Government of Quebec to study Innovatech du Grand Montréal for possible privatization

The government of Quebec has launched an examination of the province's third largest venture capital organization to determine its suitability for privatization, possibly to an interest outside the province or even the country. The decision to strike a working group to study Société Innovatech du Grand Montréal (SIGM) was made at the request of SIGM president Hubert Manseau, who says there is room for a private sector player in a field where virtually all the major players are related in one way or another to government.

Manseau is also serving a two-year term as president of Réseau de capital de risque du Québec, the provincial venture capital organization. Last year he was studying the possibility of creating another public venture capital fund when he came to the realization that SIGM might better serve Montreal's emerging high-tech firms if it was transferred into the private sector.

"The time has come when you can envisage the whole thing being run for a profit. The Finance minister agrees with my analysis of the situation," Manseau told RE$EARCH MONEY, adding that there have been dramatic changes in funding for the high-technology sector in the eight years since the fund was originally created. "I've concluded that (the idea of) privatizing Innovatech would come to the government in one or two years. It can't be avoided."

Manseau took over the reins of the $350-million fund from Dr Bernard Coupal, who left in 1997 to create T2C2, a venture capital subsidiary of the giant Caisse de dépôt et placement du Québec. He says that since that time, SIGM has been making a profit for the province, achieving a 45% rate of return in the FY ending March 31/00. In the past year, it has concluded 52 financings, or an average of one deal per week.

The availability of risk capital today for emerging sectors is a far cry from the days before SIGM's formation, when most venture financings flowed into traditional industrial sectors leaving Montreal's nascent high-tech sector starving for cash. In 1992, the provincial government formed SIGM to focus on Montreal-area firms in the start-up phase or at the time of technology transfer in the information technology, telecommunications, health sciences and industrial sectors.

At that time, just 4% of venture capital found its way into high-tech, compared to 61% of the provincial total today. It's that quantum shift, combined with the forces of globalization and the retreat of government from the marketplace that set the stage for SIGM's possible privatization. The Quebec government is a notable exception to the latter trend, having struck a highly interventionist approach to economic development. But that may now be changing.

"The four or five big funds are all related to some level of government. The situation is quite different from the United States where venture capital is mostly private," says Manseau. "If you want a successful high-tech industry, you need more players backed by the private sector. It makes the milieu more competitive."

Details of the composition of the government-led working group are slated for announcement next week, as is the time frame it will be working under. Manseau would only say that a decision would be made during this FY.

During FY99-00, $727 million was invested in Quebec-based firms. While that represents a record high and a 15% increase from the previous FY, it was overshadowed by the investment performance of Ontario which more than doubled from $531 million to $1.26 billion in the same period, with a whopping 88% flowing into technology firms. Nationally the growth rate of venture capital investment was 64%, with high-tech capturing 70% of the total.

In 1999, the total amount of venture capital under management in Quebec was $6.3 billion, up from $5.1 billion a year earlier. Half of the new capital was raised through the Fonds de Solidarité. The 1999 provincial total accounts for 52% of the $12 billion under management nationally.

Manseau says he has every intention of remaining with SIGM if it is sold to a private sector interest. "It's a kind of a dream for me. I like the company and when I took over it was to (help it) expand and grow. Privatization will put us in a better position to do that and myself and my team would stay on," he says. "Venture capital is not just a portfolio but a team, and it's important that the management makes the transition."

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