Private Capital | Q2 2015

Q2 2015 ■ $6.25

THE MAGAZINE OF THE CANADIAN VENTURE CAPITAL & PRIVATE EQUITY INDUSTRY

TAKING FLIGHT How investing in infrastructure helps our cities soar

Plus • 2014 Canadian Private Capital Market Overview • Five Reasons You Won’t Raise Your Next Fund – Part 3 of 3 • Financial Technology “FinTech” in Canada • The Role of University Accelerators

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Need orientation to Alberta's Innovation System?

It's complicated

Rockmount Financial Corporation has participated in the Value-Added and Technology Commercialization Task Force; the creation of Alberta Enterprise Corporation; the rollout of the Alberta Connects support services for startups; the Premier's Economic Strategy Council; evolution of the Alberta Innovates research support cluster; emergence of crowdfunding, then equity crowdfunding; the Innovate Calgary incubation process; the Angel Network, including Alberta Deal Generator; the Results-Based Budgeting Challenge Panel; the formation of the National Exempt Market Association; support of the junior publicly traded securities markets including the Capital Pool Company Program on the TSX Venture Exchange; the whole alphabet soup myriad of government grants and other incentives.

The key ministry is the Department of Innovation and Advanced Education, with which we have worked over the past decade through six ministers. The system is being re-focused and re-energized in recognition of a new commitment to broadening Alberta's economic base. We have a team that offers broad support to deal flow in this context. Beyond Alberta, we are active in the Calgary/Toronto (Bay Street) and Calgary/San Francisco (Silicon Valley) channels.

Rockmount is committed to Alberta's participation in the coming exponential growth of technology.

F I N A N C I A L C O R P O R AT I O N 999 Eighth St. SW, Suite 305 Calgary, Alberta, Canada T2R 1J5 (403) 303-2770 info@rockmountcorp.com

Published for

372 Bay St., Suite 1201 Toronto, ON M5H 2W9 Phone: 416-487-0519 Fax: 416-487-5899 www.cvca.ca

EDITORIAL BOARD Chair: Steve Hnatiuk, Lighthouse Equity Partners Jenifer Bartman, Bartman Business Advisory Aki Georgacacos, Avrio Capital Grant Kook, Westcap Management Robert Montgomery, Achilles Media Gregory Smith, InstarAGF Asset Management David Unsworth, Information VP

CONTENTS COVER STORY

ARTICLES

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14

2014 Canadian Private Capital Market Overview

17

Five Reasons Why You Won’t Raise Your Next Fund Reason 3: It’s not you, it’s them

19

Got a Great Strategic Plan?

Here’s how to avoid belly flops

Peter van der Velden, Lumira Capital

Taking Flight How investing in infrastructure helps our cities soar

By Gregory Smith and Sarah Borg-Olivier

Published by

DEPARTMENTS 701 Henry Ave. Winnipeg, MB R3E 1T9 Phone: 204-953-2189 Fax: 204-953-2184 www.lesterpublications.com President, Jeff Lester Vice-President & Publisher, Sean Davis EDITORIAL Editorial Director, Jill Harris Editorial Assistant, Andrew Harris

2

By Fred Pidsadny

CEO’s Message

By Mike Woollatt

3

CVCA Board of Directors and Management

4 6 9

Letter to the Editor Fund News People on the Move

ADVERTISING

22

Universities and VCs Should Recognize the Important Role of University Based Accelerators

By Gilles Duruflé

24

Exploring FinTech in Canada How Canada can build trophies instead of tombstones in FinTech

By David Unsworth

Danny Macaluso DESIGN & LAYOUT

DISTRIBUTION Jennifer Holmes © Copyright 2015 CVCA. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of CVCA. Direct requests for reprint permission should be made to the CEO of the Canadian Venture Capital & Private Equity Association.

Comments, questions and submissions are welcome. Please send to the editor at privatecapitaleditor@cvca.ca.

Please follow the CVCA on LinkedIn, Twitter and Facebook

Statements of fact and opinion are the responsibility of the authors alone and do not imply an opinion on the part of the officers or members of the Canadian Venture Capital & Private Equity Association or Lester Communications Inc. Publication Mail Agreement #40606022 Return undeliverable Canadian addresses to: 701 Henry Ave., Winnipeg, MB R3E 1T9

COVER: OLGA GABAY/SHUTTERSTOCK ABOVE: IDELDESIGN/SHUTTERSTOCK

Art Director, Myles O’Reilly Crystal Carrette, Jessica Landry, John Lyttle, Gayl Punzalan

Printed in Canada.

Please recycle where facilities exist.

Private Capital § Quarter 2 § 2015

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CEO’s Message

Mike Woollatt, CEO, CVCA

On the Road T

he CVCA concluded 2014 with a flurry of activity, and I’m happy to report that we’ve kept our foot firmly on the accelerator since then. The first few months of 2015 were a whirlwind of activity that has taken the CVCA across the country, around the globe and back again all in the name of promoting the Canadian private capital industry.

Here in Canada, we launched the InfoBase with much success. I think it is fair to say that we now have a true industry standard on private capital transaction data. To help explain what it is all about and show off some of the features of our free-to-member InfoBase, I went on an InfoBase tour with stops in Halifax, Montreal, Vancouver, Calgary and Toronto to take members through the database, and to explain how it works and what it offers. I got positive feedback and we’re looking to improve it as we go forward. A few folks identified, for instance, the need to better clarify and break up investment stages, and improve some of the search functions. We’re on it.

But that was just the domestic leg. In April, the CVCA travelled much further abroad. First, we went to Dubai for an international trade mission for member funds to meet with international LPs. Participating funds included AIP Private Capital, Avrio Capital, Genesys Capital, Gravitas Financial Inc. and iGan Partners.

Later in April, I attended the Global Venture Capital Congress (GVCC) in Rio de Janeiro, Brazil with the CVCA chair, David Mullen. This was an excellent opportunity to meet with peers from around the world and help promote Canada as a private capital destination. I am happy to tell you that our growth, both as an association and as an

“ The first few months of 2015 were a whirlwind of activity that has taken the CVCA across the country, around the globe and back again all in the name of promoting the Canadian private capital industry.”

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Private Capital § Quarter 2 § 2015

industry, is not going unnoticed. In fact, building on this momentum we were asked, and have agreed, to host next year’s GVCC in Canada. This will be an excellent opportunity to further promote our industry both to international players and to domestic stakeholders and policy makers.

And while April was already a busy month, current and past CVCA chairs David Mullen and Greg Smith represented the CVCA at a VIP dinner and networking event hosted by the Canadian Consul General in Los Angeles, Calif. during the Milken Institute Global Conference. The event was exclusive to CVCA member firms, which were given an opportunity to network with institutional funds and investment consultants from southern California and around the world.

The last stage of travel brings me to my hometown of Vancouver for CVCA’s conference, “Capitalizing on Change: Uncertainty and Opportunity in Canada’s Shifting Economy.” This is Canada’s premier private capital event, and brings together industry thought leaders and decision makers from across Canada and the U.S. I hope to see many of you in Vancouver, and I’ll be making the rounds to get your feedback on changes at the CVCA and the conference itself. n Safe travels!

