Two more Canadian venture capital firms have withdrawn from the federal government’s program to spur investment in the domestic technology sector, The Logic has learned. 

The firms—AmorChem and Pique Ventures—were selected for a stream within the Venture Capital Catalyst Initiative (VCCI) designed to back fund managers from underrepresented backgrounds. Their departures—and the previous exit of a major U.S. asset manager—mean more than a sixth of the $450 million budgeted for the program remains unused. 

The Liberals announced the VCCI in the 2017 federal budget, after industry embraced the previous Conservative government’s Venture Capital Action Plan (VCAP). The VCCI Stream II divided $50 million of the $450-million program total between fund managers with diverse teams, or that focused on investing in companies run by founders from underrepresented groups or in less-capitalized regions and sectors. Participating firms had to raise private capital to match the money from the federal government. 

In November 2018, Small Business Minister Mary Ng announced the selection of seven funds for the stream. But documents obtained by The Logic under federal access-to-information law reveal Westmount, Que.,-based AmorChem and Vancouver’s Pique Ventures subsequently dropped out. 

In March 2020, The Globe and Mail reported that Philadelphia-headquartered Hamilton Lane was withdrawing from the VCCI’s largest stream, following fundraising challenges. It was one of five funds-of-funds Ottawa had chosen to split $350 million, which they were to invest in VC funds, as well as directly into companies. The five were required to obtain private-sector commitments for two and a half times the federal contribution.

Following the exit of the three firms, the VCCI has not allocated almost $78.6 million of the $450 million originally budgeted for the program, according to a June 2020 internal report from the Business Development Bank of Canada (BDC), which administers the program; The Logic obtained the report via access-to-information request. 

The VCAP and VCCI programs have “helped to provide a total of over $3 billion to grow Canadian companies here and abroad,” Ng’s press secretary Alice Hansen said in a statement. In April’s federal budget, the government announced plans to renew the VCCI, allocating a further $450 million to “support the continued growth of Canada’s innovative companies,” Hansen said.

Innovation, Science and Economic Development Canada (ISED) declined to disclose what was done with the money that was to be invested through the three firms that withdrew from the program, or how much was allocated to each of the fund managers in the first two streams.

AmorChem, which backs early-stage biotech companies, withdrew from the VCCI in November 2019. It had planned to add its $8-million allocation to its closed second fund, said Elizabeth Douville, co-founder and managing partner. Existing limited partners (LPs) included the Quebec government, Fondaction and pharmaceutical giant Merck. 

AmorChem negotiated with BDC for a year after being selected for the program. “There were some conditions on the federal end that were just very challenging for the current LPs and [AmorChem] to accept, given the fund was already a going concern,” said Douville. She declined to provide further details. 

Giving up the VCCI money was “very unfortunate, because for us it would have been game-changing,” said Douville, noting AmorChem is one of very few life-sciences funds run by two women. The firm planned to use the federal capital to start financing Ontario companies, but its expansion to the province has largely been put on hold since, making only one such investment.

Pique Ventures founder Bonnie Foley-Wong acknowledged the VCCI’s terms are designed to protect public money, but said the government’s lack of flexibility contributed to her firm’s January 2020 withdrawal. For example, “I was raising solo and I tried to bring on partners,” she said. “That was a difficult barrier to overcome with [the government], because [Pique’s VCCI] proposal originally contemplated me running the fund.”  

Foley-Wong said Pique was allocated $5 million from the VCCI for its first institutional fund, and had another $1.5 million in soft commitments from investors when it withdrew. She did not go on to raise the fund. Pique’s initial angel fund, focused on women-led technology companies in B.C., had its first exit in March, when portfolio firm Beanworks announced it would be acquired for $104 million. “Imagine if I had more capital to steward,” said Foley-Wong, who noted she was one of the only women of colour among the VCCI fund managers. “I would be helping a whole host of other entrepreneurs.” 

Despite the withdrawal of the three VCCI participants and the unallocated federal funding, the program has exceeded Ottawa’s target for injecting capital into the Canadian VC ecosystem. The 15 fund managers originally selected to receive the $450 million were required to raise a further $975 million from other investors, for a total of nearly $1.43 billion. The June 2020 BDC report shows the 12 firms that successfully closed their funds ultimately secured nearly $1.45 billion from provinces and private investors, bringing their total deployable capital to almost $1.81 billion.

Some of the capital originally awarded to Hamilton Lane, AmorChem and Pique was reallocated to other VCCI recipients “to maximize funds available,” said a senior government official, whom The Logic has agreed not to name because they were not authorized to speak publicly. ISED did not disclose how much was reallocated, or to which fund managers. 

Stream I now includes $278.9 million of federal capital, including $7.5 million transferred from Stream II, which was revised to $42.5 million, according to the BDC report. Moving capital between the streams contradicts advice that ISED’s small-business branch gave Ng in a January 2020 briefing note about funds withdrawing from the VCCI. The memo, which The Logic obtained via access-to-information request, also recommends against considering new applicants or leaving the money unallocated. 

It notes that the federal government “committed to deploying $50 million” via Stream II “in strong emerging managers and new innovative VC investment models,” and that the program’s expert selection committee “provided useful advice in the event of a need to reallocate.” ISED did not address The Logic’s question about why it did not follow its own advice.

“As an innovative and experimental stream under the VCCI that placed investments in emerging managers and new VC models, it is not surprising that challenges in finalizing agreements with some [Stream II] recipients arose,” the memo states.

The 2021 federal budget’s renewal of VCCI followed calls from the Canadian Venture Capital & Private Equity Association to support the sector during the COVID-19 pandemic. The new edition of the program will set aside $50 million to increase financing availability for “underrepresented groups, such as women and racialized communities.” 

Another $50 million will go to life-sciences fund managers. AmorChem’s Douville welcomed the new stream. “I do think that the government has, still, a role to play to help the venture capital community [in the sector],” she said. While ISED has yet to reveal details of VCCI’s life-sciences stream, AmorChem plans to raise new capital, and Douville would like to participate in the federal program.