What's up with Ontario's Scale Up Ventures?

It has been nine months since Ontario Premier Kathleen Wynne announced that Ontario taxpayers were committing $25 million to a new $50 million venture capital fund that will provide not just capital, but mentorship from a host of senior Canadian business leaders. One requirement was that entrepreneurs had to be running a “successful early- stage start-up”, but that can’t have been a barrier; I’ve had the pleasure of meeting a few that fit that description over the past week alone. That this new fund included both provincial and private-sector investment (matching the Province’s $25 million) is in keeping with the capitalization behind the once “troubled” and “struggling” OVCF initiative (see prior representative post “Here’s hoping OVCF 2.0 fixes the bugs in version 1.0” Mar. 20-13) as well as the prior federal government’s VCAP strategy (see prior representative post “Northleaf’s Venture Catalyst Fund gets to work” Feb. 27-14).

When the announcement went out last April, the government stated that “to qualify for investment, start-ups will have to go through the same pitch and due diligence process as they would with a regular venture capital fund.” That made sense, and the promise of initial investments in the $500k to $3 million range was well-suited for Seed and Series A opportunities. Our nation has more Canadian-based capital available from later stage venture groups, such as our new $300 million fund, than the Seed-oriented fund community. As such, every incremental bit of Seed capital helps; and that’s an understatement. The Premier advised that the new money was “expected” to flow to worthy Ontario-based start-ups in the “summer” of 2015. And, if companies needed more capital later, there was a potential for the Scale Up Ventures Fund to go higher than the original $3 million ceiling by way of follow-ons.

Sounds pretty fabulous, don’t you think?!

Last April, the Premier called this initiative “an important next step for Ontario’s innovation ecosystem”, and there’s no doubt about that. Every dollar that helps seed or expand a new venture in the Province serves to create jobs and innovation that our particularly weak economy badly needs.

The group of 36 mentors (32 men and 4 women) was equally fabulous, representing a broad cross-section of industries. The fund is Chaired by Nadir Mohamed, former CEO of Rogers Communications. Although some might have criticized that the panel of mentors was dominated by current and former CEOs of mega companies, much like the MARS Board of Directors, I think that’s misplaced. Who better to describe to a software developer what his bank really needs to modernize its infrastructure backbone than the CEO himself? Moreover, which big bank CTO isn’t going to give a local start-up a chance to test their new product when it was his/her own Chief Executive who made the introduction? That most of these mentors didn’t start the businesses they run doesn’t take away from the fact that they can truly play a very positive role in the make-or-break period that most early stage ventures go through.

The only question the impatient within Ontario’s innovation ecosystem will have is this: what’s up at Scale Up?

Since Scale Up’s founding hit the newswire nine months ago, the fund seems to have been in stealth mode. No subsequent press releases. No announcement of a fund manager. Nothing on the website advising who has bee hired to serve as the day-to-day team. Not a peep about any closed investments in promising, “successful start-ups.”

There was one “Summer Update post” on September 1st (don’t be cheeky, Summer didn’t officially end until Sept. 22nd last year):

Scale Up Ventures has been working over the course of the summer to move forward with the launch of the fund. To this end, we have been consulting with the leadership council and our partners to build out the team and the infrastructure.

We are pleased that there has been a significant amount of interest to date, and the team is looking forward to making further announcements on the first close of the fund towards the end of 2015. While this is slightly later than planned, everything is moving forward as expected.

This post naturally leaves one with the impression that the private sector’s $25 million slug hadn’t been organized prior to the Province’s fund launch announcement in April 2015. That this essential $25 million of matching capital hadn’t been solidified before 2015 came to an end, as the fund’s proponents indicated above, begs many questions. Particularly when Teralys, Northleaf, Kensington and Harbourvest have all demonstrated that they could make a compelling case to Corporate Canada in keeping with the matching requirements of the VCAP program, for example.

Missing the initial money will flow in the “summer” undertaking is one thing, but failing to hit the second, self-imposed “end of 2015” deadline for the fund to be up-and-running is a real shame given the relative paucity of Ontario-based Seed and Series A stage capital. In 2015, for example, U.S. entrepreneurs raised US$903 million via Seed rounds and another US$19.8 billion for their “early-stage” firms. The “early-stage” figure was 23% higher than 2014! Every quarter that’s missed is crucial. The Provincial government must now regret having shelved OETF (“Ontario government puts $250M Emerging Technology Fund on ice” June 21-12) before getting its ducks — such as Scale Up Ventures — lined-up.

Fortunately, many of the mentors involved are as accessible as they are talented and energetic. I’m hoping some of them will fill us in. That $50 million needs to flow. Quebec’s FTQ has $11.2 billion to invest in local companies, and that’s just one of several Quebec-based funds that have capital allocated to build and grow that Province’s start-up ecosystem. Scale Up Ventures was never going to serve every need, but it was and remains a good idea.

Given the current Star Wars craze, I can’t help but quote Yoda from The Empire Strikes Back: “Do. Or do not. There is no try.” As hundreds of Ontario-based entrepreneurs will attest, there’s no time to waste.

MRM