Innovacorp ramps up investments in Nova Scotia firms as part of revamped strategy

Manages two VC funds

Innovacorp is investing like never before. In the year since the arrival of its new president and CEO, the frequency of investments made by Nova Scotia's primary commercialization vehicle has exploded, reflecting a major re-orientation of the provincial research organization towards a greater emphasis on fostering investment-grade, early-stage companies.

There's been a dramatic 630% increase in investing in the past year, with most of the activity taking place within the last six months of 2011. Innovacorp now manages two investment funds - Nova Scotia First Fund established in 2003 and the new $24-million Clean Tech Fund launched in November. It is also helping to set up the forthcoming $50-million regional venture capital fund for the whole Atlantic region. Nova Scotia and New Brunswick have each committed $15 million to for-profit fund and the investors will collectively select the fund manager.

"We're now focused on investment for success," says Dr Clifford Gross, who took Innovacorp's helm February 1/11. "There are lots of entrepreneurs around and we have a great backlog. We're now making an investment every three weeks on average."

Helping to determine investment candidates with the greatest potential is the recently created Innovacorp Science and Technology Advisory Council, which helps to make a preliminary assessment on a company's investment potential. If a decision is made to provide support, Innovacorp makes an investment (usually taking an equity position) and makes all its resources available to increase the likelihood of market success.

Innovacorp's three divisions have been streamlined to two, with mentoring folded into the investment division. It has also expanded its incubation reach across the province including a new facility co-located at Dalhousie Univ and a new facility planned for Wolfville in conjunction with Acadia Univ.

"Prior to my arrival, we had three divisions - mentoring, investment (venture capital) and incubation. The problem with doing all of these things, if the goal is to build successful companies, you have to have a coherent strategy and focus on companies with the highest potential for success. This was not being done well."

vc lacking

The pent up entrepreneurial activity in the province is partly the result of the dire situation for venture (VC) in Nova Scotia. Canadian VC investment is half of what it is in the US and Atlantic Canada investment activity is half the Canadian average. In 2008, nearly $15 million was invested in Nova Scotia companies - an amount which plummeted to just $10 million in 2010.

Regional institutional investors are scarce and business investment in R&D is far below the national average - 0.3% of GDP compared to 1.12% Canada-wide.

"There's nothing wrong with the culture. Some companies are building quite compelling businesses under difficult conditions ,such as the lack of VC," says Gross, who was president and CEO of UTEK Corp from 1997-2009 helping to transfer university technologies to industry. "We're helping to catalyze companies and help them grow because all the new jobs are coming from these types of companies."

SWOT analysis

The organization recently completed a SWOT (strengths, weaknesses, opportunities, threats) analysis which spells out in considerable detail how Innovacorp is performing. On the plus side, its High Performance Incubation model has been internationally recognized and its visibility with the private sector is increasing. Linkages with other players in the national innovation system are seen as strong and its in-house expertise is viewed as highly relevant to the private sector.

In the negative ledger, lack of funding is cited in its inability to fit up space in the new Innovacorp Enterprise Centre on the Dalhousie campus, while a decrease in employee head count (currently 38) is challenging its ability to sustain a level of quality support for clients. In addition, the analysis noted that the occupancy rate at its incubators is low, standing at 81% in FY10-11.

In FY 11-12, the provincial government provided Innovacorp with $6.6 million or 77.2% of its $8.5-million annual budget. A further $1.6 million came from fees paid by its incubator tenants.

Of course, the modest operating budget doesn't include the considerable VC funding Innovacorp manages on behalf of the province, which has allowed it to aggressively ramp up its investment activities.

"We have $65 million in early stage venture funding plus our operating budget," says Gross. "The latest is a $50-million regional VC fund. We have the capital committed and we're searching for a fund manager. VC is needed particularly in this region. There's a chasm that needs to be crossed ... Small cap IPOs have been decimated so M&A (mergers and acquisitions) are the preferred exit."

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