Hard to tell if Canada venture capital fund will work: watchdog

By David Ljunggren
OTTAWA, May 3 (Reuters) - It is hard to tell whether a C$400
million ($315 million) Canadian venture capital fund will boost
innovation as intended because there are few ways to measure its
effectiveness, the country's top independent watchdog said on
Tuesday.
The previous Conservative government set up the so-called
Venture Capital Action Plan in 2013 to stem the loss of young
entrepreneurs to the United States and to rekindle investor
interest in providing start-up funds for new ventures.
Auditor General Michael Ferguson, who reports to parliament,
said Ottawa had too few tools to measure its success.
"It is unclear what impact the government's action plan will
have on venture capital and innovation," Ferguson said in a
statement accompanying a probe of the fund.
The system Ottawa set up to assess the fund's performance is
limited and is not due to formally start monitoring progress
until 2021, he added.
"This will not provide information early enough to support
important decisions such as whether to launch a similar program
in future," said Ferguson.
Monitoring should be boosted to include data on how many
companies who received funding were successfully floated, their
export growth and financial performance as well as how many new
patents they had registered, he added.
The C$400 million was used to establish two new,
private-sector-led national "funds of funds" to invest in other
venture-capital funds, to recapitalize existing large private
sector-led funds of funds and to invest in four existing,
high-performing venture-capital funds in Canada.
Ferguson suggested the plan be changed to allow public
sector partners to end their participation while the funds were
still operating.
"An early exit of the public sector partners could send a
strong signal of the private sector partners' confidence that
their returns at termination will be sufficient," he said.
Ottawa wanted the funds to spur investment in such sectors
as digital media, information technology, clean tech and
telecommunications.
Private sector backers include Richardson GMP, Open Text
Corp OTC.TO , Royal Bank of Canada RY.TO , BMO Financial Group
BMO.TO , Canadian Imperial Bank of Commerce CM.TO ,
Toronto-Dominion Bank TD.TO and Bank of Nova Scotia BNS.TO .
Ferguson said the government initially had trouble
attracting private sector investors, who complained about low
returns, strict international regulatory requirements and high
management fees.
He also said there had been "significant shortcomings" in
the selection process for fund managers which meant it was not
fair, open and transparent.
The government was due to react later on Tuesday.
($1=$1.27 Canadian)