THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, April 22, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] to examine and report on access to credit and capital markets for small and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
Senator Toni Varone (Deputy Chair) in the chair.
[English]
The Deputy Chair: My name is Toni Varone. I am a senator from Ontario and I’m the deputy chair of the Standing Senate Committee on Banking, Commerce and the Economy.
Our esteemed chair, Senator Clément Gignac, is unable to be with us, so I will do my best to replace him.
I welcome members of the committee and our witnesses, both in person and virtually, as well as those watching online.
I want to start this meeting by acknowledging that the land on which we gather is the unceded traditional territory of the Algonquin Anishinaabe Nation.
Before we hear from our witnesses today, I would like to start by asking our senators to introduce themselves.
Senator Pupatello: Sandra Pupatello, from Ontario.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Henkel: Senator Henkel, Quebec.
Senator Loffreda: Welcome. I’m Senator Tony Loffreda, Montreal, Quebec.
[Translation]
Senator Ringuette: I am Pierrette Ringuette from New Brunswick.
[English]
Senator McBean: Marnie McBean, Ontario.
Senator Wallin: Pamela Wallin, Saskatchewan.
The Deputy Chair: This is our tenth meeting on our special study focusing on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
I wish to welcome our two witnesses on our first panel this afternoon, representing the Canadian Venture Capital Association and Private Equity Association: Mr. Benjamin Bergen and Mr. Dino DeLuca.
Welcome to our committee. I invite you to deliver your opening statements. We will then follow with questions from senators. You have five minutes each. The floor is yours.
Dino DeLuca, Vice Chair and Board Member, Canadian Venture Capital and Private Equity Association: Good afternoon, deputy chair and honourable senators. Thank you for the invitation to appear before this committee.
As the deputy chair mentioned, my name is Dino DeLuca. I am a partner and the chief operating officer of TriWest Capital Partners. We are a private equity firm based in Calgary. Our firm is currently invested in 18 small- and medium-sized businesses, employing about 4,400 people in Canada. I am also here in my capacity as the vice-chair of the board of the Canadian Venture Capital and Private Equity Association, or CVCA. I am joined by Benjamin Bergen, the CEO of the CVCA.
The CVCA represents more than 350 member firms across venture capital, private equity and private credit. We work with Canadian businesses at every stage and risk profile. That breadth gives us a clear view of where capital is reaching Canadian companies and where it is not.
As highlighted in an RBC report that came out last week, more than $1 trillion of investment exited Canada between 2015 and 2024, the largest capital exodus in our history. For every dollar of inward foreign direct investment, two dollars left our country.
In 2025, 67% of all Canadian venture capital rounds above $50 million involved a U.S.-based investor. When foreign investors lead investment rounds, decisions about where to scale, where to hire and where to exit follow the capital south.
When capital does reach the right Canadian companies at the right stage, the results are strong. A 2020 PwC study examined 131 private equity-backed Canadian SMEs. Post-investment, those companies recorded annual employment growth of 7.3% and productivity growth at roughly twice the rate of comparable public companies.
I will ask Mr. Bergen to continue with our opening remarks.
Benjamin Bergen, Chief Executive Officer, Canadian Venture Capital and Private Equity Association: Thank you, Mr. DeLuca.
Deputy chair and senators, we appreciate your time and your attention on this critical issue.
Let me walk you through what the data is telling us. In 2024, for the first time on record, more Canadian-educated founders raised $1 million in the United States than in Canada. Of all high-potential start-ups founded by Canadians that year, only 32% were headquartered here in Canada.
In our 2026 CVCA survey, 86% of respondents identified securing financing and liquidity as the top challenges facing their portfolio companies.
Growth companies that scale in Canada drive productivity, competitiveness and economic resilience. When we lose these companies to other countries, we lose the tax base, the talent and the strategic advantage that comes with leading industries at their origin. Where companies scale determines where sovereignty sits.
Canada has lost its working understanding of how the growth capital systems function. Policy has become reactive, growth companies navigate a patchwork of programs and conditions, and capital moves to where the environment is cleaner and the returns are strong.
Successful companies are reaching mid-size and stalling. Canada lacks the domestic, late-stage growth capital and the demand signals that would allow them to scale here.
Against this backdrop, we are recommending a framework. Just as the federal government has built a framework for the resource sector — such as critical minerals — one that aligns policy signals, procurement and strategic capital, Canada needs the same for capital and growth companies alignment that we are seeing in other sectors of our economy. It needs a framework that allows government to understand where capital is not reaching viable firms, that allows companies to signal where commercialization barriers are, and that allows capital providers to identify where public policy, such as tax policy, can improve certainty, lower friction and crowd in private investment.
Peer countries are already doing this. The U.S. used anchor procurement to transform its space sector. Israel built a domestic venture ecosystem through deliberate public-private alignment. The U.K. convenes government and industry association gatherings annually to implement public policy. All three of these are the result of countries that decided to show up for their economy. It’s time for us to do the same.
We are asking Canada, as a first step, to create an annual forum — industry and public servants together — built around implementation.
Deputy chair, honourable senators, the evidence points to one conclusion: Whether Canadian businesses grow here, create jobs here and build long-term value here depends on whether Canada builds a stronger domestic system for capital formation across equity and credit, at the right scale, on the right terms.
The federal government has shown it can realign its relationship with a sector when it decides that sector matters. Growth companies and capital need to be next. The 2025 budget, we saw commitments in the range of $1.75 billion to the venture capital industry, and that is a good start, but now we need policies to follow suit.
That is how Canada begins to close the gap.
Thank you. We look forward to your questions.
Senator Fridhandler: Thank you very much for taking time out of your busy schedule to join us here today in person.
I believe that we have to be more competitive to keep capital income companies in this country, largely driven, in my view, by tax. If there are better returns for investors on their investment going in — and perhaps on their exits, which can also be addressed on some tax matters — we will be competitive with the rest of the world.
I would like your thoughts. I’ll throw a few things at you: expanded flow-through, where a lot of these start-up tech companies don’t need their capital costs at the front end because they are not revenue for quite a while; capital gains rollovers; reduced capital gains; and maybe other things you might throw at us. I’d like your thoughts on that space.
Mr. Bergen: Tax policy is a critical tool as a way of aligning where there is opportunity for our economy. We actually haven’t had a Royal Commission on tax competitiveness in this country, I believe, since the 1970s. So, what you now see is a patchwork of policies that don’t necessarily align to create conditions for investment.
Capital is highly mobile, meaning it can travel to jurisdictions where there is less taxation and where there are policies that make it more attractive. Obviously, being next to the United States, that’s a natural occurrence. We have to make sure we have the right types of tax regime structure.
You have to think about it more holistically. It can’t just be certain policies being implemented. It has to be looked at from a totality perspective. So things that we have heard from our members are definitely many of the things that you’re communicating, senator, in terms of tax policy.
Can you have, as you mentioned, capital gains capped at $15 million in terms of a rollover of zero percent so founders are able to grow their business, sell it and then reinvest those dollars and continue that function?
So, I would say that a tax policy is definitely a tool, but it’s not sufficient in terms of how we will actually grow our economy.
Senator Fridhandler: We recently saw a report that CPPIB and one other public service pension fund are proposing to sponsor an investment forum in September that the Prime Minister wants to invite all kinds of the world’s biggest investors to, yet, if you look at the numbers and the percentage of money that those two sponsor funds themselves invest in Canada, it fails the test of a nationalistic fund.
I know they need to make returns for the retirees, but at the same time, they also have to create an economy that is good for the retirees. There are two sides to that coin. I just found it a little bit questionable that we have a couple of sponsors that aren’t putting money into the country that want other people to come put money into the country. I’d like your thoughts on the pension funds and what they are up to.
Mr. DeLuca: I’ll augment that with one other fact, and then I’ll respond.
OMERS recently announced they are going to deploy an additional $10 billion in Canada. If you read the release, most of it is going to be invested in real estate or in infrastructure. A lot of pension funds, as you know, are looking for long-life, stable return assets. Where capital is not being deployed, and where that September conference is unlikely to change how capital is deployed, is to the SME sector.
These organizations are of such a scale, they need to deploy $200 million to $300 million per relationship. They don’t have the staff to devote all the research and the diligence to make an investment of $15 million, $20 million or $30 million. It’s $200 million plus, and often US$200 million plus.
So we need to assist that pool of capital, which is massive, to come into the SME space by creating smaller pockets for them where they can participate. I don’t have the solution; I have an idea. If there were a fund of funds that managed to invest across the SME sector, they could each deploy their $250 million or $300 million and put it in the hands of a manager to deploy across the sector.
