With a bit of luck, Wilson Executive Search has the wisdom of Solomon because it will need it to find the perfect manager for the new regional venture fund for Atlantic Canada.
The Halifax recruitment firm was mandated on Sept. 1 to find a “qualified individual or company” by late November to lead the fund, to which Nova Scotia and New Brunswick have both committed $15 million.
So far, the creation of the fund has proceeded swimmingly. The two provinces have commissioned Stewart McKelvey to do the legal work and hope the fund will open its doors on Feb. 1. And the perennial problem in interprovincial ventures – squabbling over control, location, appointments, etc. – has not reared its ghastly head.
The climate for launching the fund is also perfect as the Radian6 and Q1 Labs exits have created a spirit of excitement around the whole innovation community. The thinking is that if Atlantic Canada gets things right and so far it has, we could create something special with this fund.
But “getting things right” means finding exactly the right person or institution to lead the fund, and that will be an incredibly difficult task. After several interviews and arguments with investors and entrepreneurs (opinions are strong on this matter), I can say the community is looking for a VC manager with a solid track record, who is a local and who has deft political skills. And there is a broad group of people (though it is not unanimous) who want the new fund to be independent of existing VC funds.
Let’s take those items one at a time.
Solid Track Record: This is the key. Word on the street is that Business Development Bank of Canada wants to invest as a means of re-entering the market it left in 2006, but it first wants at least one private investor to put money into the fund. If this fund is to attract private money, the managers will need to convince wealthy individuals or large institutions that they can invest shrewdly in high-growth companies. The only way to do that is by presenting a strong history of investments.
This is critical because the fund needs more investment in order to be large enough to compensate a multi-province team. The recruitment of a seasoned investor could also help to convince Newfoundland and Labrador and Prince Edward Island to get involved.
Local: It takes years to learn the innovation market in a region, and the fund will have a head start by hiring someone with local knowledge.
Political Skills: The manager will have to answer to at least two premiers (NS and NB), and possibly two others (NL and PEI) plus a prime minister, and maybe a few private backers; that alone will require considerable diplomacy. And it’s not as if the need for a deft touch ends there. The fund will very likely have the ability to make investments outside the Atlantic Region – an utterly critical part of its mandate according to most experts – because it will help the fund to lure co-investors into deals within the region. Government-backed VCs (in Nova Scotia at least) are known to catch hell when they invest WITHIN their own province, as the media can be over-critical of using public funds for investment without disclosing all details of the deals. The fireworks will be spectacular when the new fund makes its first investment in Boston or Toronto, and the fund manager will have to be standing by with a fire hose.
Independent? This one’s tricky. If we want a local with a good track record (see above), doesn’t it make sense that the manager should be with an existing VC? Sure does. However, some entrepreneurs – and some investors as well – want a completely new entity. They want competition among the providers of capital to get the best deal for startups, and the new regional fund should in theory increase the competition. So they do not want the manager to be a VC now operating in the region.
It’s a good argument, but it assumes that others beside Nova Scotia and New Brunswick will invest in the fund. Consider this: if the fund’s management fee is 2% annually, with only NS and NB kicking in a total of $30 million the fund would have to operate on $600,000; that’s not much for managers, research staff, a finance person, support and the like. But if an existing VC gets the mandate, it could reduce the costs by piggybacking on existing operations.
Difficult? Youbetcha, but not impossible. There are a few candidates out there who meet the first three criteria. And if the individual or team has the right diplomatic skills, he, she or it might be able massage the message on the fourth.