TMX study looks at innovation funding woes

Globe and Mail reports on roundtable recommendations to close growth funding gap.

Canadian growth companies face a $4-billion funding shortfall compared with U.S. rivals that should be filled by tapping the country’s pension plans, banks and insurers, according to a study due to be released Tuesday and backed by the TMX Group Ltd.

A roundtable made up of Canadian venture capitalists, bankers and executives from the country’s largest pension funds found that domestic entrepreneurs are good at launching leading-edge companies but struggle to scale up the businesses compared to peers in the United States and Britain, in part due to a lack of capital.

The study found that over the past decade, the capital available to Canadian growth companies has declined and domestic companies are now only able to access approximately a third as much money as their U.S. counterparts, with the gap growing as businesses get larger. The roundtable estimates $1­billion is needed to fund growth at early stage Canadian companies to match the financing available to U.S. and British businesses, and a further $3­billion is needed to boost more mature innovation companies, which are currently not growing as quickly as they should due to a lack of money for investment.

This money could be found by creating a private­ sector “innovation growth fund” backed by pension plans and large financial institutions and renewal of the government­ led Venture Capital Action Plan, which sees private­ sector capital blended with government money to fund growth companies.

“This is a call to action for institutional investors, for financial institutions, for government and for exchanges,” said Salil Munjal, chairman of the Advancing Innovation Roundtable and managing partner at Vancouver ­based venture­ capital firm Yaletown Partners. He added: “We are not trying to say that every innovation company should be funded. This must be a returns­ driven discussion.”

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Author: Andrew Willis, Globe and Mail