BDC snows the Senate part 6
I put down my pen on this topic, assuming you’d had your fill of examples of the Senate of Canada’s Report on the Business Development Bank of Canada’s 10 year Statutory review (see prior post “BDC snows the Senate part 5” Mar 18-11). But, just yesterday, BDC was back on Parliament Hill once again, expousing on the state of “innovation” in Canada. Different BDC team presenting this time, but the messages were familiar.
During this new hearing, Toronto Senator Irving Gerstein asked BDC Executive Jerome Nyca how much BDC capital goes directly into VC investments and how much goes into VC funds.
Mr. Nyca replied (pg. 24 from the transcript):
In our strategy going forward we expect to do about $130 million in investments. It is about $80 million to $90 million direct and the balance is indirect. In any given year, we will do between $20 and $50 million of indirect. [Editor’s Note: If BDC does $130MM a year of VC investments, and $80-90MM is direct, than $40-50MM must go into funds, no? How does $20-50MM fit into that range?]
As to our role in the direct, when the investment activity level was at $4 billion, we had a smaller role to play. We had a very strong role to play at the early stage. Now that the investment activity is about $1 billion, you can do the math at $80, $100 or $130 million, we are about 10 per cent of the market.
Hmmm. Those numbers sound self-serving. Let’s check the 2010 BDC financial statements, shall we?
For fiscal 2010, BDC disbursed $58.2 million on venture capital deals, while the number of BDC VC clients dropped from 159 in 2009 to 118 in 2010. Nationally, VCs deployed $1.1 billion in 2010, so BDC’s VC disbursed market share was just 5.3%, about half the 10% claimed.
As for BDC’s $20-$50 million into VC funds per year, you won’t find those figures in the financials. What you’ll find on pg. 75 of the annual report is that BDC’s fund investments (at cost) grew by $15.9 million between fiscal 2009 and 2010. On a fair value basis, the fund investment program grew just $7.2 million. For fiscal 2009, it was even worse, as capital invested in external VC funds actually shrank by $5 million (on a cost basis).
The good news? BDC’s fund of funds managers are “looking at five funds in fundraising mode right now” according to the Senate testimony. If you’re one of those five managers, you can rest assured the commitment is likely coming. And it’s going to be big! After all, they can’t have backwater blogs using their own financial statements to pierce holes in their GR spin.
Therefore, the only way to paper over that embarrassment is to release some of the additional $400 million that Ministers Flaherty and Clement gave specifically to BDC for deployment in the VC sector by the middle of 2012 (see prior post “Clement moves to fund BDC’s existing venture portfolio” June 15-09).
MRM
Mark
The reason 20-50 doesn’t fit 40-50 is that timing of direct deals is much different than timing for indirect deals. It’s common for an LP like BDC to commit to a fund (indirect investment) but they don’t have control over timing of close. That is why the range isn’t as precise as you would hope it to be. Clearly BDC is making full intention to make that commitment but timing is out of their control for indirect investments.
best
rob
Thanks for stopping by Rob
I think everyone in ventureland is aware that a LP doesn’t have any control over when a GP draws capital. So that in the few cases where BDC is an LP today, there is no doubt they have no hard influence over the annual $ deployment of their external fund commitments.
The key part of the testimony I think one should focus on is the “In our strategy going forward we expect to do about $130 million in investments.”
They did $58 million direct last year, and their fund investments grew $15 million (at cost). That’s $73 million in aggregate, which is a lot less than the $130 million claimed in the testimony to the Senate.
As a percentage of the VC capital deployed, 6% (direct plus indirect) is also a meaningful amount less than the 10% marketshare that Senators were told.
Minister’s Clement and Flaherty recently gave BDC $475 million as an emergency infusion to help the venture and innovation industries. Other than the $75 million that had already been committed to the Tandem-like fund in the budget three years ago, none of the balance of those funds seems to have leaked into the ecosystem.
MRM
Interesting analysis on the BDC, Mark. In my view, there is a fundamental flaw in the governance model for crown corporations and other arm-length government-financed bodies. The mix of public money and little oversight make them scandals in the waiting.
That is even clearer at the Ontario and Toronto levels, with the recent scandals involving the e-health, lottery and public housing corporations.
I wrote an advocacy piece last year on MaRS Discovery District, who fits the bill (but doesn’t foot it). Here is the link to the series of posts if you want to publish it:
http://www.growthtimes.com/2010/04/troubling-facts-about-mars-discovery-district-part-1-of-4/
Merely wanna input on few general things, The website style and design is perfect, the subject matter is really excellent. “All movements go too far.” by Bertrand Russell.