Mr. Chair, thank you for this opportunity to discuss our 2016 spring report on the venture capital action plan.
Joining me at the table is Richard Domingue, the principal responsible for the audit.
Venture capital is a major source of financing for innovative high-growth firms and their entrepreneurial owner managers. Venture capital investment in early stage firms has helped to create and grow many of today's leading global technology companies. Many countries are interested in promoting such an ecosystem, since venture capital is widely recognized to be a key driver of innovation and economic development in advanced economies.
In budget 2012, the Government of Canada announced $400 million to help increase private sector investments in early stage venture capital and to support the creation of large-scale venture capital funds led by the private sector. In this audit, we looked at how the Department of Finance Canada, the Business Development Bank of Canada, and Innovation, Science and Economic Development Canada, formerly Industry Canada, assessed the policy need for the action plan, how they implemented the action plan in order to meet the stated objectives, and how they measured the performance of the action plan.
We found that at the time of the Budget 2012 announcement, the Government of Canada had already identified a number of issues faced by the national venture capital ecosystem and had performed preliminary analysis of the market gap. However, the government had not decided how to allocate the money. The government then held consultations with stakeholders, a process that led to the selection of the fund-of-funds model as the preferred approach to address the challenges of the Canadian venture capital market.
We found that the government initially faced difficulty in convincing private sector investors to participate in the action plan, which contributed to delays in implementation. Among the factors behind their reluctance were low returns, as well as strict international regulatory requirements for certain private sector investors. Further, management fees could amount to approximately $250 million of the total amount of $1.35 billion committed by the federal government and other investors to funds of funds over the lifetime of the action plan.
We found some significant shortcomings in the process to select fund managers. In our opinion, the call for expressions of interest, the review of applications, and the selection of fund managers did not entirely adhere to sound practices and had a negative impact on fairness, openness and transparency.
The audit also looked at how the three entities planned to monitor activities in the short term and measure the success of the action plan against the stated objectives and outcomes in the long term. We found that the action plan activities were properly monitored, but better performance indicators would help to measure the policy outcomes of the action plan initiative and inform future policy decisions. Better public disclosure of the action plan's performance could also benefit the Canadian venture capital market.
Mr. Chair, the Department of Finance Canada and also Innovation, Science and Economic Development Canada have agreed to our three recommendations and have prepared a detailed action plan.
Mr. Chair, this concludes my opening remarks.
We would be pleased to answer any questions the committee may have.
Thank you.