What is happening is fantastic: bringing foreign institutional investors to our country to see the benefits of investing in our country. But as Benjamin said, it’s more likely for all the major project announcements and other types of projects that are far below where the SME space is. These are, as you know, entrepreneurs. They are family businesses. They create 62% of all jobs in our country. So we need to figure out a way to bring it “down market.”
Mr. Bergen: The piece I would jump in on there is that these pension funds are at scale globally through public policy. They are creatures of public policy. We decided as a country we didn’t want old people being really poor. We created a public policy structure to create and crowd in capital for that purpose.
So to your point, senator, we’re now in this exact challenge. We may need new vehicles, like Dino is articulating, in order to achieve those same outcomes.
[Translation]
Senator Henkel: One of the central elements of this committee’s study is productivity, but venture capital performance is often evaluated by development and securing financing. It’s harder to know the extent to which investments translate into direct sustainable productivity gains for businesses. Do you have key performance indicators that show companies backed by venture capital sustainably improve productivity? How do you measure development and securing financing?
[English]
Mr. Bergen: We need to look at where wealth and prosperity are now being generated globally. In the 1970s, only about 17% of the economy came from IP and data-rich companies.
Fast forward to today: Over 95% of the wealth and prosperity being created comes from IP and data-rich companies, like Google, Meta or Amazon. We have seen that investing in new technologies and new firms is where wealth and prosperity will be created.
If we look at the Canadian economy, we’ve actually seen GDP per capita stagnant or declining for probably the last 20 years. We are now 25% poorer than the Americans, and we are 20% poorer than the Danes. You can’t blame socialism or capitalism. The problem is that we haven’t built public policies to capture IP and data-rich companies.
The firms that our members fund are those companies. They are companies like Cohere, which is a world-leading AI company; Clio, which is another world-leading company; or Miovision, which does transit systems.
The evidence is all around us in terms of where wealth and prosperity are captured. As a result of the fact that we, as a country, haven’t changed some of our public policy structures, we have not benefitted from this transformation.
Senator Henkel: Thank you.
[Translation]
In a recent article entitled “Succession Planning Is No Longer Optional for Private Capital Firms” published on your website, you point out succession planning is no longer a secondary issue nor a strategic imperative, particularly because of increased investor expectations and the need to ensure performance continuity over time.
Why does venture capital invest so little in the takeover and transformation of existing businesses when it’s a direct lever for productivity and national anchoring?
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Mr. Bergen: There are a number of obvious challenges. Part of it is an understanding of the asset class itself. Part of it is capacity building. Supporting growth capital through taxation policy and other mechanisms is required.
This falls under aspects of education but then also under the tools themselves in terms of how to leverage that.
Senator Henkel: My next question is about women entrepreneurs.
[Translation]
According to the numbers in the report The State of Women’s Entrepreneurship in Canada: 2025 published by the Women Entrepreneurship Knowledge Hub, it’s estimated barely 4% of venture capital is directed to businesses founded or run by women, despite the fact one in five entrepreneurs in Canada is a woman.
Do you think this points to a problem of access to funding, so a market failure, or is it more a bidding issue with an insufficient number of companies that meet your criteria?
[English]
Mr. Bergen: On that particular piece, the market and the industry have done a lot of work to increase that number because it is very low, to your point. We have seen advocacy and policy around funds that direct more capital to support female businesses and things like BDC’s Thrive initiative, which allocates more money toward female entrepreneurs and venture capitalists.
It’s an industry that continues to be dominated by men, but an industry that’s very much working toward increasing that access and that capacity. It’s one of those things that is being supported by industry players to change it, and we see change occurring. The numbers are getting increasingly better. It’s not something that can be done overnight, but it is something to be worked through.
Senator Loffreda: Thank you, Mr. DeLuca and Mr. Bergen. I found your opening remarks very interesting. Mr. DeLuca, you mentioned the RBC report, where they discussed a capital exodus from Canada: $1 trillion between 2015 to 2024. I have a simple question: How do we correct that? Why did it happen? How do we put an end to it?
You talked about the SME summit deploying small pockets of capital, which is extremely difficult because it takes just as many resources for the small investment as it takes for the large investments. I would like to hear your thoughts and insights on those issues.
Mr. Bergen, afterwards, we’ll use the full amount of our time allocated. It was interesting. You mentioned that we can’t blame socialism or capitalism and that tax policies are not the sole answer, although I am sure they are part of that answer. We should be more proactive and not reactive. Maybe it’s a combination of both: a one-two punch. Maybe there’s something we can put on the record and use going forward.
Mr. DeLuca: Thank you for your question, senator. I think the answer is going to reflect a bit of what Senator Fridhandler was asking. If we can create a tax policy that makes us competitive, in particular, competitive with the U.S., capital will stay in our country, in my view.
I believe that Canadian investors and Canadian allocators of capital are loyal to our country, and if the playing field is equal, the tiebreak will go to the Canadian. I believe that we have entrepreneurs who can create successful and strong businesses that can scale in our country and can employ talented people.
In my view, it’s all about creating a balanced framework where an allocator of capital isn’t weighing whether they get a better tax deal here versus there. They are only looking at the business that they are investing in. They are making their decisions based on that fundamental.
Mr. Bergen: I’ll dovetail into a couple of pieces that Mr. DeLuca raised. I agree that taxation is a piece of it. The $1 trillion flowed predominantly to our southern neighbours because, at the end of the day, it follows returns. It follows where it can get the best return on its money.
We must look at how we can create stronger returns here in Canada, and that’s done through building better firms. I view this a bit like trying to win a gold medal at a triathlon. I know some people in this room are Olympic athletes. Not a triathlon, but you’ve got to be good at —
Senator Loffreda: A triathlon of medals, plus one.
Mr. Bergen: You’ve got to be good at running, swimming and cycling. For businesses to be strong and successful, you’ve got to be good at capital, talent and customers. We, as a country, do a pretty good job on the talent side. We look around and see our amazing academic institutions. We credit ourselves as being the birthplace of AI. Ozempic, the GLP-1, was created at the University of Toronto. Most of the batteries in Teslas are actually designed in Dalhousie. We are good at the talent side. We do an okay job on the capital side in terms of showing up and supporting. There are some areas around growth where we could be doing a better job.
One of the big areas is really around procurement. We are terrible customers in terms of actually buying the solutions of the firms that we are supporting, whether that be through research and development or through other incentives.
If we want to be able to win some gold medals in the triathlon, procurement is a huge lever for us to use. That’s not just at the federal government level; it is provincially has well, and that’s also looking at our large corporates. Are they actually buying solutions or are they going elsewhere?
I believe, at the federal government level, around $234 billion goes towards procurement. What are those dollars doing? They’re essentially solving problems for Canadians through different types of services or products. We are building companies in this country that do solve problems, so we should be looking at how we build strong relationships where we’re actually buying those solutions.
For any company or organization that is scaling and growing — and the portfolio companies that our members represent will tell you that — tax credits and subsidies are nice, but a purchase order is something they can then take, raise more money off of and continue the flywheel.
As I mentioned, we really need an opportunity where we can begin to relate industry and government more collectivity in order to build the right type of framework. They do this in the U.K. They started launching an annual summit where this type of work is going through.
Senator Wallin: Maybe just a little forensics to start: We all say we know what went wrong during 2015 to 2024. We can all speculate on the issues of founders going stateside to raise their money.
Could you give us a couple of minutes on what you think actually caused that?
Mr. Bergen: There are a number of big challenges, but I’m actually going to lay out more of an ideology that is more of a challenge. We lost the plot in terms of how wealth and prosperity are created.
I mentioned those statistics around IP and data-rich companies, and we, as a country, continue to think that wealth and prosperity are created through labour and through being merely in supply chains, not actually being in value chains. Those are fundamentally two very different things. We did not align our public policy around the idea that we are actually the owners of the ideas that are being created and, instead, did not pursue those policies. In essence, what it has led to, in a lot of ways, is us being renters in our own country.
To go a little bit further, just to highlight some of the policies that are obfuscating the issues, look at how we’ve deployed capital in something called the Strategic Innovation Fund. Around $9 billion is being deployed, and it’s meant to go into strategic industry to support it.
We gave $40 million to MasterCard in Vancouver to build an innovation hub. What that ultimately ended up doing was hoovering up all of the best talent in Vancouver that were working at financial technology companies, or fintechs, the very companies our members support and fund and are part of the portfolio, and made it more difficult for them to attain and connect with the best and the brightest.
