Locals question why Toronto VC managing B.C. Tech Fund money

Choosing Ontario companies to allocate B.C. tech dollars roils local venture capitalist

The choice of Toronto venture capital firms to receive money from the $100 million BC Tech Fund is drawing criticism from some quarters of B.C.’s technology community | DRogatnev/Shutterstock

When Lumira Capital’s team touched down in Vancouver in early April for its annual general meeting, the Toronto-based venture capital firm was also marking the first time it would have an office in B.C.

The new office was non-negotiable for the firm receiving an investment from the province’s $100 million BC Tech Fund managed by Kensington Capital (also headquartered in Toronto).

Lumira had previously invested in two B.C. companies – Victoria’s Aurinia Pharmaceuticals Inc. (TSX:AUP) and Vancouver’s Zymeworks – but had no permanent presence in the province before securing the investment.

Six months after the launch of the province’s $100 million fund of funds, Toronto’s heavy influence on B.C. taxpayers’ money isn’t sitting well with the local venture capital companies.

“I don’t think the BC Tech Fund has achieved the goals that were originally intended for the program,” said Timia Capital (TSX-V:TCA) CEO Mike Walkinshaw, a decade-plus industry veteran who cut his teeth as Vancouver-based Chrysalix Energy’s chief financial officer.

“Clearly the B.C. government was trying to put in place a program that would help fund technology companies in British Columbia and in their eyes create job growth. So far, I don’t believe that has happened. I can probably count the number of deals that have received money through the BC Tech Fund on one hand.”

The $100 million fund of funds has $25 million earmarked for direct investment in early-stage companies. The remaining $75 million is to be allocated to venture capital funds that are required to invest in B.C.-based startups.

Last fall, Vancouver’s Vanedge Capital became the first fund to receive money from the $75 million pool. And tech startup Mojio received a direct investment in the range of $1 million to $3 million from the $25 million direct investment pool, Kensington Capital managing director Rick Nathan told Business in Vancouver in November 2016.

Toronto’s Lumira is the third entity to receive funding from the BC Tech Fund since its launch in October. Lumira CEO Peter van der Velden said company policy prevented him from revealing how much money it received from the fund. But Nathan said he expected investments in other funds would be less than the $15 million Vanedge received.

As BIV reported in April 2016, two B.C. entities with local knowledge and venture capital investment expertise were shortlisted along with Kensington to run the tech fund.

Walkinshaw said his venture capital firm also put in a bid to manage the BC Tech Fund but he acknowledged that the other two local entities had stronger bids.

“I was perfectly fine with any of those [local] players getting that money. My goal in that was to make sure that money ended up in British Columbia so that we could start a fund of funds industry here.”

Kensington Capital managing director Gerri Sinclair told BIV that no matter where a fund manager is headquartered, the money will still go to B.C. companies.

“One of our mandates is to attract outside of the province a fund to [move to] B.C. in order to qualify for the tech fund,” said Sinclair, who was recruited by Kensington last year to launch an office in Vancouver (like Lumira, it had no permanent presence in the province prior to the tech fund).

She previously served as president of Premier Christy Clark’s technology council.

Sinclair said there is a shortage of life science venture capital funds in B.C., so attracting Lumira is a “huge accomplishment” for the BC Tech Fund.

Lumira has in turn hired Aurinia Pharmaceuticals chairman Richard Glickman, whose company previously received investment from Lumira, to lead its single-partner office in B.C.

Timia Capital has made four deals with B.C. tech firms, with a fifth to be announced soon, Walkinshaw said.

“We’ve probably done more deals in this province than any VC [venture capital firm] has done in this province this year. And yet we don’t qualify for the funding because we’re not a $100 million fund.

“This program had the intent of really providing the funding to local venture capital companies. Now, somewhere along the line, the structuring of the fund moved to a place where only the absolute largest funds were going to get money. As a result it excluded almost all of the local companies that are making investments in this province.”

Surrey-Tynehead MLA Amrik Virk, who served as B.C.’s technology minister when the tech fund was announced in December 2015, said he expects to hear criticism from the local community when a Toronto firm receives the funds.

But he said the calibre of the Toronto funds would ultimately benefit B.C.

“When we get a Toronto company like Lumira that’s going to engage at a deeper level in B.C., that’s going to raise all ships,” Virk said.

“They’re going to invest more in our local space. And, if we’re bringing the centre of that venture capital world [Toronto] … further and further west toward us, this is a positive for all of these companies.”

Virk said he expects Lumira’s high profile to have a “multiplier effect” and draw more venture capital firms to the province.

But the rollout of the BC Tech Fund has irked George Heyman, MLA for Vancouver-Fairview and BC NDP technology critic.

“We have firms in British Columbia that would have loved to have had the opportunity that Toronto’s Kensington Capital was given,” the MLA said.

Heyman said that while he understands Kensington and Lumira have both established B.C. offices, it should be up to the government to “build up greater capacity in British Columbia and not send our opportunities and much of our money outside of the province.”

While all the money from the BC Tech Fund is required to be invested in local early-stage companies, the fund managers are entitled to annual management fees based on a percentage of the $100 million they manage as opposed to how much money is distributed each year. A 1% management fee, which is below industry standards, would net Kensington $1 million annually.

Kensington is also entitled to management fees for taking over the remnants of the taxpayer-funded BC Renaissance Capital Fund.

Jay Rhind, a principal at the Vancouver Founder Fund, said he understands the frustrations in the local VC fund community but argued that a fund-of-funds manager like Kensington should be basing its decisions solely on merit and not geography.

“If you look at the VC fund universe in Vancouver … the options of where Kensington can deploy that cash if they were only to choose local managers is pretty slim,” he said.

Rhind’s venture capital fund, which launched in October 2015, is one of B.C.’s newest funds. He said the BC Tech Fund “is a really nice initiative, but in no way is this going to be the silver bullet that solves all of our problems of the availability of capital.”

– With a file from Kirk LaPointe