said his organization has been advocating for years for a fund similar to what the government announced. Even the fund’s size matches the roughly $100 million the BCTIA wanted to leverage against private capital, Tam told BIV.

He said the fund was the right way to attract startups to B.C. and help the tech sector grow.

A February report from Conversations for Responsible Economic Development determined B.C.’s tech industry has grown 12% since 2007 – twice the rate of the provincial economy. And with more than 9,000 tech companies in B.C., the sector accounted for 7.6% ($15.5 billion) of the province’s annual GDP in 2012.

But Holliday, who has spent the past few months working out of Toronto, said the perception in Central Canada is that the West Coast startup scene is lacking.

“That’s no disrespect to all the great startups that are in Vancouver. But just on balance, it’s not as vibrant. There aren’t as many exciting companies as there are around the rest of the country,” Holliday said, adding he believes high growth at mid-size local tech firms like Hootsuite means top local talent simply aren’t focused on launching their own startups.

“The timing might be just right for this [fund]. If there’s capital available, talent might be pried out of their existing jobs and go [launch] their startup.”

And while the tech community will welcome the money, he cautioned that the fund could backfire if the sector doesn’t strike the right balance between talent, capital and innovation.

Too much capital, he said, could lead to startups being overvalued while the talent pool is stretched thin as more startups secure funding and get off the ground.

“You want to make sure that you’re not pouring too much gas on the fire and creating too many startups.”

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