The federal government took another step in its effort to revive the Canadian venture capital industry Thursday, announcing the creation of an expert panel to help select funds and managers for its planned investments; and, launching a consultation on its plans to phase out the federal tax credit for labour-sponsored venture capital corporations (LSVCCs).
The Department of Finance announced the creation of the expert panel that will advise it on the private sector managers to run up to four new funds of funds the government is seeding (it plans to devote $250 million to establish new national funds of funds); and, to help it select up to five venture funds to receive an aggregate direct investment of $50 million.
The group is chaired by private equity veteran, Sam Duboc, who is currently serving as an advisor to the government on its plan to catalyze the Canadian venture industry. In Januray, he was appointed Clifford Clark Visiting Economist at Finance to support the implementation of the government’s venture capital plans. Previously, he founded the private equity firm, EdgeStone Capital Partners, in 1999, and has worked in CIBC’s merchant banking division, among other things.
The panel also includes: Jim Davidson, chairman and CEO of investment bank FirstEnergy Capital Corp.; Gilles Duruflé, an independent consultant to venture capital and private equity funds, institutional investors and governments, and former senior partner at CDP Capital Technology Ventures; angel investor and industry veteran, Robin Louis; and, Annette Verschuren, former president of Home Depot Canada, who is now chair and CEO of NRStor Inc., a company aiming to commercialize energy storage technologies.
In addition to advising on the funds and managers to receive government investments, Finance says that the panel may also provide advice on other elements of the government’s plans. In addition to seeding the new funds of funds and investing in existing venture funds, it’s also planning to invest $100 million to recapitalize existing funds of funds.
At the same time, the government also announced the launch of public consultations on the tax rules governing LSVCCs, in order to help these funds deal with the planned phase-out of the federal LSVCC tax credit by 2017.
See: New measures to help boost venture capital
While the venture industry has expressed dismay at the move, the government says that it believes its planned $400 million worth of investments in the venture funds and funds of funds will be more effective at jump starting the industry, and ultimately, boosting economic growth.
It notes that critics believe the tax-subsidized LSVCCs have distorted the market for venture capital, lowering the average quality of deals, and limiting the supply of equity to non-traditional industries and newer companies; among other complaints.
Now, the government is seeking public input on potential changes to rules related to investment requirements, wind-ups, redemptions and other rules governing the operation of LSVCCs, as it prepares draft legislation to phase out the tax credit. Comments are due by July 23. The draft legislation will be released for public comment at a later date.
Comments can be sent to the Department of Finance at ConsultationsLSVCC-SCRT@fin.gc.ca.