The closing of Unique Solutions has ignited calls for the Nova Scotia government to get out of the venture capital business. After four companies in the Nova Scotia Business Inc. VC portfolio have failed in 18 months, people on social and traditional media are demanding the government exit VC investment.  Progressive Conservative Leader Jamie Baillie has said the government should instead lower the tax on small businesses.

Such a policy would be a mistake. Nova Scotia – in fact the whole Atlantic region – needs high-growth companies, and these enterprises need capital. And the makeup of our economy is such that government must play a role in providing that capital – hopefully in a way that the capital will be returned.

Until recently, two provincial agencies in Nova Scotia made VC investments – Innovacorp in the early stages, and NSBI in growth stage. In 2014, the government halted new investments by NSBI, leaving Innovacorp as the only active provincial-government-owned fund in Nova Scotia.

[Full disclosure: I once invested in Unique Solutions, and my past and present clients include Unique, Innovacorp and NSBI. But I also used to work for Jamie Baillie and don’t like to see my taxes wasted any more than you do.]

The recent ire has focused on NSBI because it invested almost $30 million in companies that failed since January 2015. We taxpayers will likely lose money on this portfolio. It made $5.4 million on its investment in DHX Media, and still includes some great companies like Halifax Biomedical and Health Outcomes Worldwide. They’d have to sell out at superb valuations to make up for other losses.

But the Innovacorp portfolio seems healthier and features smaller investments than that of NSBI. I say seems because the only way to assess the health of a VC portfolio is to look at its companies’ follow-on funding and the strength of the underlying businesses.

Several companies backed by Innovacorp – such as Spring Loaded Technologies, TruLeaf Smart Plant Systems and CarbonCure Technologies – have had follow-on funding from other investors, suggesting their businesses are improving. (Innovacorp has also backed privately managed Build Ventures, which has invested in three companies that have follow-on funding.)

As for the underlying business, Entrevestor surveys Atlantic Canadian startups, and here are the results for companies in the Innovacorp portfolio that responded to our surveys: 27 Innovacorp companies reported they had a total of 264.5 employees in Atlantic Canada at the end of 2015, up 38 percent from a year earlier. And 18 Innovacorp companies shared revenue data with us. Their 2015 revenues totaled $11 million, almost double the previous year. These are strong gains, and in keeping with what’s going on among Atlantic Canadian startups.

There’s reason to be optimistic about the Innovacorp portfolio. It may make money for taxpayers, and it is already showing strength as an economic development vehicle.

Nova Scotia’s GDP increased 0.8 percent in 2015 – its strongest rate in five years. That is a dreadful economic performance. We need high-growth companies, and they need investment capital. Lowering the small business tax rate won’t help these companies because most don’t pay income tax as they are years away from profitability.

The government has called for proposals for a privately managed fund to set up in Halifax, with the province contributing $25 million. This may be the next phase of VC in Nova Scotia – a public-private fund with a private fund manager choosing the investment targets.

There would still be some losses and the winners would take time to emerge. But the economy needs the provincial government to maintain a measured, disciplined venture capital policy.