Mike Woollatt CEO, CVCA

CVCA Board of Directors 2015–16 OFFICERS Dave Mullen, Highland West, Chair Peter van der Velden, Lumira Capital, Past Chair Pierre Schuurmans, Birch Hill Equity Partners, Treasurer Gary Solway, Bennett Jones LLP, Secretary

VICE-PRESIDENTS Jocelyn Blanchet, KPMG LLP, Vice President Gilles Duruflé, Independent Consultant, Vice President Grant Kook, Westcap Mgt. Ltd., Vice President Gregory Smith, InstarAGF Asset Management, Vice President

DIRECTORS Alain Denis, Fonds de solidarité (FTQ), Board Rob Barbara, Build Ventures, Board John Berton, Georgian Partners, Board Ross Bricker, Optimum Technology Fund, Board Joseph Catalfamo, Summerhill Venture Partners, Board Paul Day, Export Development Canada, Board Howard Donaldson, Vanedge Capital, Board Joe Freedman, Brookfield Asset Management, Board Aki Georgacacos, Avrio Capital, Board Sarah Goel, Edgestone Capital, Board Michael Hollend, TorQuest Partners, Board Wally Hunter, EnerTech Capital, Board Lorne Jacobson, TriWest Capital Partners, Board Tom Kennedy, Kensington Capital Partners, Board Edmund Kim, ONCAP, Board Elmer Kim, Roynat Equity Partners, Board Erik Levy, CPPIB, Board Jeff Linner, PFM Capital, Board Geneviève Morin, Fondaction, Board Dave Mullen, Graycliff Partners, Board & Chair Karamdeep Nijjar, iNovia Capital, Board Rob Normandeau, SeaFort Capital, Board Jerome Nycz, BDC, Board Marc Paiement, Novacap, Board Michael Raymont, AVAC, Board Whitney Rockley, McRock Capital, Board Jane Rowe, Teachers’ Private Capital, Board Rakesh Saraf, Alberta Teachers’ Retirement Fund, Board Pierre Schuurmans, Birch Hill Equity Partners, Board & Treasurer Lloyd Segal, Persistence Capital Partners, Board Kent Thexton, OMERS Ventures, Board Edward Truant, Imperial Capital, Board Mark Usher, Wellington Financial LP, Board Peter van der Velden, Lumira Capital, Board & Past Chair Mike Walkinshaw, Fronterra Ventures, Board

MANAGEMENT Mike Woollatt, CEO Kieran Lawler, Director of Communications Ashley Smith, Communications Associate Ted Liu, Research Director Andrew Keenan, International Trade Liaison Officer Marie Labitté, Research Associate Elaine Bedell, Administrator Lauren Hart, Events Manager Emily Gallant, Member Liaison

Private Capital § Quarter 2 § 2015

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› letter to t he editor

If you would like to share your thoughts and feedback on any article published in Private Capital, send an email to privatecapitaleditor@cvca.ca.

A response to “No Conflict, No Interest,” published in the Q4 2014 edition of Private Capital magazine

I

Independent Directors

An investor’s opinion on the fallacy of independent directors and corporate governance

By Aki Georgacacos, Avrio Capital

A MARIAKRAYNOVA/SHUTTERSTOCK

respectfully disagree with the view that independent directors don’t play a vital role in enhancing value for all stakeholders.

A board of directors must be made up of members with the skills and attributes needed by the corporation that it serves. It requires industry, financial and human capital expertise and may require marketing, technology and other skills. And it always requires individuals skilled at human relations.

In addition to its fiduciary obligations, a board must set corporate strategy and manage the CEO. Financial investors as board members bring a lot to the table in terms of access to capital, pattern recognition and, perhaps, human relations and industry expertise, but rarely offer the entire package. A board made up entirely of financial investors rarely has the ability to optimize the value of the company over the long term.

Another reason for independence is the need for the CEO to relate to

cting as a fiduciary in the best interests of the corporation seeking to enhance shareholder value, a board member’s most valuable characteristic is not independence, but alignment.

In recent years, academics, business leaders and investors around the world have been effusive in their call for “independence” amongst corporate boards as a fundamental characteristic of good corporate governance. Institutes and schools have popped up all over the planet to teach independent directors what good corporate governance looks like. This article argues that the intricate and complicated mechanisms required to “direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes insuring the financial viability of the business” are not improved significantly by the addition of independent directors but that those fundamental matters Private Capital § Quarter 4 § 2014 15

a board member who is not simply a financial investor. In instances where the CEO may see the investors and the board as a “necessary evil” (perhaps because they have “taken” so much equity in the company through several financing rounds), an independent director appears more neutral

to the CEO and allows for improved relations with the board.

I agree that directors with a significant equity stake in the company do not pose a conflict of interest. On the contrary, they are highly aligned.

I also know of many excellent directors who receive either modest cash compensation or who participate in an option program with no cash compensation. Their contribution goes well beyond that of a mediator or referee. An effective independent director promotes growth and smart risk management to ensure the needs of all stakeholders in the corporation are well served.

Independent directors risk something more valuable than an equity investment. They risk their reputations.

Respectfully, Philip Anzarut Partner, Diversified Portfolio BDC Capital

“ A board of directors must be made up of members with the skills and attributes needed by the corporation that it serves.”

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Private Capital § Quarter 2 § 2015

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› fund news Westcap’s Golden Opportunities Fund raises $40M Golden Opportunities Fund Inc., a Saskatchewan-based retail fund managed by Westcap Management, is fully subscribed on its annual $40 million fundraising limit.

Golden is Saskatchewan’s first Provincial Retail Fund launched in 1999 to enable Saskatchewan residents to keep their savings working in our local economy. The fund invests in small and medium-sized growth companies in diverse sectors of the economy. To date, Golden has invested over $300 million in 118 companies and impacted numerous communities, families and more than 3,700 jobs throughout the province.

TriWest announces $500M close for Fund V TriWest Capital Partners has closed its fifth fund (Fund V) with total commitments reaching $500 million.

TriWest received continued support from its existing limited partners, along with new commitments from North American institutional investors.

Fund V will invest in diverse industries with the exception of real estate, early-stage technology and primary resource development, and will target companies with operating earnings in the range of $10 million to $50 million (or higher in certain circumstances).

PFM fund SaskWorks raises $40M SaskWorks Venture Fund Inc., a venture capital fund managed by PFM Capital, has raised $40 million in its latest fundraising period. With this they have reached the allotted tax-eligible subscription limit.

McRock iNFund holds second close McRock Capital has held a second close for McRock iNFund LP, an Industrial Internet of Things (IIoT) venture capital fund, with new commitments from Cisco Investments and Teralys Capital Innovation LP. BDC Capital also increased its commitment in the latest closing.

A final fund close is scheduled in 2015 with a cap of $65 million.

Focusing exclusively on the intersection of sensors and software in large industrial markets, an area known as the IIoT, McRock iNFund will invest in high growth private companies across North America.

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Private Capital § Quarter 2 § 2015

Kensington Venture Fund makes first four investments Kensington Venture Fund, part of the Government of Canada’s Venture Capital Action Plan (VCAP), has made its first four investments: Georgian Partners II of Toronto, NOVACAP TMT IV of Montreal, Blue Ant Media Inc. of Toronto and Walden Venture Capital VIII of San Francisco, Calif.

Kensington Venture Fund held its initial close in November 2014 with $160 million commitments from Richardson GMP, OpenText Corporation, Royal Bank of Canada, BMO Financial Group, CIBC, TD Bank Group, Scotiabank and individual investors, alongside BDC Capital on behalf of the Government of Canada.

CTI Life Sciences II holds $134M initial close CTI Life Sciences has held an initial close for its second venture capital fund, CTI Life Sciences Fund II (CTI II), with $134 million committed capital.

Teralys Capital Fund of Funds led with a $50-million commitment alongside commitments from Caisse de dépôt et placement du Québec, Fonds de solidarité FTQ, BDC Capital on behalf of the Government of Canada Venture Capital Action Plan (VCAP) and other investors.

