Over the past 12 months there has been a marked change in the way Venture Capital in Quebec is being managed. A number of the previously big players such as “the Caisse” and the “FTQ” have chosen to pull out of direct investment in start-up’s and now instead invest in professionally manged VC funds such as ID Capital, Brightspark and Garage Ventures.

The money flowing into these funds requires investing and once invested requires ongoing management by the Partners at these funds. The net result tends to be one where the average size of an investment increases – “au Quebec” in 2006 the average VC investment rose to $3.4M from 2005’s $2.1M. A longer term problem that can occur, particularly if Angel Investor activity is low, is that fewer new ideas and entrepreneurs are given the chance to grow – some evidence of this can be seen from the fact that almost 75% of Quebec investment in 2006 was made as a “follow-on” funding compared to 68% in 2005.

The VC’s are in somewhat or a lose-lose situation – they don’t have the resources to make many smaller investments – but if they don’t get new companies, entrepreneurs and ideas coming through then they are not going to have an opportunity to make many larger investments.

There have been some interesting initiatives in other parts of the world. I particularly like the Early Growth Funds that the UK Government launched and New Zealand’s Seed Co-Investment Fund. Both funds are manged by professional fund mangers and target businesses seeking between £50,000 ($NZ50,000) and £250,000 ($NZ250,000) of equity. Interestingly though, in both cases all investments must be made, on a 1:1 basis, alongside funds provided by Angel Investors.

Given the number of exciting ideas and capable individuals that are coming to the surface as a result of initiatives such as DemoCamp, BarCamp, Tech Breakfast etc. and the resulting demand for seed level funding, MSU is now working with local entrepreneurs, Angels, VC’s and government bodies to see whether this type of fund structure, along with support and advice from experienced Angel entrepreneurs, might be feasible in Montreal.