We see policies like this, which sound like we’re getting jobs from MasterCard by giving them a subsidy or a grant, but at the end of the day, it’s robbing Canadian companies of talent and, ultimately, making their competitors stronger for it.
It’s that type of framework that we have to get ourselves out of and look at how we put domestic firms first. How do we help them generate revenue and how do we grow the economy?
Senator Wallin: We have two things. We have allowed our manufacturing sector to wither. We all saw that during COVID and all the rest of it, so it’s hard to be our own best customer or our own best supplier in that sense.
We also watch, on a regular basis, the government put money into programs and projects, and we let the IP go back to whoever is getting the grant in the first place.
If you can separate out for me the tax policy — we all 100% agree on that, and we can all do the list. Just give me a couple of specifics. You’re quite right: This is an ideological mindset kind of issue. Are there some specifics on public policy that you can think of that would force a turnaround in terms of handing out money?
Mr. Bergen: There is an example, let’s say something like the Scientific Research and Experimental Development, or SR&ED. It’s a $4-billion-per-year tax program. Roughly 19,000 companies receive SR&ED dollars. Of that $4 billion, about 20% of every dollar goes towards SR&ED financing, meaning that, because we have a system that is slightly inefficient, a lot of it is going towards a certain type of financing rather than actually going into firms, so is that a productive use of capital?
The other piece is this: Who are those dollars going to? If you look at SR&ED and the way it’s currently structured — and there were positive changes made by the government in the most recent budget — money is still flowing to firms that are Canadian in name only.
As an example, Huawei received close to $110 million up until, I believe, 2023. We consider that a good use of taxpayer dollars in terms of supporting it.
How we allocate is really critical. This is right across many funding programs. I’m just giving you one short example. The mindset becomes this: How are the dollars flowing and whom are they going to support? If it’s not the home team, what is the advantage of it?
Senator McBean: I’m feeling like a sport analogy.
In sport, we find that domestic coaches struggle for credibility because, for some reason, they don’t have an accent, so no one thinks they’re any good. We can import a coach from another country, and they know exactly the same things as the Canadian coach, but they have an accent, so we all listen. That is what I seem to be hearing from you a little bit, in that we’re terrible at buying the things that we’ve developed.
Mr. DeLuca, you opened by saying that, from the breadth of your member firms, with respect to capital and private equity, you know where it’s getting and where it’s not.
I’m wondering if the two of you — as our chair today said, we’re in our tenth meeting here, and we’re starting to think of what is going into the report — can tell me where the champions and the wins are. We keep asking for where things are not getting to, and the easy questions are about the gaps.
Who is doing good work? Who are the triathlon champions despite the system? Where are the successes? How are they doing it despite all the challenges?
Mr. DeLuca: I’m going to maybe step back and talk about venture capital and private equity holistically.
There are hundreds of firms like mine outside in the CVCA — I work for a private equity firm — that go out and raise capital. Any firm that is sub-$750 million in size is investing in Canadian SMEs, either at the very beginning, like the seed of the idea, or when they’re at $20 million of profitability. Across that ecosystem, all kinds of our 350 members support the Canadian economy by investing in those businesses and growing them. I could have spoken a long time about acquiring and assisting with succession. It’s what we actually do in our business.
Those are the stories, which are about growing the revenue of the business, growing employment in our country, reducing the risk of customer concentration, expanding their markets and expanding what they manufacture or what they develop. Those are the champions. They’re doing it every day, but one of the hardest things to do is raise the money to invest in those companies to grow them. Raising the money has been a challenge in the last four years, for sure, for almost all of our members.
Senator McBean: Yes, it’s a challenge, but there are certainly wins in there. Who is winning and how? Where is that next step being found?
Mr. DeLuca: The winners are the Canadian creators of ideas, the Canadian builders of businesses and the families who are risking their personal net worth to grow a business and employ 50, 80 or 100 people, as we were talking over coffee.
They are winners. They don’t make the headlines, but as I said, they do employ 62% of the people in our country.
Senator McBean: Do you have any examples?
Mr. Bergen: Yes. On the venture side, if you look at Inovia and Chris Arsenault in Quebec, they’ve been very successful in terms of supporting companies like Cohere or Miovision — so successful that they’ve gone to the Middle East and created partnerships to attract foreign capital to come to Canada and support the growth of those industries.
There, you have seen an organization that has been able to differentiate itself, figure out how to find the firms of the future. Both of those companies I mentioned are AI-based. By telling those stories globally, they are able to attract capital. That example has been a really good case for us at CVCA.
Senator McBean: In that example, they had to go internationally to find the capital. Does the step-up capital exist in Canada?
Mr. Bergen: The capital that originally comes from Inovia is based on capital that came out of CDPQ. Given the Quebec mandate of its pension funds to keep capital in the province, their goal is to get to around $100 billion in the next little while. Actually, they have already done it. That has been part of that spur that has allowed that type of capital to form there. Given the expertise that they built within Inovia, it becomes attractive for international capital because Inovia is world class in terms of what they do.
There, you have provincial policy on pension funds that leads to a crowding in of private capital through that type of policy.
Senator Ringuette: When the capital market representatives were here, they told us that the range of their return was between 10% and 12%. What is the return on venture capital?
Mr. DeLuca: I can only speak to private equity.
Mr. Bergen: We don’t have full data specifically on that piece.
Senator Ringuette: Can you give us an idea?
Mr. Bergen: I can send you a written submission.
Senator Ringuette: I would appreciate that.
When you talk about Canadian pension funds and the minimum $200-million investment — and I think they have a target of 10% on their return — we need to know where venture capital would lie within that possible pension fund.
Mr. DeLuca: In private equity, we underwrite at a 25% rate of return, or 2.5 times your money. That’s what we’re looking to achieve.
Senator Ringuette: Wow.
Mr. DeLuca: It’s a long-haul period. It’s not like investing in the stock market, where you can pull your money out or put your money in. It’s all about long duration. Venture capital in the country, without the data, would be in the low to mid teens.
The Deputy Chair: Is that annualized?
Mr. DeLuca: Yes.
Senator Ringuette: Nice to know.
I totally agree with the framework you talk about. That framework can only be put in place if there is also work being done on the frame of mind, because the frame of mind is on the multinational and the ones that make the media, as you said earlier. However, the SMEs that are in rural communities and small municipalities are almost forgotten.
For instance, the current government has issued a “Buy Canadian” procurement policy, but the minimum project has to be $20 million. How many of your venture capital AI and IT firms would fit into that minimum “Buy Canadian” procurement policy? We need to change the frame of mind. How many would fit into that?
Mr. Bergen: Senator, I don’t have that information in front of me. I’m happy to go back and try and find that data for you. I know there are a number of different policies as they relate to “Buy Canadian.” In defence, and a few other areas, there are certain thresholds.
Depending on where within that “Buy Canadian” framework exists, I would be able to give you that perspective. It would really be the portfolio companies that our members represent that would fit into that space.
Leave it with me, and we’ll get back to you in writing.
Senator Ringuette: I’ve always been of the view that all the billions of dollars that we spend in research, and in the last few years, particularly in the IT sectors and so forth, it’s Canadian investment at the base, and Canadians should have a share in that research. What is your opinion on that? Would it help in terms of venture capital if Canadians had a share of the intellectual property?
Mr. Bergen: How we as taxpayers are able to benefit from the research and development that gets created requires that it actually be commercialized here or that there are rents from the commercialization of it. Jurisdictions around the world have done that type of licensing and work. From a taxpayer perspective and getting a return on that investment, that would definitely be beneficial in the long run. What that structure looks like is a question mark, but there are models in the world. Israel, as an example, does it with some of their research and development dollars.
Senator Pupatello: Thank you so much for coming today. Mr. DeLuca, you referenced the fund of funds method or model. I was involved when we struck that at the Ontario level many years ago. I’m curious to know if you followed that, and what your view is of how well that worked.
The dilemma of investment is that it doesn’t necessarily align with the political calendar. That is what I see when governments get involved in these types of things. You can’t go back to say how well it is and look how great it worked in the timeframe that the government needs it to have worked, or can’t show it quickly enough, frankly. I’m curious about your view on that. Is that a way to go when a government can’t, and, as you explained, these large companies are at that multi-billion-dollar level, and we are trying to get these down to that lower level?
