Quebec seeking larger share of foreign venture capital flowing into Canada

Quebec is moving aggressively on two fronts to attract a larger share of foreign venture capital (VC), but first it must to dispel lingering misperceptions about the province as preferred location for investment. Last month, a major conference was held to help match middle-stage Quebec life science and information technology companies with US VC firms. The government also announced a new $100-million biotechnology fund to leverage more foreign VC investment (see story below).

The province has reason to be concerned. The latest statistics for VC investment in Canada show that foreign VC is becoming an increasingly important source of financing for Canadian technology and life sciences firms. According to data compiled by Macdonald & Associates Ltd, foreign sources accounted for 34% or $1.66 billion of the $4.874 billion invested in Canada in 2001. That percentage plummets to just 10% in Quebec, raising serious questions about the province’s ability to raise funds beyond its own borders. Of the $956 million in VC invested in Quebec last year, less than $100 million came from non-Canadian sources.

To help counter the imbalance between Quebec and the rest of the country, Réseau Financier Montréal (RFM) staged GoNorth 2002, a two-day conference to break down the barriers between middle-stage life sciences and information technology (IT) firms seeking capital and US-based VC companies seeking attractive investment opportunities.

RFM is a private, non-profit networking organization formed to assist businesses secure project financing as part of a wider initiative to spark renewal and development in the Montreal region.

With nearly 300 life science, IT and VC firms in attendance, presentations at GoNorth trumpetted the Canadian advantage for investing in mid-stage technology and biomedical firms. Speakers pointed out that Quebec incentives make the province the most cost effective jurisdiction in the country, and unlike the US, demand for capital exceeds supply, a strong indication that Canada has weathered the dot com debacle and economic downturn far better than the US.

“Quebec is nearly virgin territory for foreign venture capital,” said Claude Miron, VP BDC Venture Capital and president of the Quebec venture capital association. “And Canada is the only country among the top nations where demand for capital exceeds supply.”

Getting that message out to the US VC community requires Canadian firms and the government to be much more proactive and . Michael Atkin, president and CEO of Montreal-based Aegera Theurpeutics Inc, says a recent KPMG study shows that it’s 14.5% cheaper to conduct R&D in Canada than the US, and that advantage jumps to 27.8% for the biomedical sector. Combine that with world class research institutes, universities and progressive government policies, and foreign investors should be breaking down the doors of firms seeking new rounds of financing.

“Ignorance is the main reason for reluctance to invest in Canada and there’s a ton of ignorance of what it takes to commercialize drugs,” says Atkin. “There’s a perception that Canada is far away with a strange legal system…We need to pitch the deals to the US. We need to develop the ugly Canadian!”

Atkin says that the misperception of Canada is even more pronounced in Quebec, and that he held many of those misperceptions before moving to Montreal nearly three years ago. He urges Quebec firms to “get on the plane and visit VCs in Boston, New York and San Francisco, and raise their awareness about individual, discrete investment opportunities”.

“In Canada, 34% of VC in 2001 came from offshore and in Quebec it’s only 10%. That’s a scary, disquieting statistic. Maybe people misperceive the French language and culture in Quebec and that’s a particular misperception that has to be shattered. In Montreal, people will have to make a special effort to close the gap and demonstrate that, from an investment point-of-view, this is a great place to build and grow a company.”

According to BDC’s Miron, Montreal ranks fourth in North America for technology jobs per capita. That ranking improves on a sector-by-sector basis: aerospace (2nd), biopharma (3rd) and IT (4th).

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