CTI II will continue to invest predominantly in biotherapeutics and opportunistically in medical technologies and healthcare IT.

Relay Ventures II lands VCAP direct commitment from feds Finance Minister Joe Oliver has announced that Relay Ventures III has been selected as one of the high-performing venture capital funds to receive $15 million under the Government’s Venture Capital Action Plan (VCAP).

This latest investment is part of the government’s commitment to invest $50 million in a few high-performing venture capital funds to help innovative businesses access the capital they need to grow and succeed.

Fulcrum Capital Partners V holds $180M initial close Fulcrum Capital Partners Inc. has held a $180-million initial close for its fifth private equity fund, Fulcrum Capital Partners V, L.P. Backed by nine institutional investors, Fulcrum Capital Partners V expects to hold a final close at its target size of $300 million in the first quarter of 2015, given the strong interest being shown in the fund by both Canadian and international investors.

Fund News

Knight Therapeutics commits $35M to Domain Partners and Sanderling Ventures funds Knight Therapeutics has committed to invest US$25 million into Domain Partners IX, L.P. and US$10 million in Sanderling Ventures VII, L.P. Managed by Domain Associates, LLC, Domain Partners IX invests in early-stage life sciences companies and often creates companies in which they are the initial, controlling shareholder. Sanderling Ventures VII, managed

by Sanderling Ventures, LLC, focuses on early-stage financing and active management of its biomedical portfolio companies. Sanderling Ventures VII has secured significant support from BDC Capital and Fonds de solidarité FTQ.

Canada launches Immigrant Investor VC Pilot Programme The Government of Canada unveiled the previously announced Immigrant Investor Venture Capital Pilot Program to attract experienced business immigrants who can actively invest in the Canadian economy, stimulating innovation, economic growth and job creation.

In addition to making a non-guaranteed investment of $2 million for a period of 15 years and having a net worth of $10 million, immigrant investors will be required to meet certain program eligibility criteria related to language and education, and have proven business or investment experience.

The government said the requirements ensure that immigrant investors will have a strong impact on the Canadian economy, and that those admitted for permanent residence will be well prepared to integrate into the Canadian business landscape and society.

The fund will be managed by BDC Capital, the investment arm of the Business Development Bank of Canada, and by participating fund managers that were previously chosen to manage Government of Canada investments under the Venture Capital Action Plan.

equity funds – in profitable, growth-stage companies across Africa, Asia and Latin America with a strong focus on environmental, social and governance improvements.

Lighthouse Equity Partners launches fund portfolio with first Western Canadian PE investment Lighthouse Equity Partners, a lower middle market PE firm focused on growth-oriented Western Canadian businesses, has acquired the Primex Group of companies in partnership with management. Primex’s proprietary media distribution enclosures and integrated products are the industry standard for major broadband communication carriers as they continuously build new subscriberpremise infrastructure.

Based in Vancouver, Lighthouse Equity Partners has attracted an extensive network of Western Canada’s most successful business leaders as limited partners.

Lighthouse was launched in 2014 by Steve Hnatiuk and Joe Lucke – GPs who have invested more than $500 million across 50-plus companies in eight private capital funds over the past 20 years. Lighthouse focuses its experience, capital and extensive network of resources on profitable entrepreneurial Western Canadian businesses with strong growth potential.

MaRS launches $5M national impact venture fund MaRS has launched a national impact venture fund with $1 million seed capital from Virgin Unite Canada, and Mindset Social Innovation Foundation.

On top of the initial investment from Virgin Unite and Mindset, the fund has also secured additional commitments of $500K. MaRS will continue to fundraise, up to a total of $5 million, in 2015.

The impact venture fund, managed by the MaRS Centre for Impact Investing, will invest in early-stage for-profit companies with a core social and/or environmental mission, measurable positive impact and the potential for strong financial returns. n

Sarona closes Sarona Frontier Markets Fund 2 at $150M Sarona Asset Management held its final close for its second private equity fund, the Sarona Frontier Markets Fund 2, on Dec. 12, 2014, securing a total of $150 million from a mixture of leading institutional investors, family offices and high-net-worth individuals.

The Sarona Frontier Markets Fund 2 targets superior riskadjusted returns by investing – through locally based private

Correction: In the Q1 2015 issue of Private Capital, the logo appearing alongside Stonebridge Infrastructure in "Fund News" was incorrect. Private Capital regrets the error.

Private Capital § Quarter 2 § 2015

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› people on the move

Onex Corporation has promoted two senior investment professionals, Matthew Ross and Manish Srivastava, from principals to managing directors of Onex Partners.

Ross manages the firm’s efforts in the retail, restaurant and building products industries from the New York office.

Prior to joining Onex in 2006, he worked at Brown Brothers Harriman & Co. and DB Capital Partners.

Srivastava leads the firm’s efforts in the industrial services and chemicals sectors. Prior to joining Onex in 2004, he worked at Greenhill & Co. and J.P. Morgan in New York.

Ironbridge Equity Partners adds Andrew Walton as partner Ironbridge Equity Partners has hired Andrew Walton to join on as a partner.

Walton has spent the past seven years with middle-market PE funds such as Signal Hill Equity Partners and Edgestone Capital Partners.

Prior to that, Walton advised private equity and corporate clients on acquisitions and divestitures as a partner in the PwC Transaction Services group. He has also held several operational executive roles within portfolio companies including Westridge Cabinets Ltd. and New Food Classics Partnership.

PSP Investments appoints André Bourbonnais as president and CEO André Bourbonnais, recently head of the Canada Pension Plan Investment Board (CPPIB)’s private investments division, has joined PSP Investment as president and chief executive officer.

CPPIB has appointed Mark Jenkins to replace Bourbonnais as senior managing director and global head of private investments.

Prior to CPPIB in 2006, Bourbonnais worked in a variety of investment and management roles, including managing private equity portfolios for the Caisse de dépôt et placement du Québec. He began his career as a lawyer at Stikeman Elliott LLP.

Third Eye Capital appoints senior investment personnel Third Eye Capital has added two senior appointments to its investment team.

Mark Horrox has joined as principal, focused on complex restructurings and special situations. Horrox was previously

vice president of a $2.5-billion Canadian distressed private equity firm where he led restructurings in the media, automotive, biotech and real estate industries.

Dev Bhangui will act as vice president, Investments, assisting in new originations and performing investment due diligence on complex private lending transactions. Bhangui was the managing partner of Royal Bank Capital Partners’ private equity investments in telecom, and a vice president in Royal Bank’s credit risk management group.

ARC Financial Corp. adds Chris Seasons to investment team ARC Financial Corp. has announced the addition of Chris Seasons to its investment team in the role of senior advisor.

Seasons will work closely with ARC’s Investment Committee and board of directors on new deal origination, strategic and operational matters, and will also represent the ARC Energy Funds on portfolio company boards.

A professional engineer with more than 30 years of domestic and international experience in the upstream oil and gas industry, Seasons served as president of Devon Canada until his retirement in 2004.

CarProof appoints HF director Ed Woiteshek to CEO CarProof Corporation, a portfolio company of Hellman & Friedman (HF), has named Ed Woiteshek, formerly director with Hellman & Friedman and a director of CarProof, as its new CEO. Paul Antony, founder and previous CEO, will become chairman of the board.

Woiteshek helped lead the purchase of a minority share of CarProof by Hellman & Friedman in August 2013.

WIND Mobile appoints Alek Krstajic new CEO and new chairman and directors WIND Mobile has appointed Alek Krstajic, formerly CEO of Public Mobile, as its new CEO. Prior to Public Mobile, which was acquired by TELUS in 2013, Krstajic was president of Bell Mobility, and senior vice president at Rogers Cable.