Second, can either one of you explain what you look for in these companies that you anticipate investing in? What are the characteristics and features for those companies looking for funding? What do they need to be? Do they need to have customers? Do they need revenue already? Is it their character? Is it the individuals? Is it their academic background? Is it how much money they’re putting in themselves?
These kinds of characteristics are why they can’t get money at many institutions or from government programs. What are you doing that’s different when you find these companies to invest in?
Mr. DeLuca: I’ll start with the question about fund of funds.
If the government follows through with its current $1-billion announcement for venture growth, that capital has typically gone to BDC, and then BDC has gone out with a request for proposal, and there are these businesses called fund of funds. They would receive the capital — let’s say $100 million per fund — and then they have to raise an additional $200 million or $300 million, depending on whatever the government program is. Then they allocate it to businesses in the sector that they’ve been entitled to allocate it in, which, in the past, has always been venture.
Factor one is that it’s cumbersome. By the time the government makes the decision, then it goes to BDC and BDC goes to fund of funds, fund of funds raises the money, it takes years. One of the problems is the efficiency at which capital can reach the SME. You’re talking about multiple years, from the idea to the implementation.
That’s one of the barriers that needs to be improved. Efficiency is a key.
I apologize, senator. I forgot the point of your question. Did I cover the first question entirely?
Senator Pupatello: Do you feel that it works? Does it get to that level?
Mr. DeLuca: It does eventually, but it takes a long time.
Senator Pupatello: At every level, do they take a percentage off the top so that, by the time it’s getting to the bottom, there is not $100 million left because they are all taking their administrative fees? Did you find that?
Mr. DeLuca: There would be a fee. Typically, when we take a fee, we have to return it to the investor, plus an 8% return on that fee. You’re borrowing the fee until you pay it back.
Senator Pupatello: The second part, and Mr. Bergen perhaps can jump in as well, is this: What are you looking for in these small companies that they need to have that you’ll invest where they cannot get money from typical institutions or government programs because they don’t have a five-year history, they can’t show financial statements for all those years, they don’t have sales necessarily, or they are not making money yet? What are you looking for so that you’re going to invest in them?
Mr. DeLuca: There are different segments within venture capital. There are angel investors, who are basically investing in a person with an idea. Then there are seed investors, who are people with an idea, but they have actually developed something. It goes up and up.
Every investor has a different risk appetite, and every investor is looking for a different subset of skills, whether it’s the individual, revenue, patented or actual profitability, depending on where you’re investing on the scale.
Your question is a little broad, but there are pools of capital that want to invest in all those stages. They are all taking different risk and looking for different features, but they are investing in a business that they want to assist and help grow.
Senator Fridhandler: Let’s focus not on the formation side but on the results of the liquidity side, because people going in want to know how they’re going to get out and achieve the types of returns.
We heard earlier in testimony that liquidity is a big issue and that the primary route to liquidity, because of the limited accessibility or appetite in the public markets, is to sell the company to someone outside the country.
We did talk about how we address that problem, but that’s where we’re losing productivity. We’re losing the real upside when we get scaled up. Your investors are in for 5 to 10 years. You have to get a liquidity event because you have distributions to make.
Can you talk about the marketplace in Canada for exit and how we can possibly address it?
Mr. DeLuca: Liquidity has been quite a challenge for the last four years, as you have identified, whether it was the high interest rate environment that immediately followed the pandemic to try and slow down inflation or whether it’s the current war in Iran or Ukraine, tariffs that the U.S. government is putting in. I don’t think anyone should forget counter-tariffs, because if you’re a Canadian business and you’re importing, counter-tariffs can also impact your business.
With all those fluctuations, it’s a very difficult market to sell a business because the buyer has too much uncertainty. Where are interest rates going to settle? What are tariffs going to do to this business, whether it’s American or Canadian? So it’s difficult to sell a business.
However, you are correct. In our business, we sell to the buyer who is going to pay for that business. Most of the time, they want to buy a business that is headquartered in Canada because almost all of our businesses are headquartered here, but we grow our businesses to diversify their revenue beyond Canada’s borders. That makes them more attractive, makes them more valuable and creates greater employment.
The market is bigger in the U.S., especially for successful venture businesses, like technology businesses. There is a strong appetite in the U.S., and it’s a bigger market than Canada currently has, even on a percentage basis.
I don’t have a quick fix for the question that you’re asking.
Senator Wallin: My question is quick, in a way. We’re seeking your forward guidance here, of course.
All of the things that you have suggested about public policy, tax policy and what you were just getting at now, money follows returns, as you said. Of course, people go to the U.S. because they can exit more easily.
Can we ever fix that in a market of 40 million people?
Mr. Bergen: The short answer is yes. It’s structural. Other jurisdictions around the world do this. We’re an open, small economy, so we have to play by those rules, but it means, as I mentioned before, aligning capital, talent and customers to achieve it.
The short answer is yes, but it will require strategy and working through it.
Senator Wallin: The structural is back to the public policy/mindset?
Mr. Bergen: Yes. I often get frustrated when people say it’s cultural. I think that’s nonsense. It is the structures that we create in order to create opportunity.
There are very risk-taking Canadians, but sadly, many of them often leave because we haven’t created the right structures for opportunity to be successful.
Senator Wallin: We reward risk averseness rather than making it a cultural problem of the entrepreneur. Thank you.
Senator Loffreda: We’re doing access to capital for SMEs. Do you feel there is sufficient data with respect to finance gaps with SMEs?
Also, what I find in the general public, even amongst finance experts, is that there is a misunderstanding of the role our banks play to VC capital. Mr. DeLuca covered it well. The return on VC capital is 20% or in the teens, and for our banks, obviously, on a typical loan, the return is 2% or 3%.
How does the government encourage our banks to participate more in VC capital, create those pools?
The banking industry, this year, will have $70 billion in profits. They can buy any expertise they would like to buy. The top two banks will make $40 billion. How do we encourage the banks to get into not only just the early-stage financing but also the late-stage capital? Would it be creating pools, government guarantees? How do we get there?
Mr. Bergen: This ties into Senator Pupatello’s comments around VCCI, which was created as a vehicle to crowd in private capital that was originally created under Jim Flaherty. Dino is correct that sometimes that capital is slow in terms of how it’s delayed.
We’re now currently deciding, as I mentioned in my remarks, VCCI 4, or VGCCI, as it has been rebranded a couple of times — keeping track of the name can be a challenge — actually looks at doubling down on policy that has helped support the venture ecosystem.
Right now in Canada, we have over 100 firms that are over $100 million in recurring revenue, meaning that our ecosystem is more sophisticated than it was back when Jim Flaherty brought in that policy. We’re now on VCCI 1, VCCI 2, VCCI 3 and VCCI 4. Those programs looked at pre-seed and seed Series A in order to support the growth of these firms.
We have now arrived, thankfully, at the part of the journey where we ask this: How do we help our most successful firms scale and grow?
The data at CVCA shows that about 70 cents of every dollar that is raised at these high-growth firms ultimately comes south of the border, meaning that these companies can get capital, but it’s actually a problem around crowding and domestic capital in order to support them. That matters to Canada because, ultimately, if it’s us not putting in more dollars to support their growth, the upside goes south of the border. Shopify is an example. How much of that upside is south of the border because that’s where growth capital came from?
Right now, in front of the federal government is a $750‑million envelope that was committed in Budget 2025 to growth companies. Now, in real time, how do we create a multiplier on that $750 million to get more growth capital into the firms that I mentioned?
It’s going to require work similar to what was done 12 years ago when the first VCCI was created. Now, how do we look at creating growth capital structures that can support the next iteration of the economy?
It may require, again, more thoughtful public policy on how to execute on those dollars.
Senator Loffreda: Thank you.
Senator Pupatello: I know you wanted to jump in with a question around what a company needs to do to get funding. What is the characteristic that you look for?
Mr. Bergen: I was going to talk more about VCCI and that specific program. I’m not an allocator. I’m actually four months into the new role as CEO. Before that, I was working with growth companies.
In terms of my closing remarks, I want to thank all of you for having us come forward. Figuring out how to recapitalize the country right now is mission critical. It is how we will build wealth, prosperity and sovereignty, ultimately. There is no silver bullet for this. There is no one thing we can just change, and everything will be great. It’s actually an iterative process of being able to relate to each other. Think about your own relationships with your partners. It’s your ability to relate to them that allows for successful relationships. That’s what we have to see now: government and industry collaborating through proper forums in order to continue to advance and learn to deal with the challenges and the realities that we find in the economy. It was a divergence of public policy thinking and economic structure in the 1980s and 1990s, where we didn’t realize that wealth was captured in the intangible economy, that ultimately led us here. It was in that divergence that we weren’t able to create the right structures to help right the ship.
