Editorial - 22-8

The recently released internal report on the venture capital (VC) activities of the Business Development Bank of Canada contains a wealth of insight into the Canadian VC industry and its challenges going forward in a globally competitive environment. There's no doubt VC in this country is experiencing a host of problems in addressing the needs of the high-tech industry while achieving an acceptable rate of return.

The report examines how BDC fits into the current financial mix and is unflinching in its assessment of existing constraints and possible remedies. On the positive side, it supports the current BDC VC emphasis on seed and early-stage investment, as well as its expansion of fund-of-funds activities and larger financing rounds.

The report says BDC's impact could be even greater if it implements a range of changes. Notable among these is a stronger focus on backing winners and cutting off non-performers sooner than later, attracting "A"-type management teams, building strong general partnerships and adopting best practices in all areas.

Most importantly, the report endorses the role of publicly backed VC as a key mechanism for addressing areas of investment where privately backed VC currently fears to tread. Poor returns and the lingering impact of the meltdown in the telecom and dotcom sectors have made private VC much less risk averse, leaving promising early-stage companies with few options for securing financing. The report is essential reading for anyone with a stake in the future of the industry.