Re-start of venture capital fund long overdue

The Manitoba business community reacted with a combination of happiness and relief when the Progressive Conservative government included in its recent provincial budget the creation of a new venture-capital investment fund. Happiness that there would be a new source of capital for business start-ups; relief that the provincial government was finally back in the venture-capital game.

For much of the last 17 years, most business lobbies insisted there was a pressing need for some sort of government-sponsored venture-capital fund to replace the infamous Crocus Investment Fund, which collapsed under the weight of controversy in 2005.

For most of its existence, Crocus was the darling of Manitoba investors and businesses. The former loved the idea that there were robust federal and provincial tax credits that came with any purchase of Crocus shares; the latter applauded a local source of capital for born-and-bred Manitoba businesses.

In the fund’s first four years, it raised and invested more than $200 million in what would become some of Manitoba’s most prominent locally grown companies. As a further benefit, many of those companies agreed with Crocus to create internal equity programs that allowed rank-and-file employees to acquire shares of the companies they worked for, generating enormous wealth that would have been otherwise unattainable for these employees.

It all unravelled in 2004 when the fund, in the midst of a bitter internal battle over its management, issued a cease-trading order over concerns some of the investments were over-valued. An investigation by the Manitoba Auditor General confirmed those concerns but seemingly ignored the successful investments Crocus had made.

History clearly shows Crocus helped incubate and grow some of Manitoba’s most prominent companies, including Wellington West Capital (a private wealth management company with tens of millions in assets; later acquired by the National Bank); Truth North Sports and Entertainment (owners of the NHL’s Winnipeg Jets, the AHL’s Manitoba Moose and Canada Life Centre in downtown Winnipeg); and CWB National Leasing (one of the largest equipment leasing companies in North America).

The most consistently retold version of local history suggests Crocus was a fatally flawed scheme; insiders in the business community, however, know its winners far outpaced the number and value of its losers. In large part, that is why many business community groups lamented the loss of Crocus and clamoured to have the provincial government create a replacement.

The most consistently retold version of local history suggests Crocus was a fatally flawed scheme; insiders in the business community, however, know its winners far outpaced the number and value of its losers.

For many years, governments of all stripes hesitated to do that, out of a concern they would be accused of trying to resurrect Crocus. This year, however, Premier Heather Stefanson made a bold move: while her predecessors had all run away from the whole topic of venture capital, she had the courage to step forward and answer the call from the business community.

The new fund, which starts with $50 million of seed money from taxpayers, will grow through investments from other venture-capital firms. Professional fund managers who bring capital to the table will be rewarded with government investment on a one-to-one basis. There is also a vague promise that individual investors may be able to participate in the new fund and receive a 45 per cent provincial small-business tax credit.

Ms. Stefanson’s commitment to a new venture-capital fund scratches an itch the local business community has had for a very long time. Now, it’s time for fund managers and entrepreneurs to show that all this new money can be put to good use.