So, there are challenging days ahead for us as a country, but the fact that we are all awake to it is very positive. Thank you.
Mr. DeLuca: I want to thank you for elevating the issue of capital for SMEs. It’s an issue that receives very little attention in our country. People don’t understand the importance of SMEs to our society, and I commend all of you for taking the time and inviting us here today to share our views. I really appreciate it.
The Deputy Chair: Mr. Bergen and Mr. DeLuca, thank you for your participation today via your testimony and insights. They are very much appreciated. If you have anything further to contribute in answering some of the questions that were asked, please send them to our clerk. We would be happy to receive that.
For our second panel, I wish to welcome our next witness, Hans Knapp, Partner and Co-Founder, Yaletown Partners Inc. Mr. Knapp, welcome to our committee. I invite you to deliver your opening statement. We will follow that with questions from the senators. The floor is yours.
Hans Knapp, Partner and Co-Founder, Yaletown Partners Inc.: Honourable senators, thank you for the opportunity to appear here today. My name is Hans Knapp, and I am the Co‑Founder of Yaletown Partners Inc., a national venture capital firm with offices in B.C., Alberta, Ontario and Quebec.
For the past 23 years, we have been investing primarily in Canadian-based technology companies at the early and early-growth stages, which is the point where companies are not yet profitable and are, therefore, seeking equity capital from either angel investors or venture capital funds. We typically operate as a lead investor, which means we are usually the party that issues, or has a material hand in negotiating, the term sheet that forms the basis for an equity financing round.
To date, we have invested in over 80 companies and have directly deployed over half a billion dollars, while our syndicate partners — investors who invested alongside us into these companies — have collectively invested over three times as much again into those Canadian businesses.
Yaletown’s role in the Canadian venture capital industry, along with my decade-long tenure as a director of the Canadian Venture Capital & Private Equity Association, has given me an opportunity to observe, over several economic cycles, the capital supply-and-demand dynamic at work in both the venture and the pre-venture capital — angel investing — stages, as well as the impacts those have on fostering the growth of the Canadian knowledge-based and SME economy. I’m hoping we can delve more deeply into some of those learnings during today’s session. For now, I will provide you with some observations for your consideration before we start.
At a high level — I will provide sources for this data separately — the supply of both venture capital and angel funding in Canada is presently insufficient relative to the number of meritorious businesses that are seeking capital, and, further, many who are fortunate to raise capital end up raising less than what is necessary to fully fund their businesses.
As a result, two things happen: First, management teams spend more time fundraising relative to simply running their business; second, they return to the well for more funding sooner than they otherwise should, taking yet more time away from their business. So it’s not just less capital; it is less capital more slowly.
Canadian venture capital funds are themselves raising less capital. According to a recent report from RBC, entitled Capital Under Pressure: 2025 Report on Canadian VC Fundraising, the year 2025 saw the weakest venture capital fundraising level since 2016, with fewer funds able to successfully raise successor funds, and average and median fund sizes declining.
Some of the primary drivers are pension funds, exiting part of the asset class, corporate investors largely absent and longer than expected delay in the roll-out of the Venture Capital Action Plan, or VCAP, program since its announcement in late 2024. In the world of finance, it is not just the quantity of capital that matters, but also the speed of deployment and how rapidly it can then get transferred to work in the real economy.
Similarly, but for different reasons, the angel investment environment in Canada has changed over the past decade. Exits are taking longer, with the average time taken from inception to exit moving from 7 to closer to 10 years today, which delays the virtuous feedback loop of recycling capital back into the Canadian economy. On a related note, our present tax policies do not encourage the efficient redeployment of capital gains back into the Canadian start-up or SME ecosystem. When capital gains on bitcoin are taxed at the same rate as capital gains on the shares of a Canadian start-up, it is not difficult to see why capital is not flowing optimally to uses that benefit the Canadian economy.
Furthermore, credit is almost entirely unavailable for firms that do not have at least a year of profitable operations. The relative undersupply of early and growth stage capital, combined with the unavailability of credit, leads to a type of stagnation, where companies don’t outright fail, but they don’t prosper either. Rather, they trundle along a path of mediocrity, lacking the financial and human capital to properly reach their full potential in the face of international competition.
If we are going to get serious about catalyzing the potential of the private sector to drive innovation and productivity for the benefit of our country, then we need to be honest about what some of the factors are that are presently running at cross purposes to these goals. We need to candidly examine tax policies that could be more appropriately tailored to encourage the flow of capital, including the valuable flow of capital from experienced and high-value individual investors, back into the Canadian SME economy. I’ll take your questions from here. Thank you.
Senator Fridhandler: Thank you, Mr. Knapp, for taking time out of your busy schedule to come here.
You talked about the Canadian supply of capital being insufficient. Juxtaposed against that, my view is that the big banks and the investment firms that they control in this country and a lot of the available capital are deployed in wealth management and not to SMEs. Yet, we get RBC issuing a report talking about the venture capital marketplace. It’s fine to criticize, but where is your solution? What are your thoughts on the concentration into wealth management, the big banks’ investment firms and where we go?
Mr. Knapp: There are a couple of elements to this. First, the products that the banks are offering as part of their wealth management solutions generally do not involve access to Canadian private SMEs. They are typically listed organizations, larger ones that are liquid, and so forth. While there is a lot of capital under management in the various components of the bigger banks and their wealth management arms, and so forth, it’s one question to have capital on the side line, but it’s another to mobilize it into a part of the economy that is still looking for that capital.
So those two concepts are not in conflict; they are just in parallel, and they don’t cross-pollinate, unfortunately. I think it’s a legitimate discussion to examine ways in which that might be encouraged. But right now, there doesn’t seem to be a significant motivation on the bank’s part, and many of the products they sell are their own products. There has been no forcing function.
Senator Fridhandler: We talked about the deployment of capital, the roll out of the government programs and the latest announcement of the $1 billion and the $750 million. Then we heard from the last panel that it’s years before you even get capital into a fund like yours that might get deployed. Can you comment on your views on how we might accelerate the deployment of government offerings?
Mr. Knapp: Just a bit of background here: VCCI, where I was at the announcement with Minister Flaherty in 2013 — was a program that was deployed in four years: 2013 to 2016. The next one was 2017 to 2020: four years. Next year, 2021, the following year, was four years: 2021 to 2024, inclusive. In December 2024, there was an announcement that there was more coming. We are presently still in the consultation phase.
Assuming that the decisions are made about which major fund the fund managers are going to receive that capital, there is the process of them actually going to raise their own large funds, like the so-called matching money with the government. Then they have to fund private managers like us to commit the money to — not give it to; commit it to. Those private capital managers then have to raise their own funds, and when that has all happened, then they can start looking at companies where they have to issue term sheets to get to the money to the real economy.
I’m sitting here today, telling everybody that money will not flow from this program until at least 2027 at the earliest. I’m not being critical of those who are working on this. The Business Development Bank, or BDC, is working hard on this. The government is working hard. But, for the competition for these companies at the end of the line — what I call “the real economy” — we’re dealing with competitors that are another jurisdictions where there is capital that is more plentiful; it flows more freely or otherwise. It’s one thing to have a program. It’s another thing to have a program that is actually not yet accessible.
So things that could be done to speed it up are the following: First, run components of the program in parallel. This was done under one of the prior programs, where it was capital that was released early. Second, various fund managers who had actually already raised funds. So that timeline of the fund managers like us who had to go out and raise money had already happened. So, essentially, to take a page out of the construction context, they are shovel-ready. That allows the money to more rapidly flow into the real economy. Probably the biggest leap is doing some things to accelerate on the front end.
The back part is managers like us choosing the companies and then getting the money to work in the real economy. There is not too much that can be done there because that’s kind of the private sector at work. But on the front end, there are procedural inefficiencies.
The last comment I’ll make is that the perfect is very often the enemy of the very good.
[Translation]
Senator Henkel: Your company specializes in financing technology SMEs. We know these SMEs don’t have tangible assets or algorithmic data. They have intellectual property. How do you assess the risk, since there are no tangible assets? Also, why don’t conventional financial services use your model, since it seems to be working, especially for companies that are scaling up?
[English]
Mr. Knapp: Thank you.
