There is an overwhelming need for professionally-managed funds in Manitoba with predictable investment criteria for growing businesses. Currently, there is no capacity to access local pooled funds (e.g. venture capital) mandated to invest in private deals. The lack of Manitoba-based options is creating a brain drain resulting in some organizations being drawn out of the province. While angel money is available for some opportunities, serious funding gaps at the early, venture, and expansion stages remain.
What about government programs that give incentives to individual investors? There is a Small Business Venture Capital Tax Credit available to Manitobans investing in pre-qualified companies. The following response sums up the experience of one serial angel investor:
“SBVCTC has worked well for founder and Seed A rounds… horrible beyond that. Biggest difficulty is the $3-7M range; we are lacking local options. There is no one managing and/or leading that size of deal in Manitoba. A lot of the smaller investors ($250K-$1M) are all looking for a lead investor.”
Interestingly, individual investors indicated a strong desire to have professionally-managed funds available to address various stages of growth (i.e. post-angel investment). Furthermore, experienced entrepreneurs preferred pools of capital that are funded by institutional and/or corporate investors. As opposed to pools funded by retail investors, institutional and corporate investors are perceived to have more patience with the funds’ mandate, a better understanding of risk, and an ability to transact quickly, if necessary.
In general, our research indicates that:
- pre-revenue companies have been attracting angel investors locally;
- all venture capital currently comes from outside Manitoba;
- most venture capital (VC) funds seem to be making expansion capital investments instead of traditional (i.e. earlier stage) venture capital investments; and
- small (e.g. $500,000) investments by external VCs seem to be more like toe-holds in contemplation of a future transaction. Unfortunately, this limits choices later on.
Extra-jurisdictional VCs have lately been looking for a quick path to exit and shorter 3-5 year investment cycles. They are getting pressure from their own investors to generate returns. We need locally-managed funds to make meaningful investments with longer investment horizons.
The Winnipeg Chamber of Commerce has been working to inform the Government of Manitoba as to the current market conditions and the need for an environment that will support the pooling of institutional capital to be deployed to support local innovation and economic growth. Stay tuned.