Pietro Cordova, outgoing interim CEO, will return to Vimpelcom. WIND Mobile founder Anthony Lacavera has transitioned to honourary chairman.

Joining the WIND Mobile board of directors are Rob MacLellan, non-executive chairman of Northleaf Capital Partners, who will also be appointed chairman of the WIND board; David R. Carey, executive vice president, Corporate Services of T-Mobile U.S.; and Hamid Akhavan, principal, Telecom Ventures LLC. n Private Capital § Quarter 2 § 2015

YANLEV/SHUTTERSTOCK

Onex promotes Matthew Ross and Manish Srivastava to managing directors

9

T aking Flight How investing in infrastructure helps our cities soar

By Gregory Smith and Sarah Borg-Olivier, InstarAGF Asset Management Inc.

S

ound infrastructure – roads, transportation, electricity and water systems – is necessary for communities and countries to thrive, and is a major driver of where companies and people choose to live, work and do business. Infrastructure quality can accelerate or erode an economy, so investing in it is an urgent priority.

While the federal government has shifted more attention and dollars to infrastructure in recent years, the amount of available financing falls far short of what’s required to close the funding gap for critical infrastructure, a deficit estimated to range up to $570 billion. A key challenge is that municipalities are responsible for more than 60 per cent of public infrastructure assets but only collect about eight cents of every tax dollar paid in Canada. As a result, much of our infrastructure remains chronically underfunded.

Further, more than 80 per cent of the Canadian population resides in urban areas, making the vibrancy and

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Private Capital § Quarter 2 § 2015

economic potential of our cities fundamental to the country’s overall prosperity. While our cities are highly livable by global standards, many lack a strong urban agenda and the revenue tools to rebuild and expand infrastructure.

These challenges are accentuated by Canada’s showing in the 2014 World Economic Forum global competitiveness ranking, with our infrastructure quality rank dropping to 15th and innovation performance coming in 24th.

Quality infrastructure underpins a city’s appeal, which in turn attracts the capital, entrepreneurs and talent that future growth depends on. And there is a close link between infrastructure quality and innovation: innovation in how infrastructure is financed, built and delivered; and the innovation necessitated by the inherent challenges of large-scale infrastructure development, where increasing urbanization, demographic shifts, technological change and sustainability imperatives create a number of pressures.

Cover Feature

Quality infrastructure underpins a city’s appeal, which in turn attracts the capital, entrepreneurs and talent that future growth depends on.

Infrastructure innovation Billy Bishop Toronto City Airport, which is owned and operated by PortsToronto, is a great example of how infrastructure and innovation work in tandem and a study of how public and private sector cooperation contributes to urban renewal and new economic opportunities. Billy Bishop Airport is a unique collaboration between federal and municipal levels of government and the private sector. Toronto Island has an aviation legacy that dates back 75 years, with the current shape of the airport emerging in 2006 when private capital-backed Porter Airlines launched its business from the island with just two aircraft and one route to Ottawa. Less than 10 years later, Porter is consistently rated one of the best small airlines in the world – supporting the thesis that private capital-backed companies grow at five times the rate of traditionally-financed companies.

For its part, Billy Bishop Airport is ranked as one of the best

airports in North America by the Skytrax World Airport Awards. And in spring 2015, PortsToronto will open its new pedestrian tunnel underneath Lake Ontario, complementing the airport’s existing ferry service and enhancing ease of access for passengers. This innovative project is the first public-private partnership (P3) in Canada to be procured without a government guarantee.

Conveniently located just minutes from downtown Toronto, Billy Bishop Airport has emerged as an essential transportation gateway that facilitates the regional, national and crossborder connectivity and integration of Toronto with other major urban centres, translating into increased movement of people and goods, and elevating the city’s intellectual and commercial capacity. This new ease of connectivity generates dollars through growth in local economic activities and gross domestic product, and, accordingly, creates substantial value for the region and, by extension, the country.

Private Capital § Quarter 2 § 2015

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Cover Feature

Indeed, Billy Bishop Airport, which hosted 2.4 million passengers in 2014, delivers more than $2 billion in total annual economic impact to Toronto and the surrounding region and directly and indirectly supports 6,500 high-quality jobs.

PHOTOS COURTESY OF NIEUPORT AVIATION INFRASTRUCTURE PARTNERS

Private capital’s role in infrastructure renewal The integral role of private capital at Billy Bishop Airport was reinforced recently by Porter’s sale of its passenger terminal, a state-of-the-art building it constructed in 2010, to Nieuport Aviation Infrastructure Partners, a consortium of private infrastructure equity investors. This sale attracted significant interest from Canadian and international infrastructure investors keen to participate in the only opportunity in Canada – and one of few globally – to invest in an airport.

More broadly, this widespread interest reflects growing local and international investor appetite for private infrastructure investments. Institutional investors are drawn to the infrastructure asset class for its attractive risk-return attributes, which typically include stable long-term cash flow throughout the economic cycle. According to Preqin, institutional investors’ average current allocation to infrastructure has increased from 3.5 per cent of their total assets under management (AUM) in 2011 to 4.3 per cent in 2014, with the average target allocation increasing from 4.9 per cent to 5.7 per cent over this period. More than 67 per cent of investors plan to increase their allocation over the longer term, delineating infrastructure as a distinct subset of the private capital sector.

The terminal transaction also signals that there is a real opportunity for our cities and country to more effectively tap this growing, global pool of capital. Canadian institutional investors are trailblazers in private infrastructure investment, allocating on average 5.2 per cent of their AUM to infrastructure. Canada’s pension plans are amongst the most successful direct infrastructure investors in the world with multi-billion-dollar, international portfolios. In the middle market, a number of Canadian infrastructure fund managers are emerging to supply capital to domestic projects and assets where smaller equity cheques are required, including partnering with municipalities. And foreign investors continue to be drawn to Canada’s private capital sector generally and to infrastructure renewal initiatives specifically, reflecting both the quality and breadth of the opportunities available here as well as our stable financial, legal and regulatory environment.

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Billy Bishop Airport is a unique collaboration between federal and municipal levels of government and the private sector.

Further, Canada is a leader in public-private partnerships, an innovative asset delivery model that enables governments to build higher quality infrastructure more efficiently and at a substantially lower cost to taxpayers.

More than 200 infrastructure projects have been delivered through this model to date, representing more than $70 billion of capital investment. In jurisdictions such as Australia and the United Kingdom, where P3s have been in use for more than two decades, there is abundant evidence that P3s reduce the risks of infrastructure delivery while amplifying the economic benefits generated by infrastructure investments. Here in Canada, in a 10-year period P3s have generated $92.1 billion in total economic output and more than 500,000 full-time equivalent jobs, and saved taxpayers a total of nearly $10 billion in costs, according to the Canadian Council for Public-Private Partnerships.

How infrastructure fosters growth These statistics – and the success of infrastructure assets such as Billy Bishop Airport – clearly demonstrate that the private sector plays a critically important role in improving and accelerating infrastructure and innovation, and in fostering competitiveness and quality of life. A strong base of high-quality, modern infrastructure assets is the bedrock of our economy, enabling us to attract talent and capital. Over time, these inflows lead to economic diversification, which will help the country more effectively withstand and navigate both sudden and simmering economic shifts such as the oil and gas shock currently roiling Alberta, the decline of the auto sector in Ontario or the waning forestry industry in British Columbia.