The first question is this: How do we evaluate this and value them? Typically, it involves some amount of projection, looking ahead and saying as follows: If the company is able to take the product to market properly and engage with customers, what sorts of cash flow and profits could ultimately flow from that? Also, are there other products in the industry that it is displacing that already exist? So you can use that to infer how rapidly you will grow.
The emphasis is very much on future cash flow and profit generation, based on having a technology that displaces, or in some ways eclipses, an existing standard or an existing product.
In terms of why other financiers don’t use the model, that is really a question of their own business models. Are they more into short-term capital, capital that is more liquid?
One of the disadvantages of venture capital is that the money is tied up in private businesses; you can’t sell the shares. You have to have a patient, longer-term horizon. Typically, as I mentioned in my opening address, the timeline from inception to exit has extended from 7 years, a decade ago, to closer to 10 years now. If you’re building a fund that you’re deploying over a four-year period, it’s conceivable that the last of those companies invested in might exit 10 years later; that’s 14 years.
So depending on the business model of the other financiers — and I can’t speak for them — it’s quite possible that they view the illiquidity as something that puts them at a disadvantage or just doesn’t fit their particular business model.
[Translation]
Senator Henkel: According to Innovation, Science and Economic Development Canada’s Report from Canada’s Economic Strategy Tables, only 2% of mid-sized Canadian businesses manage to grow into large businesses. It’s a productivity gap between Canada and the United States.
Why do so many Canadian companies remain small, and what should change? Can you list a few things, say the top three, that need to change in order for our SMEs to scale up into larger companies?
[English]
Mr. Knapp: That’s a question that has been asked before. It is a very good question.
There are multiple layers to what makes a company great, and what allows it to succeed at a scale level that competes well with many of their competitors south of the border or otherwise internationally.
A couple of the key elements are these: overall, an appetite for pushing the envelope and an audacious appetite for risk that marries both the attitude of the founders with the attitude of the capital. When you get a founder who is reaching for the moon and capital that supports that vision, you will typically have an unfair advantage and better odds for an outsized outcome.
One of the challenges is — and this is the one I was speaking to earlier — that you can have a CEO who is thinking big, but the local capital doesn’t quite get it. That can be a challenge. Or a few of them get it, but there are not enough of them. That’s the challenge.
Canada has a very attractive level of entrepreneurs who are thinking big, have the plans and have the technical know-how and so forth. The challenge is when you go looking for capital. Not everyone has connections south of the border to Silicon Valley and other places. There are tonnes of companies in California competing for that money too. The more local the capital, the more inclined it is to fund that particular venture. I would not discount the importance of access to capital. It is not really a lack of entrepreneurial talent. There is plenty of skill here in this country.
Senator Wallin: I’m depressed, but it all sounds so familiar when you use a phrase like “trundling along the path of mediocrity.” We have done a lot of studies in this group that would make us recognize that phrase.
So let’s just for a moment parse the issue here: market size, risk-averse mindset — whether it’s from the entrepreneur or the lender, bad policy and the government mindset when it comes to deployment. Don’t just say all of the above. Rank them for me or give me some kind of insight into that, please.
Mr. Knapp: At the top of the pile, I would put right now for early stage SMEs is that there has been a drying up of risk capital in Canada, and it’s the function of exits taking longer. Angel investors have their money tied up. A study was done in Sweden by the Swedish Agency for Growth Policy Analysis, which was published in February 2023, and it is a very good report. I recommend that the people supporting the research for this committee go and read it. It talks about the role of tax policies for the angel earlier-stage investor level.
If I were to point out one thing, it would be that the absence of the ability to efficiently recycle capital back into the ecosystem is a major opportunity that is currently untapped. It’s something that Sweden addressed at the corporate level. If you have a company there that owns shares of a private company and makes a million dollars, they can recycle all of that back into their local ecosystem tax free.
Senator Wallin: That’s a direct tax chain?
Mr. Knapp: That’s correct. That is why they have more unicorns per capita than the U.K. or New York.
Senator Wallin: We proved in this country during COVID that governments could get money out the door. The decisions were not always wise ones, and hindsight gives us all of that, but if government is capable, how can we harness that? How can we not slide back so that it takes four years for the delivery of $5 out of a government program?
Mr. Knapp: This is going to sound self-serving, but if you get 10 of the key people, maybe 12, from either the venture or private equity ecosystem in Canada in a room early, you can hammer this out in a couple of days. It’s not that hard.
The issue is, as I said, that the perfect becomes the enemy of the very good. Also, a level of learning has to be taken up by each successive administration, when the people — they’re fine staff — need to get up to speed. This is tough. I’ve spent over 20 years in this industry. There are a lot of nuances. It’s almost unfair to expect people who are seeing this file for the first time — and last year they were dealing with a different program — to take it all up.
I would suggest far earlier involvement with, not just the CBCA level where they say, “Here is what we do,” but get the key individuals, the people who have experience, the connections and the scar tissue and sit down and say, “This is going to work. That isn’t going to work. Here this is it.”
We have a major projects office in this country now for major products that are deemed of national importance. If funding the single-largest portion of the economy for employment, which are SMEs, isn’t of national importance, well, I respectfully suggest that it might be given a similar level of importance.
Senator Wallin: Excellent point. Thank you.
The Deputy Chair: Could you send a copy of that Swedish study to the clerk?
Mr. Knapp: I will. I have some others. I came a little prepared.
The Deputy Chair: Please send them all.
Mr. Knapp: Yes.
Senator Loffreda: Thank you, Mr. Knapp, for being here. Our study is about how we get more capital to SMEs. You discuss the redeployment of capital gains, which is an issue. They’re not being redeployed to the economy. So is it tax policy, opportunity or return?
How does the government encourage our banks to deploy more capital and participate in some of the VCs? I looked at some of the research. I’ve looked at roughly 10% to 20% of total business lending in Canada goes to SMEs over the years— let’s say 15% — which is much lower than the OECD average. It doesn’t go to Senator Fridhandler’s point because wealth management is an issue. I like your point of wealth management, and they should deploy more of those assets in SMEs. But once you include mortgages, it falls to 5% or 10% of bank assets. How do we get more of those assets deployed in the SME sector? Is it strictly through government guarantees? I ask because a large portion — 60% to 65% — goes into residential mortgages of our bank assets here in Canada.
Mr. Knapp: The challenge is at the bank level and the level of risk appetite they have for the capital they’re entrusted with. If it’s balance sheet capital, that may be where part of the solution lies. Part of that gets directed into the fund level: things like the Venture Capital Action Program, the one that’s currently being launched, or something like that.
In terms of client money, that’s going to be a question of knowing your client, risk appetite and so forth. To my knowledge, there is plenty of balance sheet capital available, should the imperative be there to support some of the existing channels. Banks are going direct; that’s going to be a time function because they’re going to have to hire staff and a bunch of other things. But supporting strongly an existing program that’s proven that it works and has the kinks ironed out of it would be one particular way to deal with it.
I will add a caveat, though, which is that much of what I’m saying — not all of it but much of it — deals with things in technology and the knowledge economy, which are many of the SMEs, but there are a bunch of others that aren’t.
For them, it is a much more difficult situation because you don’t have a program like this. Some additional thought needs to be given on things the banks could do to redeploy capital into the country as opposed to public company stocks that are held south of the border.
Senator Loffreda: Thank you for that. If we were to have more data where there are financing gaps, do we need more angel investors, seed investors and late-stage financing? How do we correct those gaps?
Mr. Knapp: The gaps are most acute at the very early stage, so the angel seed or precede level. Then, at the series A level, which is typically where we play, you’ve got a product, and you are looking for more market traction, typically $5 million to $10 million in revenue, and you’re growing. The later-stage capital, which is not only quite well served with Canada, there is also foreign capital that could be insourced without swamping the cap table and getting it U.S.-controlled, or foreign-controlled.
Really, at the earlier levels, it’s mobilizing individual investors, in some form, to be able to be more active. The Swedish study mentioned a change made in 2003, which was a capital recycling issue, but it had a disproportionate beneficial impact for more experienced investors: the ones who bring knowledge, experience, contacts, capital and other resources to help change the outcomes of some of these smaller companies that were most determinative in terms of the increased success that that program saw.
So that’s something to think about. It’s not just capital at the broader level, but certain subgroups that have the propensity to actually change the outcomes. Certainly, for venture capital, the RBC report, leaving aside the irony that it’s published by a bank, indicated that the statistics speak for themselves. Our firm is fortunate enough to be one of those that were able to raise follow-on capital, but it’s been a slog. I raised capital right after 9/11, through COVID, and in 2008 right before the Great Recession. I know what it’s like. The current environment is among the most challenging I’ve seen in many years.
