Finance Committee on April 2nd, 2008

[Jean-René Halde]

We're talking about venture capital, meaning in this case that we're not lending, we're actually investing. Now, what we're going to be doing with that $75 million is investing in a private sector fund that hopefully will attract, you know, the caisse de dépot, the teachers of the world, the OMERS of the world, and so on, so we can get a $300-million, $400-million, $500-million fund.

That fund will invest in Canadian technology companies that are trying to go to the next step. In order to go to the next step, let's say if you're a health science firm, you may be small and you may have only 50 people on board because they're basically all PhDs, but you need to go and do a clinical trial in the U.S., and that's an expensive proposition. This is where you need an injection of equity. That's what that private fund will do. We'll just be an investor in the fund.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

You're not going to be getting away from your area of expertise—

[Jean-René Halde]

We don't intend to.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

—because you'll have it managed by a third party or someone who is independent?

[Jean-René Halde]

We invest directly in venture capital. We now have an equity position in about 160 firms, so we have our own expertise at investing in companies.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

What are those guidelines? Is there a bottom limit and a maximum?

[Jean-René Halde]

The highest investment we've got, and I could be off by about a million dollars, is about $11 million, but we have a portfolio now of $500 million invested in 163 companies. So if you do the math, the average investment is around $3 million.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Those are all Canadian companies?

[Jean-René Halde]

Canadian, obviously.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

The other question I have is from your presentation, when you were saying that in venture capital the support you provide to high-technology companies shows that for every dollar you invest, more than four dollars is invested by other investors. Where are you getting that information? Because as Mr. Del Mastro had mentioned, during the pre-budget consultation hearings we heard that there's not enough money out there and it doesn't seem to produce those kinds of moneys.

[Jean-René Halde]

Let's separate two things maybe. Regarding the state of the venture capital industry, clearly there's not enough venture capital money in the industry--no doubt. That's a fact. In any given investment in a given firm, we always syndicate. We always go with a number of partners to invest. We won't go in alone, nor would anyone else go alone. They're high-risk investments, technology businesses, so we always syndicate the investment. For every dollar we put in, four dollars is being put in by others.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

And it's always an investment; you're not the lender.

[Jean-René Halde]

In those technology companies in venture capital, we're an investor, not a lender.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

On page 51 in the same document, a table shows BDC investment in private funds. The BDC invests in private funds whose head offices are in Ontario, British Columbia and Alberta. There is only one in Quebec.

That is something, but the fact remains that only $10 million were invested in Go Capital, out of a total fund of $50 million. Can you explain that for us?

BDC's commitments total $106 million, but only $10 million are invested in Quebec. That is not quite the proportion...

[Jean-René Halde]

Go Capital is actually quite a new fund. Yes, we committed $10 million to that Quebec fund. Further down, you can see that we also invested $20 million in MSBi, or McGill Sherbrooke Bishop's Innovation in Montreal.

Historically, we invested more overseas. I was not here at the time, so I cannot comment. But I can say that we are making every effort to be truly pan-Canadian.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You need to make more effort, I am sure you will agree.

[Jean-René Halde]

Venture capital in Quebec is in quite good shape. That does not mean that we do not need to help it. We make every effort to see where BDC funds are best invested to give us the best return.

As you can see, we have made efforts in Quebec in the last few years. We are trying hard to be pan-Canadian.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Relatively speaking, the fact remains that Quebec's share of this venture capital investment is not proportional to its economy, whether it be in manufacturing or in tourism, which is growing in Quebec.

[Jean-René Halde]

If you consider the scale of the direct investments—not in private funds but direct investments in the 160 companies—Quebec has its fair share at very least.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

What is the difference between private investments and...

[Jean-René Halde]

In one category, the BDC invests in companies. In another category, like the examples shown on the page that you have just looked at, the investment was in a private venture capital fund with other investors, and the fund then invests in companies. We invest either directly or into a fund. The goal of investing in funds is to develop the venture capital business, which is working well. But we also invest in companies directly.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you.

Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I always think that BDC gets unfairly compared with banks. Sometimes it's an insurance company. Sometimes it has public policy goals. Sometimes it's treated as a business entity. Sometimes it has to change its name from this to that and that back to this again. There has been, over the last few years, however, a bit of stability, I think.

I was noticing your average loan was about $285,000, which doesn't strike me as a huge amount of money. If it's such a small amount of money, it would be, relatively speaking, overhead-intensive.

How do you compare, in terms of return on equity or return on investment, with the chartereds?