Public Accounts Committee on Sept. 29th, 2016

[Richard Domingue]

Mr. Chair, we looked at what other countries were doing. Exhibit 1.4 refers to New Zealand, Finland and the United Kingdom. In their performance reports on their venture capital activities, they include this type of performance indicators.

I would also like to add that the departments replied that when the data became available, they would include indicators such as expenditures on research and development and the number of jobs created. Patents are one of the key indicators of innovation, as mentioned in exhibit 1.4. This idea of commercializing innovations is also an extremely relevant indicator to measure whether venture capital investments have led to technological innovations or not.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

What I understand is that the data is not available. As it becomes available, you are going to use it to include indicators; is that correct?

[Richard Domingue]

Is the question addressed to us, or to the Department of Finance?

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

I saw Mr. Nycz react earlier, when you replied.

[Jérôme Nycz]

We track our investments as regards the funds and the companies. We are in a position to know how many employees these companies have. These are companies that hire, in the technology sector, employees who often have advanced diplomas, doctorates and the like. And so we have figures regarding positions, the companies' growth, and their sales. In the case of several of our companies—I speak for the BDC—we follow patent applications, because this validates the investment concept.

We have a lot of matrices at our disposal and we like to follow the performance of these companies regarding the Venture Capital Action Plan. And so we will be receiving information as these companies develop. Often, we invest when the company starts up. There are two or three people who hire personnel. It takes a year or two before we really see the technological attraction, before the technology is defined, validated and before sales are generated afterwards. That is part of the figures and matrices we follow in our portfolio at the BDC. This will apply to the Action Plan program.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

In fact, what you are telling us is that the performance metrics the OAG has added are performance indicators you already had. So the recommendation of the OAG is mentioned, but as far as you are concerned that is already being applied.

[Jérôme Nycz]

Yes, and we are most definitely going to have data on the companies in the Action Plan portfolio as they develop.

[Joël Godin, Conservative, Portneuf—Jacques-Cartier, QC]

In another connection, let's take the case of a new business just being started up. It has experience in another sector of activities, but there is a new sustainable development technology that is available and it needs venture capital in order to acquire it.

Could you describe the process that is required on the part of the small entrepreneur—we have some in all of our ridings—who is looking for some funds in order to start up his business with good technology, but is lacking funds?

[The Chair, Conservative, Kevin Sorenson]

Go ahead, but very quickly, please.

[Jérôme Nycz]

First, in the case of a startup company, the government supports several accelerators throughout Canada. The BDC supports 13 in certain specific sectors. In the case of green technologies, there is Foresight, and we have another accelerator in Montreal. So that is a good place to obtain financing in the initial stages of starting up a business.

These companies can spend 6 to 18 months in incubation. They have access to services, professionals, and also to other venture capital firms. They are introduced to the venture capital firms and a dialogue begins. We measure the interest investors have and the capacity of the team to deliver the technology. A first investment is made at the very beginning. That can be a cheque of $500,000 or $1 million. This helps the company to develop the technology and accelerate its development and sales. Afterward, other investors answer the call.

So there are funds, accelerators, specialists in these sectors. What we want to do is bring together the skills of the fund managers and the needs of the entrepreneur. In our portfolio we support more than 700 companies through these accelerators, our funds and our direct investments.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

We'll go to Mr. Chen, please.

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you, Mr. Chair.

How much time do I have?

[The Chair, Conservative, Kevin Sorenson]

You have five minutes.

[Shaun Chen, Liberal, Scarborough North, ON]

The report from the Auditor General highlighted the delicate balance that needs to be reached between commercial confidentiality and greater transparency. Within the report, it points out that the departments of Finance and Innovation, Science and Economic Development did not release the information that was collected by the Business Development Bank of Canada, a crown corporation, on the activities arising from VCAP, the venture capital action plan.

My question for the departments is in terms of making that information available to the public or reporting it to Parliament. What are the concerns? What are the risks of making that information available?

[Richard Botham]

If I'm not mistaken, I think the report from the Auditor General was highlighting that, as the initiative moved forward and as money was put out into the economy, there should be better reporting to Canadians on results and how the money was being deployed. I think it was on a go-forward basis, and that is part of the reason that the Minister of Innovation, Science and Economic Development released information as part of an annual reporting cycle that was released yesterday. My colleague can give more information.

[Christopher Padfield]

I think you can make reference to the action plan we put forward in response to the audit, being clear that we're going to start reporting on an annual basis in May. It really is the last fund of funds. It closed its fundraising not that long ago, so we're still very early days. Some of the metrics the guy went through in terms of our performance framework aren't going to be that meaningful because companies are only just beginning, and investments are going forward. We were looking at it for the period for when those performance metrics would make the most sense and look the most real. If you look at the release we made just yesterday, I've highlighted where some of the investments have gone to date.