Senator McBean: It sounds like what you’re saying is that you’ve got to get the right dragon in “Dragon’s Den” to steer your company. That’s the second time I’ve referenced that here.
As Senator Loffreda said, our study is on access to capital and credit for the small- and medium-sized enterprises, and it sounds like you’re addressing the medium-sized ones. I may have just heard that.
In your search for the unicorns, are you looking for them or do they come looking for you?
Mr. Knapp: It’s about 80-20. So 80% of them come looking for us. That’s just a function of there being a relative capital undersupply. If people know you have money, they’ll come find you.
But there are companies out there that are often quite capital efficient when they started and that don’t need to go looking for money or aren’t looking for money at a certain point in time. You want to ensure you keep an eye on those, but the vast majority are inbound. That has been true for at least the past 10 or 15 years, for sure. It’s pretty one way. Sometimes it goes 90-10. The economic conditions may get more difficult, but 85-15 is about where we’re at.
Senator McBean: What are you looking for? What stands out?
Mr. Knapp: For us, one of the biggest determinants of success or failure is the quality of the management team. A skilled management team has the ability to take a mediocre product and turn it into an excellent product. It’s also the ingredients that can take a great product and run the company into the ground if you don’t have the right people. Technological differentiation: does the actual product or service being offered have a defensible improvement over the status quo? Does it offer enough value to potential customers? How did the economics of implementing that work? At the end of the day, it’s a business. It has to make money. Do the economics work? How does it fit competitively relative to the rest of the ecosystem? Finally, is the market size there? If not the market of today, is the market growing such that, as the company starts to commercialize, you can grow into the market? These are all factors, pretty much in that order. Each of them with their absence is a potential deal killer, but if I can many of those in sequence, and get your head around the valuation and so forth, those are the quick and dirties.
Senator McBean: Is there a role that the federal government could play in supporting that, like a meeting, a gathering or a conference? How can we help train them? With athletes, we bring them in for a training session. We bring them in with mentors, and we help show them their path to high performance.
Mr. Knapp: I think it’s an excellent analogue. British Columbia has done this with a program, and I’ve seen it at work in a few other contexts. With face-to-face gatherings, there is a lot of value just in the networking alone, where you can learn best practices or hear war stories or learnings that can be translated from those who have scar tissue and experience to those who were earlier on in their learning curve, who have the desire and the interest. Again, if you have the capacity to learn from others’ mistakes as well as the things they did right, it can accelerate and improve, not just a timeline, but the odds of success.
Senator McBean: Would doing something like that work? I have a friend who is trying to start a small business, and I believe she was being fleeced one conference day at a time by people saying, “Come on and we’ll teach you all the right things.” Is there a way that it can be done effectively, genuinely and in a real way?
Mr. Knapp: Many of these programs where you pay to attend, you have to wonder about the value of the proposition. With the government, if you can do it so those who need help don’t have to pay to get help, there will be plenty of other people who have knowledge and skills and experience who will help. You just have to be offered some other reasons to attend the event or find some other overall value that they can get from it in terms of networking and otherwise — even just paying back to the community. Why do people volunteer to teach? It’s the same thing. People in my shoes today benefitted from people 20 or 25 years ago. It’s time to pay that forward, and there are enough of those people around.
When you say government assistance or government programs, it’s at those levels. I feel badly for people in the shoes of your friend because it’s an unfortunate way to exploit what is often that same level of almost desperation that I’ve referred to in my earlier remarks.
Senator Ringuette: You mentioned that we are taxing bitcoin at the same rate as what?
Mr. Knapp: Private investments into Canadian companies. Where this came from is that I had a chat with someone, and we were sitting around talking about the lifetime capital gains exemption. Most successful investors in Canada have probably done so. So now you have some capital, and you want to re‑deploy it. You can take your X amount, and you can redeploy it into greater stage start-ups, if you feel like it, or you can invest in more liquid instruments that you can easily buy and sell and on which you can get capital gains.
Well, the capital gains rate — the way the government taxes you is the same on either. If someone wants to take risk and make money very quickly — yeah, bitcoin, public company stocks, NVIDIA, SpaceX. All of that gets taxed the same as if I put money into her friend’s business and wait it out for five years. Then when it’s successful and we get a payout, it gets treated the same way.
The imperative here is this: If we view it as a strategic imperative to recycle the capital of Canadians back into the Canadian economy, we need to be mindful of levers that can help redirect that. The capital is there. It’s just not flowing in the right directions right now. There are examples in other jurisdictions where that’s been corrected for, and that have had meaningful results.
Senator Ringuette: Certainly. I believe our colleagues would appreciate if you could supply those examples. We understand what you’re saying. We need examples with the flow and the process that we need to recommend.
Mr. Knapp: You’ll get it.
Senator Ringuette: Okay. You mentioned also in your presentation that right now you have equity in 80 companies. To invest in those 80 companies, how many went to you because they knew you had money, and how many could you not fund because of management quality — that is criteria number one in your book — or because it was a capital situation? I need to understand that.
The Deputy Chair: Absolutely. Maybe I can step back a little bit here. The math roughly works like this: It has remained reasonably constant over the last 20 years. Of all the ones that come in the door — let’s say 100 companies come in the door. Annually, the number for us is 300 to 400. They walk through the door in one form or another. They send an email or they show up. Of those, ultimately, about 5% end up getting funded over time. It’s not all in the same year, but, roughly, it’s about 4% to 5%. So it is a low number.
A large portion of those do not qualify for any one of the five reasons. Remember, I said earlier that each one is independently a deal killer. It’s a pretty high bar. The 80 are the ones that were deemed meritorious on the criteria that I described. Out of the 80, I would say probably 90% came to us. For a few others, we knew of the companies through a founder or a person in our network, and we approached the companies and said, “Hey, look, if you ever want to raise money, you come talk to us.” Those tend to be some of the higher-performing ones. You want to get in touch with them early, like an athlete prospect. You know they’re going to grow and do well. You want to get your look in at them early because you know that, once they’ve grown enough, they will have other options. But the vast majority are inbound.
Senator Ringuette: The 95% that do not receive money from your firm, where do they go?
Mr. Knapp: That is a very good question. First, just because a company is unsuitable for funding in the venture capital model does not, by definition, make them a bad company. There are plenty of SMEs and businesses in Canada that have a different growth dynamic. It is still acceptable, or it’s one where it’s just the type of business that a particular venture fund wouldn’t invest in. For example, we don’t do biotech. Some of the companies that came to us had a biotech angle; it’s not just not what we do.
Senator Ringuette: You talk to your colleagues in different funding schemes. Do you refer them to another company that would have a similarity or a like mind to their products?
Mr. Knapp: Absolutely, yes. Part of what we try to do is issue what is called “a helpful no,” which is no, but maybe go talk to this particular group over here, this network or someone else. Sometimes it’s possible. Other times, there is just no one you can refer them to because they have a lot of work to do before they would be really acceptable for almost any capital.
However, you do put your finger on a point that relates to something I said earlier, which is that a lot of companies that end up not getting venture capital money, end up relying disproportionately on larger pools of angel investors. The issue is that this has its limits. I say that because the more angels who get their money tied up in private companies — remember the 7‑to-10-year extension thing? It’s just that those payouts are coming, but they’re taking longer and they’re taken later. That’s part of the reason that pool has gotten dried up. It’s done more of the sort of backfilling work for companies that weren’t maybe at the right stage or didn’t have some of the right elements that the venture players did.
The Deputy Chair: We’ll have to end it there.
Mr. Knapp: Sure.
The Deputy Chair: That completes the first round. Senator Henkel may have to leave, so I offer her the first three minutes of round two.
[Translation]
Senator Henkel: I would like to know your opinion as an individual, but also as a professional with all your expertise and experience.
According to a report by the Women Entrepreneurship Knowledge Hub, only 4% of venture capital goes to women entrepreneurs who lead or own their business.
Have you ever invested or are you investing in women-owned businesses? If so, how many?
Why is there so little venture capital going to women-led businesses when we know many are in the technology sector, have more than 400 employees, are profitable, and so on?
Is it a perception, or is it a reality that comes from the positioning of women or venture capital? Thank you.
