Nova Scotia Revamps Venture Capital Funding
July 25th, 2014
The Nova Scotia government unveiled a new policy on business development on Thursday, which will result in a three-pronged approach to venture capital investment in the province.
The most immediate change will be Innovacorp, the provincial innovation agency, becoming the sole Crown corporation responsible for VC investment and adopting a simplified procedure for seed investments. Nova Scotia Business Inc., which has a portfolio of 12 companies, will no longer make venture capital investment. Its primary roles will be business attraction and the development of businesses and trade.
Meanwhile, government will release a Request for Proposals in the autumn for proposals from the private sector to launch a new investment vehicle that would use public and private funds.
The third prong is Build Ventures, the regional private VC fund for follow-on financing, which all Atlantic Provinces and the federal government have committed to funding.
Michel Samson, the minister of Economic and Rural Development and Tourism, said the government is not saying how much it will contribute to the new Nova Scotian investment fund, preferring to first review the proposals it receives.
“The private sector has told us … that government needs to be more responsive to the needs of business,” said Samson in a statement. “This means having experts who understand solid business cases and the need for quick turnaround.”
Nova Scotia has had two publicly owned VC funds, with Innovacorp tending to invest in early-stage companies and NSBI doing later stage investments. Innovacorp will now consider whether to take over some members of the NSBI portfolio, said CEO Stephen Duff. (There are a few companies, such as Oris4 and Health Outcomes Worldwide, that have received investment from both organizations.)
Innovacorp has adopted a new policy in which it will offer a simplified term-sheet to companies receiving seed investment, of say $250,000 or less. More thorough negotiations may still be required for larger investments. Duff said the goal of the simplified term sheets is “to introduce speed, lower costs and more efficiency when we’re reaching agreements.”
As for the new VC vehicle, Samson said the government wants private operators to look at gaps in the current financing ecosystem and propose a system that would improve it. In a brief interview with Entrevestor, the minister said his department is aware of reforms now being introduced in Newfoundland and Labrador that could serve as a model.
Newfoundland will put money into a fund managed by GrowthWorks Atlantic, and members of the Newfoundland and Labrador Angel Network will also be invited to invest. NLAN members putting money into the fund will be eligible for an investment tax credit.
“I’m pretty sure the Newfoundland model will be something we’ll be looking at,” said Samson.
Meanwhile, a spokesman for NSBI said the organization is reviewing the future of its investment portfolio, and the team headed by Peter MacNeil.
NSBI will assume some of the business development duties — including the Capital Investment Rebate and the Small Business Development Program — now handled by the Department of Economic and Rural Development and Tourism. It means the government will no longer operate the Jobs Fund, which had been criticized as a political slush fund.
Thursday’s announcement came about after the government received three reports in the last year: the report of the OneNS commission led by Acadia University President Ray Ivany; a report on venture capital by consultant Gilles Durufle; and a review of economic development tools by former Dalhousie University president Tom Traves.
The companies in the NSBI portfolio, as listed on the Crown corporation’s website, are:
Azorus
Industry: CRM Software Development
Authorized Investment: $2,500,000
Dynagen
Industry: Energy Control Management
Authorized Investment: $1,000,000
Halifax Biomedical
Industry: Life Sciences
Authorized Investment: $2,000,000
Health Outcomes Worldwide
Industry: Healthcare/ e-health/ technology
Authorized Investment: $1,500,000
Impath Networks
Industry: Software Development
Authorized Investment: $4,000,000
Intelivote
Industry: Electronic Voting Software
Authorized Investment: $2,800,000
Kytogenics
Industry: Medical Product Development
Authorized Investment: $2,000,000
LED Roadway Lighting
Industry: Renewable Energy
Authorized Investment: $11,000,000
Origin BioMed
Industry: Health
Authorized Investment: $7,928,000
Oris4
Industry: Enterprise Technology
Authorized Investment: $1,000,000
Techlink
Industry: Responsible Gaming Software
Authorized Investment: $13,000,000
Unique Solutions
Industry: Apparel and Health
Authorized Investment: $5,628,108