Ontario Government Please Invest in Global Links

UPDATE: See post: Spreading a globally oriented innovation meme in Ontario for my proposal to explore another model for seeding and managing innovation.

ORIGINAL POST:

I am not a doctor, but I play one on T.V.

That sort of covers my depth of analysis here. I am not an expert on how to make the VC ecosystem better, but about three months ago I had lunch with someone who is and we talked about the Ontario government’s approach.

A comment on a post over at www.startupnorth.com has turned into a post here because it is a good follow up to MESH, unMESH. Jonas’ points and Mark McQueen’s post both do a good job at covering the shortcomings of the Ontatrio government’s plan to resuscitate the local venture capital industry.

What’s that they say about doing the same thing over and over and expecting different results? Basically, this plan reinvests in the same players and doesn’t dedicate cash to domestic seed/venture startups.

I do not think that there is a shortage of entrepreneurial talent and energy. As some have pointed out, government regulation/programs/tax breaks are actually pretty good in Ontario. And while it is nice to see the Ontario government stepping in to address the VC crisis in this province, few authentic capitalists would argue that it is government’s job to be a venture capital market maker. Just get out of the way.

And if you are going to prime the pump with some cash, try to stimulate some competition and establish high value links to global VC markets instead of reinforcing the tightly bound social network that can sometimes stifle innovation (as I wrote about in the MESH, unMESH).

Here’s what I remember from that lunch. The nachos were good. Israel seemed to have come up with the model that has been emulated with some success.

In those cases, the government provided enough funds to convince top tier US venture firms to open a local office (with Americans contributing some matching funds). Typically a VC partner with a winning record opened the office. The startups received the value add of that experience, the experience of successful partners in the US and most importantly, a bridge into the US market for follow on rounds and marketing.

These foreign VC offices also eventually spun off talented VC partners into stand alone local firms and encouraged globally successful nationals to repatriate.

The effect was the development of a layer of global class venture capital partners and returns on investment that obliged institutional investors to open the flow of cash to the asset class. Ah-ha!

It is tough to message this kind strategy politically though. Who is going to lobby for and sing the praises for this kind of approach? Cash starved entrepeneurs who are too busy trying to get their idea off the ground? The TD Bank who just got a juicy management contract as a reward for sitting on the venture capital sidelines for years? The local VC firms who are the only game in town? Hmm … maybe this is a job for David Crow??

ONTARIO GOVERNMENT FUNDS U.S. VC FIRM TO COMPETE LOCALLY … not a very catch Globe & Mail headline if you are the Premier but it is probably the best job creation strategy possible.

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3 Responses to “Ontario Government Please Invest in Global Links”

  1. davidcrow Says:

    A lobbyist, have you met me, I’m too terse and abrasive for the policy wonks, it’s amazing that Mark Kuznicki tolerates me as well as he does.

    The US has a very successful venture capital track record. The model has helped create huge amounts of wealth. And some of the most successful and influential companies in the world.

    Isreali venture capital industry is an interesting example of successful public policy starting in 1993. A detailed analysis can be found at http://www.insme.info/documenti/teubal.pdf

    Summary, the program was based on a $100M Government owned VC fund with 2 missions: $80M to invest in 10 private VC funds; and $20M for investment in startup companies. The private VC funds were to require a majority Israeli, engaging foreign financial institution and an option to buyout the government government share with 5-7% interest. The program coupled with successful timing of opening the funds at the start of the Long Boom has made for a very successful industry with spinoffs and secondary reputation effects for the industry as a whole.

    It’s possible that we could try doing something like this in Canada, but there is an element of luck, i.e., timing that is beyond our control..

  2. Michael Cayley Says:

    You seemed quite diplomatic to me :) Perhaps my terse and abrasive radar has been thrown out of wack due to recent envirnomental factors??

    But terse & abrasive is exactly the voice that the startup community needs to dog the Ontario government and the rest of the “establishment” into action.

    You are uniquely positioned to champion this effort.

    Thank you for checking in!

  3. Memetic Brand » Spreading a Globally Oriented Innovation Meme in Ontario: A Prediction Market? Says:

    […] Quite a while back I wrote a couple of posts over at http://www.socialcapitalvalueadd.com that provided some observations on the dangers of tightly knit social networks in Ontario’s business community and a request to the Ontario Government to focus any investment to bail out the troubled venture capital industry in this province on building … […]

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