Rusnano teams with VentureLink to create Canada's first nano venture capital fund

Russia's attempts to develop a knowledge-based economy and diversify away from a reliance on natural resources have produced a groundbreaking memorandum of understanding with a Canadian venture capital firm to finance new start-ups in select application areas of nanotechnology. The state-owned Russian Corporation of Nanotechnologies (Rusnano) is collaborating with Toronto-based VentureLink Group of Funds to establish the Canada-Russia Nanotechnology Venture Capital Fund (CRNVCF), with the objective of lining up between $100 million and $200 million in financing.

Subject to final approvals from the Russian government, the agreement would create Canada's first VC fund exclusively dedicated to nanotech and mark a significant advance in bi-lateral S&T collaboration between the two nations. The agreement was the highlight of a recent visit by a Rusnano following an initial exploratory visit last year and included discussions with officials from the Ontario Ministry of Economic Development and Trade (MEDT) and the Ministry of Research and Innovation (MRI).

With the CRNVCF, VentureLink is seeking to engage nanotech research expertise from coast to coast and all levels of government to winnow out the most promising nanotechnologies in the areas of information technology for nano-based applications, energy production and storage, advanced materials, biomaterials and others.

"I want to get all the players involved so that we can collaborate, take a cohesive approach and identify five or 10 of the best opportunities," says VentureLink CEO and managing partner John Varghese. "I'm in the start-up stage for establishing the basis to build this business out. I now have the foundation and will soon be in a position to go to the market with national and international LPs (limited partnerships)."

engagING all canadian players

Varghese has made overtures to the main nanotech research institutions and funding organizations in Canada, including the National Institute for Nanotechnology in Edmonton, the Waterloo Institute of Nanotechnology, NanoQuebec and NanoOntario.

Rusnano was created in 2007 by the Russian government with the aim of creating a nano industry by that will be producing marketable products worth 900 billion rubles ($29 billion) by 2015. In addition to Canada, Rusnano is also negotiating a similar agreements with VC players in Israel and California. With the VentureLink MOU, Rusnano has committed to be a key partner and provide a "very significant lead order".

"Rusnano has seven state-owned corporations to take the technologies we pick. It's ready receptor capacity. As we commercialize, we have a customer waiting for us. We have a path to market," says Varghese. "Rusnano has given enough to build from. We're looking for significant investors and I hope to match, double, even triple (its contribution)."

Canadian scientist acts as broker

To help broker the discussions, facilitate introductions and advance the VC nanotech agreement, Rusnano turned to Dr Roman Maev, a highly regarded researcher at the Univ of Windsor who was appointed honorary consul of the Russian Federation two years ago. Maev is a professor in the Univ of Windsor's faculty of science, DG of its Institute for Diagnostic Imaging Research and a Chrysler/NSERC Industrial Research Chair in applied solid state physics and material characterization.

"The original plan was to put together government money but then it was decided to put private money together. I talked to VC in Ontario and Quebec and it took a half a year to find the right one," says Maev. "Rusnano wants to try and find the proper companies and convince them to do joint ventures or open a branch in Russia … The idea is receiving good support from Ontario, Quebec and Alberta, which all have a high priority in nanotech."

Varghese is confident that Rusnano's board will approve the joint venture with his company by early November, allowing him to formally commence fundraising with the aim of completing the first closing by the second or third quarter of 2011. Maev, on the other hand, says he wants to wait until Rusnano approves the deal before breaking out the champagne — even though Rusnano is acting on orders from Russian prime minister Vladimir Putin.

"We'll see what happens … There's an extremely complicated bureaucracy in Russia. It's very hard for Rusnano send money from one place to another without approval," says Maev. "A venture capital culture does not exist in Russia. It's brand new. It's good to do this because Canada and Russia need to develop expertise."

Policy challenge

Another challenge facing the development of nanotech companies and products in Canada is the lack of a national nanotechnology strategy. Varghese says every level of government should be deeply involved in bi-lateral initiatives like the CRNVCF.

"Other countries have been very proactive in creating national strategies and Canada has not done that yet," he says. "Academia is well ahead of the market but NanoOntario, other provinces and NINT are moving these ideas along so that the intellectual property and company ideas are ready to move to the next level."

Maev says that Russia and Canada share an over reliance on natural resources and agrees the lack of a national strategy poses a significant challenge, so he's pleased that the federal government appears ready to move the yardsticks.

"I spoke with (Industry minister) Tony Clement two months ago and he said he would build a team and create a branch to help network and develop a national strategy," he says. "We are having a meeting about this at the end of November."

For its part, Ontario is eager to see the CRNVCF succeed and utilizes its network of commercialization instruments such as the Ontario Emerging Technologies Fund — a $250-million fund designed to stimulate new technology sectors by co-investing in innovative, high-growth Ontario firms.

Bill Mantel, director of MRI's commercialization branch, says that while the recent discussions between MRI staff and Rusnano did not produce any tangible results beyond the nanotech MOU, it was helpful to keep abreast of potential developments and Rusnano intentions.

"Rusnano has money to invest (and) they want to keep us informed," says Mantel. "We have a lot of sophisticated resources for commercializing technologies and growing companies."

R$