Infrastructure will continue to capture the headlines as the demand and need for investment intensifies. Doing better on both infrastructure and innovation is a defining challenge for Canada in the 21st century, and rising to it requires a real and lasting partnership between the public and private sectors to deliver the physical structures and services we depend on, and to reap the significant social benefits of infrastructure investment: more vibrant communities, reduced income inequality, and greater opportunities for all. The ability of our cities and future generations to thrive and take flight depends on it. n

Gregory Smith is the president and CEO of InstarAGF Asset Management and executive chairman of Nieuport Aviation Infrastructure Partners. Sarah Borg-Olivier is a vice president at InstarAGF Asset Management.

2014 CANADIAN

MARKET OVERVIEW # PE DEALS AND $ BY PROVINCE IN 2014

42

41.2B

$

71 Alberta

BC

12

4

77

296 DEALS 1 ★★★★★ TOP 10 CANADIAN PE DEALS ★★★★★

1 2 3 4 5 6 7 8

86

$112.3M Newfoundland & Labrador

$314M Saskatchewan

TOTAL #

TOP PE SECTORS

4

$12.4B

$2.2B

IN PRIVATE EQUITY (PE) WAS INVESTED IN CANADIAN COMPANIES

COMPANY PROV TIM HORTONS INC. ON ALTALINK LP AB PATHEON INC. ON ENCANA BIGHORN ASSETS AB BROOKFIELD PROPERTY PARTNERS L.P. ON HERITAGE OIL PLC AB AMAYA GAMING GROUP INC. QC MCINNIS CEMENT INC. QC VERESEN MIDSTREAM LIMITED PARTNERSHIP AB LULULEMON ATHLETICA INC. BC

$5.7B

$82.3M

Quebec

Manitoba

$20.4 B Ontario

$ MIL 11,827 3,100 2,043 2,000

1 TOP 10 MOST ACTIVE PE FIRMS

1,800 1,700 1,267 1,100 1,000 920

SECTOR # DEALS TOTAL ($ MIL) ENERGY & POWER 81 $13,050 HOSPITALITY 5 $11,912 LIFE SCIENCES 19 $4,303 FINANCIAL 13 $2,483 INDUSTRIAL & MATERIALS 34 $2,162 CONSUMER PRODUCTS & SERVICES 13 $1,492 INTERNET SOFTWARE & SERVICES 10 $1,338 METALS & MINING 26 $1,010

COMPANY DEALS FONDS DE SOLIDARITÉ FTQ 49 CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC 20 INVESTISSEMENT QUÉBEC 10 FONDACTION CSN 9 WESTCAP MGT. LTD. 7 PFM CAPITAL INC. 7 ARC FINANCIAL CORP. 6 CYPRESS CAPITAL MANAGEMENT LTD. 6 NOVACAP INVESTMENTS INC. 6 SECOND CITY CAPITAL PARTNERS 6 DESJARDINS VENTURE CAPITAL INC. 6

PE FUNDRAISING

$ RAISED

$12B

# FUNDS

MEDIAN $ RAISED

33

$110M

TOP 5 PE CANADIAN EXITS 1

14

SELLING OR BACKING PEs TPG CAPITAL, INVESTOR GROUP, INVESTISSEMENT QUÉBEC CPPIB, ARC FINANCIAL, KERN PARTNERS OMERS PRIVATE EQUITY RIVERSTONE/CARLYLE ALINDA INFRASTRUCTURE

Private Capital § Quarter 2 § 2015

TARGET APTALIS PHARMA SEVEN GENERATIONS ENERGY LTD. MAXXAM ANALYTICS VANTAGE PIPELINE AND MISTRAL SEEP ASSETS RELIANCE PROTECTRON

BUYER FOREST LABORATORIES IPO BUREAU VERITAS GROUP PEMBINA PIPELINE CORP. ADT CORPORATION

DEAL SIZE $3,301M $932M $650M $650M $555M

DATA COLLECTED FROM

I NFOBASE

THE MOST COMPREHENSIVE DATABASE ON CANADIAN PRIVATE CAPITAL INVESTMENTS, EXIT AND FUNDRAISING ACTIVITIES

infobase.cvca.ca

# VC DEALS AND $ BY PROVINCE IN 2014

$1.9B

14

7

P NIES PA

154

Alberta

BC

87

21

$22M Saskatchewan

$295 M

379 DEALS

$.15M

1

Price Edward Island

8 $18M

$9M

Quebec

$32M

TOTAL T #

Newfoundland & Labrador

2

3

$52M $554 M

★★★★★ TOP 10 CANADIAN VC DEALS ★★★★★

E CAPITA T L (VC)

$3M

72

1

IN VEN N WAS IN CA IN A

New Brunswick

Nova Scotia

Manitoba

$932 M Ontario

COMPANY D2L INC./DESIRE2LEARN HOOTSUITE MEDIA INC. D-WAVE SYSTEMS INC. AURINIA PHARMACEUTICALS INC. WP TECHNOLOGY INC., DBA WATTPAD LIGHTSPEED RETAIL INC. KIK INTERACTIVE INC. MEDAVAIL TECHNOLOGIES INC. 2NDSITE INC., DBA FRESHBOOKS SHOP.CA NETWORK INC. MONTERIS MEDICAL INC. ZYMEWORKS INC.

PROV ON BC BC BC ON QC ON ON ON ON MB BC/QC

$ MIL $91 M $66 $62 $57 $51 $38 $38 $34 $32 $31 $31 $31

1 TOP 10 MOST ACTIVE VC FIRMS (PRIVATE INDEPENDENT)

COMPANY DEALS REAL VENTURES 42 INOVIA CAPITAL INC. 14 YALETOWN VENTURE PARTNERS 10 VERSION ONE VENTURES 8 CHRYSALIX ENERGY VENTURE CAPITAL 8 GEORGIAN PARTNERS INC. 7 RHO CANADA VENTURES 7 ENERTECH CAPITAL 7 RELAY VENTURES 6 KENSINGTON CAPITAL PARTNERS LIMITED 5 GOLDEN VENTURE PARTNERS 5

VC FUNDRAISING TOP VC SECTORS

SECTOR

# DEALS TOTAL ($ MIL)

1

ICT

2

LIFE SCIENCES

68

$423 M

3

CLEANTECH

33

$133 M

4

AGRIBUSINESS

13

$38 M

240

$1,274 M

SOURCE INDIVIDUALS . . . . . . . . . . . . . . . . . $493M GOVERNMENT. . . . . . . . . . . . . . . . $260M FUND OF FUNDS. . . . . . . . . . . . . . $172M CORPORATION / FINANCIAL INSITUTIONS / INSURANCE. . . $116M PENSION. . . . . . . . . . . . . . . . . . . . . $65M UNDISCLOSED. . . . . . . . . . . . . . . . $61M

$ RAISED

1,166M

$

# FUNDS

33

MEDIAN $ RAISED

17M

$

TOP 5 VC CANADIAN EXITS (DISCLOSED) 1

BACKERS TECHNOCAP, HARBOURVEST

TYPE IPO

COMPANY KINAXIS

W2 GROUP AND FONDS DE SOLIDARITÉ FTQ INVESTISSEMENTS CROISSANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IPO. . . . . . . . . . . . . . LUMENPULSE INC.. . . . . . . . . . . . . . . . . . . . . . . .

AVRIO CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M&A. . . . . . . . . . . . . WOLF TRAX INC. . . . . . . . . . . . . . . . . . . . . . . . . . .

VENTURES WEST, B.C. ADVANTAGE FUND, BAKER BROTHERS, AUGMENT INVESTMENTS, JOHNSON & JOHNSON DEVELOPMENT, PFIZER. . . . . . . . . IPO. . . . . . . . . . . . . . AQUINOX PHARMACEUTICALS INC.. . . . . . . . .

