The Economic Impact of Venture and Development Capital in Québec
The fundraising environment in Canada can be harsh. Citing a BDC Report (here, at Figure 29), The Logic, states “VC firms in the country raised just $2.3 billion across 14 funds in 2023, down from a peak of $6.4 billion across 35 funds in 2021”. This trend is also discussed in the Q1 2024 CVCA Market Intelligence Report, and Inc.’s August 2024 article which speaks to VC’s struggle to gather returns for their limited partners.
Despite the gloom and doom, there are encouraging signs, including: the Canadian Minister of Small Business’ announcement on the positive impact of the Government’s VC investments on the VC ecosystem (here), but more importantly Réseau Capital’s (RC) newly released study on the economic footprint of venture capital and development capital in the Province of Québec (FR/EN).
RC’s Assessment of the Economic Impact of Quebec Venture and Developmental Capital
This study, released earlier in the month of September 2024 “demonstrates the significant impact of this industry on the Quebec economy and the performance of the supported companies” and that VC and PE backed companies can further:
undertake research and development (R&D) activities after receiving funding; thereby creating “new products, technologies, and patents” with new capital injection;
labour productivity over time. “This is potentially due to the time taken to implement changes through investments in R&D, innovation, or other strategic changes. Examples may include the time taken to commercialize new Intellectual Property (IP), adoption of new technologies, and deployment of new systems and processes”, and
“export activities, through access to increased knowledge, innovation, and expertise.”
These practices, coupled to MVIP’s services (contact us), are particularly important for business success, especially in today’s knowledge economy.
Development vs. Venture Capital
There are differences between venture capital (VC) and development capital. Though both may be used to finance innovation (HBR, working paper 20-131):
Development capital is funding designed to help established, profitable businesses scale up. Unlike venture capital which targets early-stage startups, development capital focuses on companies with proven business models and consistent revenue streams. This funding is often used for expansion, acquisitions, or new product development. Ideal candidates for development capital demonstrate strong financial footing, a history of growth, and a clear plan for future expansion. Investors typically take a minority equity stake and offer strategic guidance alongside financial support. However, businesses should consider the level of control they're willing to relinquish and the long-term implications before seeking development capital.
Venture capital is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential. Venture capital generally comes from investors, investment banks, and financial institutions. It usually has a high risk of tolerance, and can also be provided as technical or managerial expertise. More information can be found at: PitchBook, SVB (stages of venture capital) and Investopedia.
For more information on funding and MVIP, contact us.
Comments