[...] Growth Times » In the “I Told You So” Series… Financial Post and the Ontario Emerging Technol… Karen Mazurkewich, Financial Post, in an interesting article today entitled “The new uber-angels” comparing the VC-fund approaches of Ontario and Quebec, declares on the Ontario Venture Capital Fund that “What Ontario didn’t — or couldn’t — predict was the lack of potential co-investors for these funds.” [...]

As a firm that has been involved with three transactions with OETF I have to say we have been very pleased with our interactions with them. It is worth noting that angels and individual investors are involved in some of the companies involved and their involvement is clearly valued by OETF

During the OETF qualification process, the questions they asked were smart ones and the process was no different than what we see when we are raising a new fund.

Our experience has been that the “bureaucrats” managing OETF are actually more business astute than some other professional investors we have interacted with.

On the transactions themselves, OETF was very flexible and acted like a private investor recognizing the business realities of the proposed transactions rather than citing stringent “rules”. The business due diligence was very reasonable and was consistent with what you would expect from a smart investor wanting to understand an industry before making an investment.

Yes this sounds like a lot of praise for a government agency but the truth is the experience with OETF was much better and easier than dealing with some of our VC colleagues – the bureaucracy was minimized and business sense prevailed. To date, OETF has been an ideal partner and Ontario companies and investors are fortunate to have access to this resource.

Hi Tim,

Thanks for dropping by, it is good to hear from you about your experience with the OETF and get to read a different perspective on that program.

I must point out that most of your post points to your experience with the OETF and its management, while the criticisms in my post as well as in the Financial Post article focus on a very different aspect of the OETF – and I would argue a much more important one: its effectiveness to date in leveraging public dollars to drive new investments towards tech ventures.

The facts brought up by the Financial Post are pretty compelling:
- 18 months before OVCF announced its first investment in Canada–just $15-million;
- Northleaf has made commitments to three Ontario funds (…) Not one of those funds have closed, which means that none of the money has been deployed yet [due to] the lack of potential co-investors for these funds.

And to those I added two more, at the source of my claim for incompetence at the top (not to those managing the fund, but to those who designed it and approved it):
- that the lack of matching investments given the design of the fund could easily be predicted ahead of time. I did just that as my August post shows, and I have no direct experience as a VC;
- that smart regulation such as dropping section 116 would achieve much more than direct intervention through public funds, grants, and funding of larger, shinier offices and additional staff for public and nonprofit hubs.

It would be great if you could share your comments and any additional facts you might be able to share to support your views on each of those points.

As for your experience with angels investing in the fund, I’d love to (1) learn from you how those angels overcame the barrier I cited in my post, to know whether they are exceptions to the rule, and if not why not more angels are taking advantage of this program
(2) if they want to comment, hear the response from my source for the claim that angels are pretty much excluded from participating, which contrasts with your experience .

Apologies, the first bullet point should read “it took nearly 18 months before OVCF announced its first investment in Canada–just $15-million.” (compared to 5 months in Quebec)

Greg:

First, thanks for your support of entrepreneurs and investors. It is great you are getting these issues on the table.

Completely agree with you on s116. It is a huge issue that the industry has been working/lobbying to have changed (and MRI has been helping with the lobbying effort). Really hoping the feds will see the light and get this resolved ASAP.

The comments about OVCF are fair however I would give Northleaf credit for making their commitments public and for working hard to help those Ontario funds secure other LP commitments. By going public Northleaf has attempted to give those funds a jump start on their fundraising process.

Fundraising has always been a long process and I expect 2010 will see a few Ontario mangers successfully close new funds with OVCF as a lead order.

On the angel front, I do think the vetting process at OETF is both fair and reasonable and is structured to allow angels to participate. I don’t think the diligence or disclosure required is unreasonable and is in part to ensure that (given the lack of capital in the markets) angels and other investors have the ability to provide follow-on financing if required. Our recent experience is that these days many angels are looking to co-invest alongside VC funds because today, more than ever, it is important to have deep pocketed investors in a company from the beginning. I will be able to comment further on this topic once some announcements are public – probably in the next couple of weeks.

Again, thanks for highlighting the issues.

Tim