Venture Capital in Canada

Venture capital is money provided by outside investors for financing of new, growing or struggling businesses. Venture investments generally are high risk investments but offer the potential for above average returns.

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How does Venture Capital work?

A VC firm will open a fund, a pool of money from wealthy individuals, companies, pension funds, etc. The firm will raise a fixed amount of money for the fund, for example, $100 million. They will then invest the $100 million fund in some number of companies.

Each firm and fund has an investment profile that the investors know about before they invest money in it. For example, a fund might invest in a particular industry, for instance telecommunication startups, Dot Com companies, or a mix of companies preparing to do an Initial Public Offering in the near future.

Typically the firm will invest the entire fund and then anticipate liquidation of all it�s funds in 3 to 7 years. The goal is to have made more money than the $100 million originally invested. The fund is then distributed back to the investors based on the amount each one originally contributed.

Some companies will fail, some will go public and when this happens it is often worth hundreds of millions of dollars. The VC fund is playing the law of averages, hoping that the big wins overshadow the failures and provide a great return on the $100 million originally collected by the fund. Investors are typically looking for a 20% per year return on investment for the fund.

Canada�s Venture Capital & Private Equity Association The CVCA, represents the majority of private equity companies in Canada, with over 1100 members. CVCA members have over $50 billion in capital under management. Canadian private equity capital provides a vital source of finance for growing companies across all industry sectors.

Venture investments are characterized generally by investment in early stage companies, mostly in technology businesses
Buyout is characterized chiefly by risk investment in established private or publicly listed firms that are undergoing a fundamental change in operations or strategy.
Industry Research on issues important to the venture and private equity process.
Young Venture Capitalists was formed to help foster relationships among the next generation of professionals working in all aspects of venture capital and private equity investing in Canada.
The industry provides long-term investment capital, contributing to sustainable economic growth, generating employment, financing new research and technologies and supporting Canada�s promising growth companies.

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