MX ASSOCIATES, LIPOTERX, INTERWEST PARTNERS, FMR, INVESCO PRIVATE CAPITAL, JPMORGAN PARTNERS, NOVO A/S, PFIZER, ROYAL BANK CAPITAL PARTNERS, WORKING OPPORTUNITY FUND, VENTURES WEST, TAKEDA, NOVARTIS PHARMA. . . . . . . . . . . . . . . . . . . . . . . . . . . . .IPO. . . . . . . . . . . . . . XENON PHARMACEUTICALS INC.. . . . . . . . . . .

DEAL SIZE $100.6 M $100 M $95 M $51 M $47 M

Private Capital § Quarter 2 § 2015

15

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Your Next Fund

Five Reasons Why You Won’t Raise Your Next Fund

Part 3 of 3

Reason 3: It’s not you, it’s them This article is the third of a three-part series on the current fundraising environment based on PrivCap interviews with leading global limited partners. The following is based on an interview conducted by David Snow, featuring Michael Elia of StepStone, Moose Guen of MVision Private Equity Advisors and William Chu of Zurich Alternative Asset Management.

D

avid Snow, PrivCap: We are talking about fundraising and about reasons why a LP may not invest in your next fund. All of you are fundraising experts, so I’m fascinated to hear your views. Let’s talk about reason number three why you might not raise your next fund and that is, “It’s not you, it’s them.” In that sentence, “you” means you, the GP, and “them” means the LPs. In the realm of private equity, there could be reasons that, despite your strong track record, a LP nevertheless can’t take any more of what you have to offer, despite your many merits into the institutional portfolio. Mike, can you paint some scenarios for why that would be the case?

Michael Elio, StepStone: There are quite a few reasons.

It’s interesting in this world of “the client is never wrong,” or the LP is never wrong, but in this particular case, it rings true. Different LPs have different mandates and different places where they want to invest their money.

A lot of GPs come through their door – we met with 750 last year alone. We don’t have mandates for every GP that comes in the door and we don’t have mandates for every great GP that comes in the door. If a LP is not looking for that type of investment, it’s just not a fit. So, in that case, you’re correct: it’s not you, it’s them.

Private Capital § Quarter 2 § 2015

17

Your Next Fund

“ If a LP is not looking for that type of investment, it’s just not a fit.

So, in that case, you’re correct: it’s not you, it’s them.”

– Michael Elio, StepStone

PrivCap: It must be frustrating as a professional fundraiser that even if a GP has a stellar track record and is going after an incredible opportunity, if the LP doesn’t want that opportunity or is over-allocated to that opportunity, they simply have to pass. Correct?

Moose Guen, MVision: When the programs began 25 or 30 years ago with the investors, they would go and invest in great stories, and they could have up to 150 GP relations.

But, as the reporting became denser and the process became more intense, it became difficult to manage all these relationships. On the whole, there is this aspect of concentration. As a result, that very much limits the shots. One aspect we want to try to get across to GPs when we bring them to market is, “Don’t waste your bullets.” Because if, for some reason, there’s a miscommunication or your timing is a bit off, you could find yourself in a very dense market.

PrivCap: So, even if you came to market with a great team, a great track record, but the LPs are all full up…

Guen: …They’re full up, right? And here’s an interesting point: we came across another very good, large-cap oriented GP in that region and we told them, “Sit it out for nine months. Figure out how you can stretch it out a bit, so that all these people will be finished and you’ll be one of the very few in that year.” Because one of the things the investors do is they have vintage-year allocations. So, all in all, you’ve got a portfolio that can be anywhere from six to 12 relationships in that particular zone. Then, if you’ve got a phenomenal track record, I’m good. The problem is his track record is excellent but unless his track record is incredibly excellent, I’m fine.

PrivCap: William, it takes quite a bit of discipline to be wooed by a great GP story or great market opportunity, yet know you’re already allocated to that strategy and say that you have to pass.

William Chu, Zurich Alternative Asset Management: LPs were right. I know I’m not right 100 per cent of the time (far from it), but those are tough decisions that we have to make when we underwrite a particular manager 18

Private Capital § Quarter 2 § 2015

and go with that particular manager. You have to look at and understand the situation that the LP faces. I think the trailblazers are the Canadians. They were the first to make a very strong move into co-investing, directly or alongside general partners and secondaries, either directly themselves or through partnerships with various secondary funds. You have this total pie called private equity and what used to be 100 per cent of a pie for primaries, of course, some of that has to be sliced off for those coinvestments and secondaries. That continues to happen and actually is happening at a much more rapidly developing pace, particularly in the U.S., with a lot of the larger LPs as it relates to co-investing and secondary.

Don’t be surprised that LPs, more likely than not, will have to pass on some of their managers. The other piece to it is about allocations, right? The challenge that a lot of GPs have, particularly those that have been successful, is that you want to give a slice of your fund to everyone and anyone that could be valuable to you longer term, but by the same token, the LPs have to manage a certain number of relationships. You can’t have a staff of four, eight or 10 managing over 200 partnerships.

Elio: One thing GPs probably need to understand, which you both touched on, is that allocations are changing and the days of LPs being a homogenous, primary commitment lot are gone, right? They’re committing to co-investments, secondaries. They’re not bucket fillers anymore. In this changing market, they also change teams. At the macro level, the CIO is putting different types of investments under different teams. Maybe the GP got “no” from the private equity team, but actually their credit is being handled by the hedge fund team.

Chu: If I could just add to what Mike is saying, the job responsibility for some of the LPs is – if I can pick one slice of the LP universe – the endowments. Their individuals are more focused across alternatives. It isn’t just private equity or hedge funds or real estate. Again, as a result of that, in the totality of your alternatives pool, something has to give and sometimes it is coming out of the private equity pool. n Copyright © PrivCap LLC

Strategy

Got a Great Strategic Plan?

Here’s how to avoid belly flops

Part 3

By Fred Pidsadny, Focus Management

M

uch has been written on how to get better at strategy execution – and much has been postulated about why most organizations don’t seem to “get it.” In 2008, the prestigious Harvard Business Review reported that 60 per cent of organizations rated themselves poor at turning strategy into action.

More recently, in March 2015, it revealed that this number had climbed to 75 per cent. Think about that – a full three-quarters of today’s organizations admit to having trouble executing strategic plans. It’s astounding, and also a bit mind-boggling. Perhaps more puzzling, it’s clear that strategy execution is getting worse, despite the attention paid to the topic.

Based on these revelations, you may be wondering just how important strategy execution has become to

today’s business leaders. A recent survey of 400 CEOs, again published in the Harvard Business Review, sheds some important light on the subject. This group of executive leaders ranked “execution excellence” as its number one business concern today, ahead of a list of 80 other issues – including growth, innovation and geopolitical instability.

So it would seem that strategy execution is more valued than ever before. Why then, can’t we get it right?

It’s not difficult to see where companies go wrong. With the greatest of intentions, they invest in “solutions.” They install new systems and management processes such as CRM, TQM, MRM, ZBB and countless others. They set out to build performance cultures with training, team building and work-style assessments. They change organizational

STACEY LYNN PAYNE/SHUTTERSTOCK

Part 1 of this three-part series appeared in the Q4 2014 issue of Private Capital, and Part 2 appeared in the Q1 2015 issue.

Private Capital § Quarter 2 § 2015 19

Strategy

Authority levels need to be discussed openly within the team that is being held accountable.

Otherwise, everyone becomes a chief, and no one is accountable.

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Private Capital § Quarter 2 § 2015

Why is it that when a team fails, only one person typically pays the price? What happens to the “we” when things go wrong?

