Around the World in TBED

December 04, 2014

Around the world, national governments are working to cultivate their innovation economies and increase their global competiveness by creating and increasing support for government-led initiatives. Leaders of advanced economies recognize that their positions as global leaders face a murky future due to the emergence of new economies. In turn, officials from emerging economies realize that supporting innovation is necessary for their economies to continue their rapid growth. In 2014, governments from both advanced and emerging economies searched for methods that would help their high growth-firms transform their economy and increase their global competiveness. One of the global trends of 2014 was the emergence of government-backed, privately managed venture capital initiatives.

Governments across the globe recognized that the lack of mature risk-capital ecosystems was reducing the effectiveness of their high-growth firms and key industries. To remedy that issue, these governments provide significant funding/resources to support the growth of their private-led venture capital sectors through the establishment of government-backed fund of funds and private equity funds that will make direct investments into high-growth firms.

This year, the governments of Australia, Canada, China, and Singapore announced commitments to stimulate the flow of venture capital in early stage companies and increase the global competiveness of their innovation economy. In Australia, the Department of Industry expanded its Registered Early Stage Venture Capital Limited Partnership (ESVCLP) program – a seven-year-old program that provides tax exemptions for investors in select venture capital firms that make strategic investment in Australian companies. As part of a 2013 initiative to grow the country’s venture capital sector, the Canadian government announced a combined commitment of $656.5 CD (approximately $577.4 million USD) in public and private commitments to establish three fund of funds. Two of Asia’s leading innovation economies, China and Singapore committed $1.7 billion USD and $48 million, respectively, to privately managed investment funds targeted to help early stage companies grow and increase their country’s global competiveness.

Australia
In November, the Australian Department of Industry expanded their Registered Early Stage Venture Capital Limited Partnership (ESVCLP) program – a capital initiative that entitles a venture fund to flow-through tax treatment and its investors (whether resident or non-resident) receive a complete tax exemption on their share of the fund's income (both revenue and capital). Startup accelerator BlueChilli was named as the newest ESVCLP according to an article on Business Insider Australia. ilab, a startup accelerator established by the Queensland Government in 2000, was granted conditional status. Both programs are managed by Artesian Venture Partners. The initiative is open to venture capital funds of between $10 million AUD (approximately $8.4 million USD) and $100 million AUD (approximately $83.9 million USD) that invest in Australian businesses. Since 2007, only 10 funds across the country were designated as an ESVCLP by the Australian Department of Industry.

Canada
In 2014, the Canadian government made a significant financial commitment to stimulate startup capital by launching three fund of funds. The three funds are a key element of the Government of Canada’s Venture Capital Action Plan (VCAP) – a $400 million CD (approximately $351.4 million USD) strategy launched in 2013 to help increase private sector investments in early stage risk capital, and contribute to a private sector-led venture capital sector in Canada. Each fund includes commitments from institutional corporate investors and both the federal and provincial governments.

These VCAP-supported funds will invest primarily in Canada-focused early stage and mid-stage venture capital funds, but also may directly invest in companies across Canada. The Canadian Government has agreed to make a capital commitment of $1 CD for every $2 CD committed by private investors via these funds. Announced funds include:

  • In January, Canadian Finance Minister Jim Flaherty announced establishment of the $217.5 million CD (approximately $191.3 million USD) Northleaf Venture Catalyst Fund to support startups in Ontario and across the country. The fund has an overall target size of $300 million CD (approximately $263.9 million USD)
  • Managed by Teralys Capital, the $279 million Teralys Capital Innovation Fund was announced to support Canadian companies from the life sciences sector. Located in Quebec, the fund has an overall target size of $375 million CD (approximately $329.9 million USD).
  • Kensington Venture Fund, the third fund of funds established under the VCAP, had its initial closing with $160 million CD ($140.7 million USD) in commitments. The Kensington Venture Fund will place an emphasis on investment opportunities in clean technology and energy technology as well as information and communications technologies.

China
The government of Shanghai announced a ¥10 billion RMB (approximately $1.7 billion USD) commitment to establish a private equity fund to support the country’s semiconductor design and manufacturing industry. Managed by San Francisco-based SummitView, the fund will focus on global chip design companies by helping them expand their market share in China by increasing sales, marketing activities, support, and engineering according to VentureBeat. In addition to the private equity fund, SummitView Capital also signed agreements with multiple Chinese financial institutions to secure debt financing for its operations of ¥30 billion (approximately $5 billion USD).

Singapore
Earlier this year, the Singapore government announced a $48 million commitment to support six venture capital funds – each will receive $10 million SD (approximately $7.9 million USD). Through the Early Stage Venture Fund (ESVF) scheme, these government backed venture funds will make investment into Series A Level startups. This government commitment marks the second round of the ESVF according to TechInAsia.  During the first round in 2008, the Singapore government committed $50 million SD (approximately $40 million USD).

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