Industry Committee on Oct. 24th, 2016

[Karen Kastner]

That's a really good point. For many of the partners that we partner with, the whole idea of mentorship is really emphasized. We've had a partnership with Futurpreneur Canada, for instance, since about 2008, and in order for us to do financing with them, we do a 2:1 ration of financing with Futurpreneur. That is accompanied by a mentorship program for the young entrepreneur over a period of a couple of years.

A couple of years back we also did a study on the impact of advisory boards as another form of mentorship, and we found that the performance of companies that do have an advisory board is significantly higher than those that don't. Therefore, as part of our consulting offering we also help companies to put together that kind of advisory board, because we know that it makes a big difference.

As far as the academy goes, there's a lot of power in peer-to-peer mentorship as well, so one of the modules we are envisaging in the BDC Academy is a peer-to-peer kind of learning, because we found that when entrepreneurs are put into a room together, they tend to learn a lot from one another, such as how to go to market and how do do various things. That's part of the model as well.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much.

I know that Mr. Baylis had some points he was trying to—

[The Chair, Liberal, Dan Ruimy]

You have two minutes left.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Okay.

Thank you, Mr. Dreeshen and Mr. Lobb.

[The Chair, Liberal, Dan Ruimy]

You have two minutes left.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I'm going to move now to venture capital and questions there.

Obviously, 15 to 20 years ago there wasn't a space for Canadian venture capital. BDC stepped into it. There are two arms. You have venture capital investment and the venture capital action plan.

When you say you're at a break-even point, I assume you're talking about venture capital direct investments. Is that correct?

[Neal Hill]

It's BDC's own investments, both directly into companies and into external funds.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

It's a fund of funds.

[Neal Hill]

Yes.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Are you externally validating the value of these companies? Do you have an external validator? It's very easy for you to come along and say, “Guess what? I think this company is now worth more money.” Is that done by an external auditor?

[Neal Hill]

All of the companies eventually are audited, but the validation comes primarily from our co-investors. Virtually never, or probably 1% of the time, are we the only investor in a given company, and then only for a short period of time. The validation comes when other investors come in, see the value, and invest alongside us.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Let's say that you have to do your books at the end of January, February, or March. You need a value at that date, and you have a book of $900 million, plus or minus. You have to give a value to that company. Are you giving it, is someone else giving it, or is it out of date?

[Neal Hill]

The rule in venture for the external portfolio and through the funds is that each of those funds generates those fair-value calculations with their audit.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

They're a fund of funds. I got that.

[Neal Hill]

Yes. For our direct investments, the rule is always that the valuation comes from either the value established at the last round of financing—

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Okay.

[Neal Hill]

—or in a new round, only if—

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

It's at the round of financing. Okay.

[Neal Hill]

—an external party at arm's length, with no connection to BDC, comes in and establishes that value.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Understood.

In the venture capital action plan fund, your fund of funds, you have $400 million. Has it all been put to work, or how much of that has been put to work?

[Neal Hill]

The four funds of funds, the primary elements of the program, have all been funded, and so the funds have been committed. Just over half of that has been drawn down.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

So it's about $200 million out of the $400 million.

[Neal Hill]

Yes, it's $220 million, or something like that, as of this particular moment. The rest of it will be drawn within the next year, because the government money goes in first and comes out last.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Incubators or accelerators are in which fund? When you say you invested in your...I think you have $13 million. Where is that coming from? Is it from this venture capital fund?

[Neal Hill]

No, the capital action plan fund is cellular. It sits all by itself. The incubators and accelerators come from our strategic investments and partnerships group. They sit alongside my group—