Defining accountability The answer can be found in the lack of defined and recognized authority to either make decisions or to take action.

Authority needs to be aligned with the task at hand, and the expected, already-clarified results. Authority levels need to be discussed openly within the team that is being held accountable. Otherwise, everyone becomes a chief, and no one is accountable.

In my experience, it’s relatively easy to establish accountability using a simple, four-level process. Who has the accountability to act without first seeking permission of the team leader? We call that Level 1 authority. Who can act but must advise the team leader after the fact?

That’s Level 2. Who can act but needs to advise the team leader before actions are taken? That’s Level 3 authority.

Who only has the authority to recommend action that must then be approved by the team leader? That’s Level 4.

It’s a straightforward process that is rarely done because authority is usually implied or assumed in a role.

Too often, authority is taken by aggressive individuals with a need to have their voice heard; too often, it is avoided by non-committals. In these situations, it’s often easier to blame than take responsibility, and fingerpointing can prevail.

The chart below provides a basic overview of common accountabilities. Actual levels will, of course, vary depending on the situation. Transparent conversations about what these should be are critical.

PRESSMASTER/SHUTTERSTOCK

structures by downsizing, right-sizing and designing requisite structures.

Millions of dollars and countless hours of time are often expended. And still organizations have a hard time turning strategy into action.

What, then, is the solution? Interestingly, the answer is so simple that it’s often overlooked. And amazingly, even when identified, most organizations don’t immediately address it.

In the first two articles of this series, we covered the importance of establishing laser-like clarity in the strategic plan itself. In this article, I want to address the secret to flawless execution. I call it unquestionable, undeniable accountability.

Accountability without authority will most often lead to frustration and failure. How many times in your career have you been held responsible for results over which you could not control or at least influence in a major way?

Strategy

THE FOUR LEVELS OF AUTHORITY Use this process to establish foolproof accountability for the execution of your strategic plan:

AUTHORITY LEVEL 1

You have the authority to act without any contact with your team leader prior to the decision/action.

Communication with your team leader after the decision/action is taken is for information only.

AUTHORITY LEVEL 3

You have the authority to act but must notify your team leader before action is taken.

AUTHORITY LEVEL 2

You have the authority to act but must notify your team leader immediately after the action is taken.

AUTHORITY LEVEL 4

You have the authority to analyze and make recommendations to your team leader for approval.

Sales Revenue • Price adjustments

Level 4

• Volume discounts

Level 1 (as per the approved policy)

Cost Control • Spending

Level 1 (to maximum pre-established amount)

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Level 2

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Level 4

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Level 2

Accountability without clear levels of authority for decision-making and action taking is the root cause for the number one blockage to strategy execution. The concept is so fundamental, yet so easy to miss.

Now that you know, there is no excuse. n

Fred Pidsadny is president of Focus Management.

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Private Capital § Quarter 2 § 2015

21

Universities and VCs Should Recognize the Important Role of University Based Accelerators

By Gilles Duruflé, QCC Public Policy Forum on Venture Capital and Innovation

A

ccelerators such as Y-Combinator and Techstars have introduced a revolutionary model to attract, select, network, mentor and fund young tech entrepreneurs to a point where they claim that this new model is becoming the basis for the next generation of business schools, in which learning will be achieved by doing rather than by business cases.

Many leading universities have received the message and launched university based accelerators (UBAs), importing the accelerator model within the university while building on their own competitive advantages: deep science, a wide range of talent and resources and an ability to leverage resources from the community. Their ambition is “to create a dynamic learning environment for university-affiliated entrepreneurs” (Creative Disruption Lab, Toronto); “to foster creativity and entrepreneurship while turning students’ ideas into sustainable businesses” (Velocity, Waterloo); and “to provide the expertise, support and connections needed for MIT students to become effective entrepreneurs” (The Martin Trust Centre for MIT Entrepreneurship). In short, more and more leading universities are seeking to expand the benefits of the accelerator model beyond web-based and digital media companies.

The 2014 Public Policy Forum on Venture Capital and Innovation (Quebec City, October 20141), explored the most innovative of these new accelerator models developed by universities such as MIT, NYU, Waterloo, Ryerson and Toronto, as well as their specific success factors, links with the rest of the financing chain and significant implications for next-generation public policies.

22

Private Capital § Quarter 2 § 2015

The main conclusion that follows from this forum is that the importance of UBAs should not be overlooked.

They address needs that are not easily served by the market. They make a strong contribution to the building of the entrepreneurial ecosystem and they will give the most innovative universities an edge over their competitors.

More specifically, (i) UBAs provide university-based entrepreneurs (students, researchers and faculty) with support at an earlier stage than would the commercial accelerators; (ii) they leverage university resources and equipment and support entrepreneurship in deep science domains not normally served by commercial accelerators; and (iii) they benefit from non-dilutive funding (philanthropy, university, governments and corporations).

Moreover, the best UBAs complement commercial accelerators as successful companies transition to the likes of Y-Combinator and Techstars.

The following paragraphs highlight the main features of the various models that help to better understand the common thread beyond their differences.

The acceleration process The acceleration process varies from one centre to another. At MIT and NYU, it is structured primarily around formal training programs. At Creative Destruction Lab (CDL), Ryerson Future and Velocity, the faculty plays a lesser role. However, to a certain extent, the acceleration process relies everywhere on the same principles: personalized mentorship, a structured set of milestones, interaction

University Based Accelerators

among teams and continuous selection that eliminates teams that fail to meet their milestones.

The accelerator team sets up the process, recruits and selects entrepreneurs, attracts mentors and facilitates the linking of entrepreneurs with mentors and sources of funding.

Leveraging university resources and equipment The ability to leverage university resources and equipment provides UBAs with a clear-cut competitive advantage. However, liability and lab accessibility issues involving outsiders remain.

Some centres (e.g., Velocity, NYU) have developed hybrid models, setting up entrepreneurship labs for the basics and low fidelity prototyping, while establishing relationships within their respective university to provide adequately insured access to specialized wet-labs. Forging these relationships takes years, but they represent a real added value for start-ups by providing access to university facilities and research teams that can put companies in contact with entrepreneurs interested in commercializing research results.

MIT provides access to a hardware pool as well as corporate partners willing to give access to highly specialized and expensive software either free of charge or at a reasonable price. A cross-campus wet-lab is also being developed at MIT.

The university, philanthropic and corporate donations and government grants for specific programs finance NYU’s Institute.

Velocity is funded by the university (40 per cent), the Government of Canada (20 per cent), the Government of Ontario (20 per cent) and private donors (20 per cent).

The CDL’s support originally came from philanthropic sources prior to the university’s financial involvement.

Ryerson University launched the Digital Media Zone prior to government involvement. Ryerson Futures is a for-profit organization that receives its money from private corporations and the ecosystem.

Validation Since university organizations are not usually adept at demonstrating whether an individual is a capable entrepreneur or has succeeded in building a solid business, how can a UBA go about validating whether it is doing an adequate job?

Proof ultimately lies in whether (i) its companies have succeeded in accessing top-tier commercial incubators and/or attract funding by recognized VC funds; and (ii) its reputation attracts top students and faculty members. n

Gilles Duruflé is president of the QCC Public Policy Forum on Venture Capital and Innovation.

Funding

Reference

MIT’s centre receives its funding from philanthropy.

1. www.quebeccityconference.com

Private Capital § Quarter 2 § 2015

23

Exploring FinTech in Canada How Canada can build trophies instead of tombstones in FinTech

By David Unsworth, Information Venture Partners

W

hile we’ve been bombarded by developments in technology that have changed the way we work and play since the turn of the millennium – from the consumerization of enterprise IT, cloud computing and SaaS delivery models, the growth of mobile/ tablet adoption and the near “appification” of everything – it seems one of the last bastions of a more traditional way of life has remained unchanged: financial services.