I'm not sure we have any kind of concern in terms of confidentiality. We know what pieces are covered under confidentiality agreements with the fund managers. Otherwise, we're making as much information available as possible, because again, we're happy to let everyone know the performance of the funds and the activities underneath.

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you.

To take that further, I know that the report looks at what other countries such as New Zealand, the United Kingdom, and Finland have done in terms of releasing performance metrics. You mentioned just now that information was recently released. Is that sufficient in terms of what has been made publicly available? What can we learn from what other countries are doing so that we can have greater transparency in the data we provide to the general public?

[Christopher Padfield]

I think the Auditor General could speak to the views on what we put forward originally, and they've given us some helpful suggestions in terms of some of their more company-level information.

We're always happy to evolve this as we go along and as we find more and interesting ways of making the information more accessible to folks. I think the plan for us is that we want to make the performance measurement framework public, and then we're going to report out against it. We've identified some of the pieces in the action plan, and the goal is to take the data for this fiscal year and have them reported out in May of next year so people can do overall performance and some of the underlying indicators there too.

[Michael Ferguson]

I think there are a few things in terms of all of the performance indicators. I think that we've heard today, for example, that BDC has a lot of information about the companies that are being invested in, what they're doing, and how they're how tracking, and Industry as well is tracking quite a bit of information.

I think our concern mostly is about what information you have as a parliamentarian. This is $400 million that the government has put into these funds of funds. As has been described, that $400 million is not an expense, so it did not affect the government's deficit one cent at the time it was made because it's considered to be an asset. So BDC has to track very carefully to make sure that the asset continues to be worth $400 million, and it tracks a lot of information. I get a bit concerned, as I said earlier, that a lot of what we keep hearing about is $1.35 billion committed and all of that. This is for you as parliamentarians to decide, but I don't think there's really a lot of information about how much of this money has actually gotten into the hands of the companies, and I think that information was part of the report released yesterday, how much has actually gotten into the hands of the companies.

But we still don't really know, sort of, who those companies are. We don't really know what progress they're making. There's some categorization between whether they're a seed company or various different levels. What we were trying to point out is that it's not an issue of the information doesn't exist; in fact, the information does exist. It's more an issue of, okay it's $400 million that the federal government has put into this investment, and it's being monitored and it's being watched by BDC and the other departments, but is there a certain amount of information at the public level that you as parliamentarians should be receiving so that you understand exactly where this money is going and what it's being used for? I think that's really what we were pointing out.

When we looked at things like what was going on in other countries, what academics were recommending, and that type of thing, it was all those types of possible public indicators to help give you, as the people who oversee everything, some information about progress being made, and it's not just the importance of building the ecosystem of fund managers, but fundamentally, to the extent that the companies are going to be successful, that's probably the number one key.

This is $400 million, but based on the report yesterday, that $400 million hasn't all yet gone into individual companies. I think it's just important that you understand all of those parameters of what this program is about.

[The Chair, Conservative, Kevin Sorenson]

The time is up, but before we move on, I guess the question is what the rationale was for not reporting this information to Parliament and to the public. Was this information shared with the private sector partners who participated in the venture capital action plan?

Could one of you answer that?

[Richard Botham]

I'll take a run at it, but maybe my colleagues will chime in as well.

Private sector investors would have the same interest as the Government of Canada in monitoring their investment. They would certainly be watching the progress of the investment and its performance. That doesn't get [Inaudible—Editor]

[Jérôme Nycz]

In terms of funds-of-funds investment funds, investors participate at the annual meeting of all investors in the funds. At those meetings, the fund goes through each one of their invested companies and reports progress against the original intention or their original strategy.

BDC and other investors go through all of the companies under the fund portfolio and all of the fund performance under the VCAP. We get a full report on the progress of these companies.

[The Chair, Conservative, Kevin Sorenson]

Are you telling me that every private investor would have that information? Would they have the aggregate rate of return that they would be expecting or that they would see?

[Jérôme Nycz]

Exactly. Each investor in the fund of funds, that fund of funds would invest in funds; if that investor is, for example, invested in Teralys investment funds, that investor would have a line of sight on all of the underlying portfolios.

[The Chair, Conservative, Kevin Sorenson]

Getting back to what the Auditor General suggested—and I don't want to put words into his mouth—from what I heard, I'm not certain that he's satisfied that Parliament has yet received the information we would need in order to understand those things.