Nova Scotia venture capital agency Innovacorp's portfolio is performing so well that the provincial Crown corporation is hoping to self-finance its operations going forward without government support, according to Vice-President of Investment Andrew Ray.

In a wide-ranging interview Monday, Ray said Innovacorp's portfolio is the strongest it's ever been, boosted by an exit, a few public listings and some companies that have booked high dollar-value funding rounds, reducing the need for the Halifax-based agency to seek external funding. 

“The questions that we ask internally are, ‘How do we scale, not just the companies that we work with, but the ecosystem as a whole, and how do we scale Innovacorp?’” said Ray.

“And the way that we do that is by generating above one-X returns. If we have a $25 million fund and get $25 million back, we keep doing what we're doing. But if we have a $25 million fund and can two-X or three-X that, then now we have a $50 million fund that we can start to deploy.”

Innovacorp runs an “evergreen” fund, meaning that instead of returning capital to shareholders, it continually reinvests its gains. As a Crown corporation, its mandate is to bolster the province’s innovation ecosystem -- an undertaking Ray said has historically been paid for with government money.

But profits from its current portfolio, along with previously received government money that is still in the bank, could allow Innovacorp to self-fund future investments.

The Nova Scotia government has paid Innovacorp about $80 million over its lifetime, usually in increments of about $25 million, Ray said.

The most recent payout in 2016 was slated to be the last such transfer, and with $20 million still left to spend despite investing an above-average $10 million last year, Ray said Innovacorp is on track to deliver on that plan.

Read About the Listing Plans of Innovacorp Portfolio Company Swarmio

A standout example of an exit likely to pay Innovacorp handsomely was the sale this spring of Medusa Medical Technologies to Bellingham, Washington-based Emergency Reporting. Medusa produces communications software for emergency responders.

Ray said legal agreements prevent him from disclosing the valuation at which Medusa was sold, but Innovacorp’s annual Accountability Report  (similar to an annual report) will include how much it profited from the deal. Innovacorp usually releases its Accountability Report of a fiscal year ending March 31 in late summer or early fall.

Much of the growth in Innovacorp’s portfolio has been courtesy of a few companies that have tapped public markets for funding, such as Meta and Appili Therapeutics. On the VC front, Innovacorp this year led a $1.9 million funding round by Halifax's Audioptics Medical, and major raises by its portfolio companies included a US$3 million round by QRA Corp. and $2.5 million by ReelData. 

There is no shortage of early-stage funding for startups in Canada, but larger Series A rounds (typically about $5 million to $10 million) have historically been rare.

“From our experience of raising funds in Canada, there's lots of abundance of seed funding and pre-Series A funding,” Swarmio CEO Vijai Karthigesu told Entrevestor after his company filed a prospectus to go public on the Canadian Securities Exchange earlier this month. “And when it comes to Series B and Series C, there are companies who can write the $100 million cheque. But Series A capital, there is very little, almost none in Canada.”

Swarmio is one of Innovacorp’s portfolio companies, and Ray said he believes it has the potential to become a unicorn, thanks partly to the funding it is raising from the CSE.

Most Innovacorp startups have previously focused on raising traditional funding rounds through venture capital., but public listings are becoming a more viable source of capital for some companies. 

Meta, formerly Metamaterial Inc., another Innovacorp portfolio company, recently became Atlantic Canada’s first publicly traded unicorn when its shares opened on the Nasdaq with a market capitalization of C$2.7 billion.

It has since shed almost two-thirds of its valuation and fallen to US$961 million or about C$1.2 billion, imperiling its unicorn status. But Ray said he sees the company as having substantial growth potential.

“Historically, we've looked at public markets and called it ‘Plan B,’” said Ray. “But when Plan B outperforms Plan A [venture capital], how can you not rethink your plans?”

Disclosure: Innovacorp is a client of Entrevestor.