However, technology’s tentacles are now reaching into this sector, too, and the coming wave of financial technology (FinTech) solutions will forever alter how we transact in the financial world. Great opportunities for investors and entrepreneurs exist in an environment readily embracing innovations that will change the consumer experience through the modernization of current processes, or a disintermediation of traditional institutions.

The driving force behind much of this opportunity is a generation of “digerati” that are now demanding new approaches that will supplant existing paradigms with a more modern approach to paying, investing, securing loans and mortgages and buying insurance. This demographic reinvented legacy financial services.

“What you’re seeing is a bunch of young entrepreneurs that are particularly dissatisfied with traditional banking, looking to disrupt the traditional approach,” said Graham McBride, co-founder of FundThrough. “The only reason

24

Private Capital § Quarter 2 § 2015

we need the banks at all is for the movement of cash and even that will change with the use of technology.”

FundThrough, which recently raised $2.2 million in funding led by Real Ventures, is an alternative source of credit for the SMB market that provides working capital to start-ups in real time. All it takes is a tap on a mobile device and FundThrough’s vetting process begins. Its model is unique compared to the traditional banking system as FundThrough reviews a company’s customer contracts and how much money those customers have been invoiced for, as opposed to the bank’s typical process of reviewing a company’s credit history and assets. This forward looking approach enables SMBs to focus on getting sales, knowing they can always get capital regardless of their business’ financial history. FundThrough’s other advantage is the speed at which it can review applications, and technology helps them achieve that.

There are other examples, too. St. John’s-based Verafin has become a dominant provider of software for fraud detection and anti-money laundering in North America, and Ottawa’s Shopify is a category leader in eCommerce platforms. These successes are generating a palpable buzz, which will draw in additional entrepreneurs as well as the investors who are eager to fund breakthroughs, driving more innovation and growth in this sector. Verafin and Shopify have raised substantial capital from Canadian and U.S.-based VCs.

FinTech

“What you’re seeing is a bunch of young entrepreneurs that are particularly dissatisfied with traditional banking, looking to disrupt the traditional approach. The only reason we need the banks at all is for the movement of cash and even that will change with the use of technology.”

– Graham McBride, Co-Founder, FundThrough

What we’re witnessing is the birth of new models to deliver financial services, and we’re uniquely positioned to become a global hub because our foundational building blocks are sound – large budgets, effective regulation and smart people are abundant.

In 2013, the Canadian financial sector spent $12 billion on technology, a number that is expected to rise to almost $15 billion in 2018. Canada’s financial sector also employs more than half a million people with Toronto and Montreal ranked ninth and 16th, respectively, in global employment rankings. We can also heap on great engineering talent, professional management expertise and a banking system the World Economic Forum has ranked the soundest in the world seven years running.

Despite these many advantages, we have our fair share of challenges to overcome. Canada must shift its general attitude toward innovation. Where conservatism saved the banking industry and wider economy from ruin in 2008, it is not necessarily a strength now. The incumbent players

should be more open-minded about the entrepreneurs and solutions that are being developed with or without their help. Imagine the impact on the pace of innovation if we had more interest and involvement so that start-ups and our leading financial institutions worked with each other as partners, instead of against each other as competitors. This would quickly accelerate the advancement of FinTech here.

Without quickly adopting to the new reality of how the financial world will operate, Canada might miss this burgeoning opportunity to capitalize on our strengths. We’ll have tombstones in place of trophies as far as FinTech is concerned, and the good name our financial industry established could lie in tatters for failing to keep up with generational shifts in service expectations. n Editor’s note: See infographic on following page.

David Unsworth is general partner and co-founder of Information Venture Partners.

Private Capital § Quarter 2 § 2015

25

TEN SURPRISING FACTS

ABOUT FINTECH IN CANADA Canada’s FinTech market is beginning to see major momentum. Here are some industry facts.

— 1 —

CANADA’S LARGEST FINANCIAL SERVICE SECTORS TORONTO

350,000

employed by 12,000 firms Global ranking: 9 North American ranking: 3

VANCOUVER

55,000 employed

B.C. has Canada’s second largest credit union system

MONTREAL

CALGARY

100,000

20,000

employed by 3,000 firms

employed by 1,463 firms

— 2 —

Global ranking: 16 Quebec has Canada’s largest credit union system

— 3 — GLOBAL INVESTMENTS

in the FinTech sector in 2014

$6.8 BILLION

vs. $3 billion in 2013 (USD) In 2013: $12 billion

— 6 —

By 2018: $14.8 billion

ZAFIN

was on America’s Banker’s 10 companies to watch list in 2013

— 5 — Shopify (Ottawa)

$100M

Verafin (St. John’s)

FINTECH COMPANIES Deloitte’s Canadian Technology Fast 50

— 7 — KYLE MACDONALD

(CEO of Phoenix Interactive Design) was named RBC Canadian Woman Entrepreneur of the year for the second time in 2014

$60M

Lightspeed Retail (Montreal)

$35M

Blockstream (Montreal)

$21M

Zafin (Vancouver)

$US 15M

Financeit (Toronto)

$13M

— 8 — D+H SALES IN 2014

$1 BILLION

703K

— 9 —

— 10 —

SIZE OF CANADIAN FINANCIAL SERVICES WORKFORCE

BANKING-RELATED PATENTS

279,975 working for Canadian banks

Increase from 2009: 125% Number of financial customers

7,000+

7

— 4 —

300+

patents granted to investors based in Canada by the U.S. Patent and Trademark Office from 2003 – 2011

FINTECH STARTUPS A growing number of Canadian FinTech companies are making an impact nationally and internationally.

In partnership with:

The CVCA has a diverse membership which includes Canadian venture capital and private equity firms, as well as international investors, debt and equity providers, institutional funds, government entities, angel and family offices, and industry service providers. Join today and gain access to information and networks that will help your organization grow and prosper.

Member Benefits InfoBase:

Benefits:

Free, unlimited access to the most comprehensive database on Canadian private capital investments, exits and fundraising activity.

Apply for the Multi-Employer Group Benefits package. Design coverage for employees and portfolio companies at discounted rates.

Profile:

Events:

Get featured in the CVCA’s Private Capital Magazine and on our news site.

Connect with industry professionals – speak at or host networking and professional development events with full support from the CVCA.

About the CVCA: The CVCA is the voice of Canada’s venture capital and private equity industry. We are focused on improving the private capital ecosystem by broadening industry awareness, providing market research, and coordinating networking and professional development opportunities. We also advocate on behalf of the industry to ensure sound public policy that encourages a favourable investment environment.

Apply Today:

visit www.cvca.ca for more information.

Contact us:

P: 416-487-0519 | F: 416-487-5899 Email: cvca@cvca.ca

Connecting BC Entrepreneurs with Venture Capital

ARCH Venture Partners

VANCOUVER | CALGARY | EDMONTON | WINNIPEG | TORONTO | MONTREAL

No matter which direction you’re thinking of taking your business, the right guidance and transaction advice will help you choose the best route.

Deciding to sell your business, buy a business or find new financing for your business is one thing. Deciding which approach to take is another. MNP Corporate Finance transaction advisors know the right roads to take – and the connections you need – to make whatever direction you’ve decided on work for you. We’ll develop strategies for every km of the journey – whether that journey is across the street or across the international date line.

Contact Ted McCarron - President, Corporate Finance at 1.877.500.0792 or ted.mccarron@mnp.ca

Transaction advice that gets you there.