[English]
Mr. Knapp: This is a legitimate issue. In terms of my firm, we are one of a few firms in Canada that has a female investing partner. Her name is Sophie Gupta, and she is in our Montreal office. She is part of our investment team. In terms of companies, I’ll get you the specific numbers, but it is way higher than the 4% figure. It’s not half, but it is double digits for sure.
I can speak to several companies in British Columbia. We have Epak Network, a portfolio company of mine. We have a spinoff from UBC, Tasktop. One of the cofounders was Gail Murphy, the former female dean of computer science at UBC. Photonic is a quantum computing company also based in British Columbia; the chief technical officer there is female.
Certainly, from our perspective, we are agnostic in terms of gender, race or so forth. We have a very culturally diverse management team as well. One of the challenges is that women-led companies have typically had a harder time getting the professional support or mentorship in ways that have been approachable for them. Consequently, it’s made raising capital harder. As a subtext, everything I said about access to capital is true. It’s, unfortunately, harder if you’re female. I’ve got a daughter. I’m looking forward to this at the company level. These are things to consider. It’s a real issue.
Senator Fridhandler: I will put my questions out for however much time we have. The first one is on liquidity and how many liquidity events and your issues relative to going public versus selling the company privately. The second question is about interesting things you’ve seen in B.C. relative to what we’re doing: solutions that might exist that are unique to B.C. You mentioned the program that’s software. I don’t know if there’s anything else in B.C. that you might want to draw to our attention.
Mr. Knapp: In terms of liquidity events for our firm, the overwhelming majority — as is true for most venture capital, both throughout Canada and the U.S. — is private mergers and acquisitions, or M&A, sales. A strategic buyer comes in and buys your company, typically from a group that’s in the same space.
There was a time many years ago — almost 20 years ago — when certain deals in the biotech space would often go public, when there was more of a junior, earlier and public market. That has largely been taken over now by the growth of private equity players that provide that level of liquidity.
For us, when we’re selling our companies, these are merger and acquisition-style exit events that take place. You’re selling the shares to a new buyer.
Senator Fridhandler: Why?
Mr. Knapp: Typically, the future growth of the company can be accelerated in the hands of the new owner. There is, ultimately, a requirement to get the capital back to our investors. So, typically, these buyers are able to do so.
But, if there were a more robust, earlier-stage capital market that was public, that might present some options for certain companies. But, right now, those alternatives just aren’t there, so it ends up being the strategic M&A and some of the later-stage, private equity funds that come in and provide that liquidity.
To your second question, there is a program in British Columbia that has been in place for over two decades as well. It’s a program that provides an up-front tax credit — so, tax incentive — for investments into certain types of businesses where you get to keep the credit, provided your investment stays in long enough. So if you put money into an early-stage software company that is resident in the province, has mind and management there, and the money gets spent in British Columbia, you get a 30% credit back on your tax return that year, provided you don’t sell the shares for at least five years.
That program has done remarkably well because of the way it’s structured. It’s done remarkably well in creating a much broader tax base of taxpaying companies, and it has ended up being successful.
So the tax revenue that is foregone, the tax credits — and there have been multiple studies that have shown this — have been outweighed by the total employment and other tax gains that come from having successful companies.
So, it’s beyond the scope of today’s discussion, but I can, in my follow-up written submissions, present some of that material.
Senator Fridhandler: Thank you.
Senator Wallin: I just want to follow up on a couple of points you made. We have been talking about public servants who are good people; they design and roll out government funding. Last year, they worked at the health department. This year they went to the defence department, and then they were transport, all in service of their career trajectory. I understand that totally.
We’re looking for some specific recommendations we can make. When you answered my question earlier, you were talking about putting 10 folks in a room and just making this happen. Can you teach this? Could you make a government program actually work in the real world if you could sit down with the civil servants who were in charge of some of these specific programs at the front end and say, this is how we do it?
Mr. Knapp: Yes, and the reason is because there’s a lot of data out there. Like anything, it’s separating the signal from the noise, understanding what’s important and, among those things that are important, how much weight to give to each of those components. Otherwise, it can be bewildering, admittedly.
So you need the ability to be able to filter through that and say, at a practical level, here is where 80% to 90% of your issues are. Where are the bottlenecks in practice as opposed to on paper? There must be an understanding that it’s that transmission mechanism from the program and the design. On paper they can all look really good. I’m not here to impugn in any way.
Senator Wallin: I’m not going to do that either. I just see this as mentoring.
Mr. Knapp: Absolutely. There is a practical reality. If people can use that insight to more appropriately tailor things that will quickly and efficiently meet their goals and objectives, the skill set resides there. We just have to be able to find it. That’s it.
The recycling of the capital gains: I’m not here to pound that table, but it’s one of the ones that comes at the end. If there are no capital gains, there’s no loss to the government from the revenue. But it helps accelerate what the private sector would otherwise want to do.
Senator Wallin: We want to put those all out. We just want to see if there are any other things because it’s the same issue every time. Everybody’s heart is in the right place. We can’t get it from here to there in less than four to five years, and then the government changes again and there’s a new priority. So try to get in there at the front end?
Mr. Knapp: Yes, that’s it. I think getting industry involved earlier and getting to the heart of the matter faster. Some of these things — especially when there is an existing program — do not require that level of belabouring.
Senator Loffreda: Thank you, Mr. Knapp, for spending so much time with us. You invested in 80 companies, which is commendable. How do we get more investors like you? What motivated you to do so? When we look at SMEs, or smaller-scale investments, the return is not there, the risk is higher and more resources have to be allocated to the follow-up. How do we do that?
We say SMEs lack capital in Canada. Do you see that in other countries also, like the U.S.? We’re open to foreign capital here. Why aren’t we attracting foreign capital in the SME sector? Is it tax? Is it return? Is it the market?
If there are any incentives you see elsewhere, how can we replicate them in Canada?
Mr. Knapp: Thank you. I have spoken to one, which is the capital recycling one from Sweden, but there are others.
The issue from the U.S. is often one of scale. So the capital that is most mobile is often institutional capital. Institutional means big. The capital that most frequently comes to Canada is not legions of American angel investors. Sometimes you have some due to people you know who find out about a company and want to invest.
It’s usually the larger institutional investors, the larger private equity or the larger venture funds that are looking for opportunities to write a $25-million, $50-million or $100-million cheque at a time.
Senator Loffreda: How do we get more Canadian investors, such as you, to invest in 80 other companies and promote the SME prosperity?
Mr. Knapp: Excellent question. This goes back to some of my earlier remarks: When the capital-to-people that reside at my level in the value chain, okay? So there are larger purveyors of capital, the pension funds and the fund-to-funds, and then the banks and the corporate. And then there are groups like ours who disperse it into the real economy and interact with the real economy and companies.
It’s simply an issue of getting more capital that is willing to back managers that are doing what we’re doing. That’s the capital supply problem I spoke about earlier. It’s one of the reasons why the VCAP program is out there: to try to back more managers that are doing what we’re doing.
My issue with it was, respectfully, that the gap is now almost close to three times what it was between the prior programs. We don’t have that; this isn’t being met. It’s not that the program is wrong; it’s just the timeframe for the execution.
The other thing is, on the angel-investing side: things that can help make individuals successful. If they have successful experiences, then they formalize their behaviour to form smaller funds like what we’re doing.
That was, in fact, part of the motivation for my firm when we started. I had some good experiences earlier on in my career on the investing side. That led me to then take the risk with two of my co-founders to start the firm just after 9/11.
But part of it was the prior experience individually, that we then translated to something that was focused more on early-stage capital at the time. We have grown into a larger, national firm since then.
Replicating that model is possible. We had a visionary. We had Doug Pierce, the head of bcIMC, who wrote us the first lead order for that firm.
Senator Loffreda: Thank you.
The Deputy Chair: I see no further questions. Do you wish a few minutes for closing remarks?
Mr. Knapp: I think I have probably said enough.
The Deputy Chair: We thank you, Mr. Knapp, and witnesses from the other panels. We appreciate your contributions to our study. If you have anything further to contribute in answers to some of the questions, please send them our way.
Colleagues, thank you very much for your contributions. Your preparation and thoughtful participation are appreciated.
I want to take a moment to thank our staff who support our committee: our clerk Matthieu, our analysts Brett and Adriane, our colleagues in our offices, the interpreters, the team transcribing and editing this meeting, the committee room attendant, the multimedia services technician, the broadcasting team, the recording centre, ISD, and, of course, our page Honora. Thank you.
Our next meeting will be tomorrow, Thursday, April 23, at 10:30. Thank you.
(The committee adjourned.)