From another reader, with permission:

Love this.

Also not sure about Can stats but in the US, VC functions as private cash advances from white guys to other white guys to build their whim “innovations.” For ten years, less than 3% of VC money has gone to companies founded by women. Women of color is so low it’s embarrassing.

In 2018, all female founders put together received $10 billion less in funding than one e-cigarette company, Juul, took in by itself (source: https://fortune.com/2019/01/28/funding-female-founders-2018/)

The stat peaked a few years ago and is now down below 2% again…so yeah…progress. (https://techcrunch.com/2023/01/18/women-founded-startups-raised-1-9-of-all-vc-funds-in-2022-a-drop-from-2021/)

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Emailed from a reader, posted with permission:

You are right that the government should not be in the VC business and you are right that VCs and their LPs (and not taxpayers) need to take risk and bear the fruits and brunt of investments.

But some clarifications about who is who are required. Pensions like OMERS, Teachers, and the CPP are not the taxpayer, and their gains or losses do not come out of the hide of taxpayers (different for PPSP). They are perfect LPs for VC. They run large, diversified pools that can and should tolerate substantial risk in portions of their portfolio and which need exposure to a wide range of assets classes including especially private equity (of which VC is a small subset). Either direct or through funds, they absolutely should be investing in VC, and a huge part of the challenge in Canadian innovation has been the historic excessive caution of LPs like pensions and insurance companies.

In fact, historically, Canadian pensions assumed massive underperformance risk by investing too cautiously - this is a huge and underappreciated concern that puts pensions at risk and is much more common in Canada than the converse, which is taking too much risk to try to generate excess returns (much more common problem in the US).

Banks are not suitable LP investors in VC. Not at all. In fact, banks are not and should not be in the business of investing their capital.

That said, I am pretty sceptical about the ability of most Canadian VCs to generate decent returns. There is not much evidence that investing in VC produces good returns - and that, frankly, is the most plausible explanation of why there is a chronic complaint that there is insufficient VC. Put another way, if the investing market is even close to efficient, $ would pour into Canadian VC if Canadian VC could prove that it produces solid risk-adjusted returns as a class.

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A somewhat contrasting view is that government can absorb the start-up risks around nascent technologies, something Vass hinted at when noting VCs can be tools in support of national strategies.

The economist Mariana Mazzucato has some compelling research and writings on government being the original wellspring of innovation and attendant resources, sighting the accomplishments of the USA from the 50s to the late 70s. She argues that de-risking, in the parlance, is a role that the government is uniquely well suited for given its resource base and ability to invest over the long term and absorb inevitable failures. Under the guidance of well crafted national strategies, early government investment can get the party started and, to a certain degree, help shape markets as they develop around future technologies; a concept she calls the Mission Economy.

Where it gets a bit dicey, and Mazzucato gets a bit fuzzy, is how the government recuperates its investment and via which fiscal channels when a firm strikes entrepreneurial gold. Relatedly, keeping the public on side for these long term ventures is becoming harder with a public that has been juiced up on debt-morality arguments from certain segments of the political spectrum, and who are very willing to disingenuously weaponize every failed company in a VC pool (picking winners anyone?). Perhaps a public shift in perspective from "government is the problem" to "problems are the problem" would get the various levels of government unstuck and moving in a coherent direction towards addressing steadily growing pile of crises at the foot of the nation.

Anyone for a moonshot on how to build roads that last more than a couple winter seasons? On second thought, our government is actively working towards a solution as we speak....(https://climateactiontracker.org/countries/canada/)

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A couple of counter arguments to consider here…

1) Job layoffs misses the forest for the trees - I'd be curious what the overall job creation numbers are net of layoffs and I bet that it's still a positive boost for the economy.

2) The VCCI money requires that private capital is raised along side government. This is helping to increase the private sectors involvement in VC, which is underdeveloped compared to other countries. I'd be curious to see the data of how Canada compares to other countries in terms of % government contribution and over time (e.g., has it stayed the same even though their private markets have matured).

3) There are other efforts governments have in place to increase private capital into the innovation space - like the BC small business venture capital tax credit - but those other carrots take longer to work and also don’t have as much of a benefit to Canadians.

I agree there can be more transparency in where the money goes but I do think this is a smart thing our public money is doing.

Thanks for making it to the end - I love your thinking and your guts to put stuff out there and thought you’d appreciate the intellectual debate.

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I recall an episode of BetaKit where they mentioned they VCCI aka “Vicki” is cash positive for the government. If they are recouping the money, it’s not the worst thing they could be doing. The market signals question is a good start for a debate, as there should not be any signals sent that this is safe, it isn’t

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