Venture Capital Funding for Startups and Emerging Companies – Corporate and Company Law

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General informations

In May 2022, the Government of Canada issued a request for proposals for the renewed Venture Capital Catalyst Initiative (VCCI), which would provide access to up to $450 million in funds to the venture capital (VC) sector. ).1 These investments are intended to support Canadian entrepreneurs in their efforts to start and grow new businesses, and to build on the momentum of the government’s previous venture capital programs, namely the Venture Capital Action Plan and the VCCI. original.

What funding is available?

The renewed VCCI includes targeted funding for those in the life sciences sector and for underrepresented Canadian entrepreneurs. The government has introduced three new streams under the VCCI to allocate the $450 million in funds:

  1. $350 million dedicated to funds of funds;

  2. $50 million dedicated to supporting venture capital investments in life science technologies; and

  3. $50 million (divided into two rounds of requests of $25 million each) for the Inclusive Growth Stream, dedicated to supporting access to venture capital for underrepresented groups, such as women and racialized communities.2

Are you eligible to apply for VCCI funding?

An important condition of being eligible for any of the three VCCI funding streams is that successful applicants are prohibited from investing in companies whose primary activities include owning or managing real estate, l extraction of resources and the sale or marketing of tobacco, alcohol, gambling, pornography, weapons. , and illegal goods. In addition, there are specific requirements unique to specific streams, as listed below.

1) Fund of funds

VCCI’s renewed program requires fund-of-funds applicants to secure $3 of capital from the private sector for every $1 they receive from the federal government. Additionally, in VCCI’s initial bid in 2017, applicants had to meet a specific degree of gender parity in order to participate. In the renewed VCCI, the government has taken this requirement further. To be eligible to apply for VCCI funding under the renewed program, an applicant must meet certain Diversity, Equity and Inclusion (“DEI”) reporting requirements aimed at addressing challenges perceived and real faced by disadvantaged groups such as women and racialized communities.

2) Life Sciences Fund

Eligible applicants for this stream include venture capital funds that aim to provide investors with long-term returns through investment in venture capital opportunities, primarily in technology-focused companies in the Canadian science sector. of life.3 Successful applicants must secure at least $1 from private sector investors for every $1 of VCCI funding they receive from the federal government.

The life sciences funds will be allocated to between two and seven fund managers, each receiving amounts between $5 million and $25 million.4

3) Inclusive growth stream

Eligible applicants include venture capital funds that aim to provide investors with long-term returns through investment in venture capital opportunities, primarily in technology-focused companies and companies with high market growth potential. Canadian venture capital industry.5Successful applicants must secure at least $1 from private sector investors for every $1 of VCCI funding they receive from the federal government.

Applicants with investment strategies that target entrepreneurs from underrepresented groups, as well as applicants that showcase a variety of fund managers, are considered.6

Funds from the inclusive growth window will be allocated to approximately five to ten fund managers.seven

What is required in the VCCI Funding Application?

Applicants must submit a proposal (an “Expression of Interest”) for the stream that interests them. And applicants to all streams must include the following information in their expression of interest:

  • Investment strategy: the applicant’s process for selecting venture capital funds to invest in, the proposed investment strategy for the funds for which the applicant is applying, and the impact on the Canadian venture capital ecosystem.8

  • Manager features: the experience of the applicant’s fund managers in raising and managing funds, and knowledge of the Canadian VC’s investment team.9

  • Fundraising strategy: the applicant’s well-developed strategy for attracting and engaging long-term Canadian or international investors.ten

  • Diversity, Equity and Inclusion Strategy: a detailed strategy on how the fund manager will move DEI forward in the Canadian venture capital ecosystem.11

Applicants must also meet the minimum thresholds for Canadian presence, Canadian investment and leveraged private capital.12 Each stream will require different minimum thresholds for these factors. Additionally, applicants must adhere to a code of conduct and certain reporting requirements, which include collecting gender and diversity metrics.13

Please note that there are additional items required to apply for VCCI funding that are not mentioned above. Full requirements can be found in the VCCI – Call for Expression of Interest.

What are the application deadlines?

  • Funds of funds flow: 5:00 PM PT June 23, 2022

  • Life sciences sector: 5:00 PM PT September 7, 2022

  • First-round applications for the inclusive growth stream: 5:00 PM PT November 30, 2022

  • Second-round applications for the inclusive growth stream: 5:00 PM PT June 2, 2023

What does this mean for you?

The VCCI program offers start-up and emerging companies the opportunity to access additional financing as they grow and establish themselves with the goal of creating a strong ecosystem of new flagship companies on which the Canadian economy will be based in the future. the future. By using the VC community to increase financing available to emerging Canadian companies, the Government of Canada hopes to contribute to the continued growth of high-potential and innovative Canadian companies, particularly those in the life sciences sector and those entrepreneurs from of underrepresented groups.

As inflation continues to rise and global pressures affect Canadian businesses, access to such additional financing can be an extremely important lifeline for many businesses, allowing them to continue to develop their products and services. innovative.

Venture capitalists applying to manage these funds can play an influential role in helping the Canadian business ecosystem grow and remain globally competitive. Please contact the authors or anyone on our McMillan Start-ups and Emerging Companies team if you have any questions or would like assistance with the VCCI program.

Footnotes

1. Canada, Department of Innovation, Science and Economic Development Canada, Venture Capital Catalyst Initiative – Call for Expression of Interest 2022accessed 30 May 2022 (part 1).

2. Ibid (at part 1).

3. Ibid (at part 3).

4. Ibid (at part 3).

5. Ibid (at Part 4).

6. Ibid (at Part 4).

seven. Ibid (at Part 4).

8. Ibid (at parts 2.1, 3.1, 4.1).

9. Ibid (at parts 2.2, 3.2, 4.2).

ten. Ibid (at parts 2.3, 3.3, 4.3).

11. Ibid (at parts 2.4, 3.4, 4.4).

12. Ibid (at parts 2.6, 3.5, 4.5.

13. Ibid (at part 1).

The above provides an overview only and does not constitute legal advice. Readers are cautioned not to make any decisions based solely on this material. Rather, specific legal advice should be obtained.

© McMillan LLP 2021

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