Interestingly, the first co-investment between two distinct labour-sponsored funds brought together Working Ventures and the Canadian Medical Technologies Fund (and two other partners) in a $4.5 million deal involving the Ontario-based Life Imaging Systems, Inc., in 1995.Endnote 18 There has also been extensive co-investment within the family of equity pools (i.e., specialized, regional and local funds - see next Sections iii and iv) linked under the Fonds de solidarité.
The above data and anlysis suggest that labour-sponsored investment funds are having a very profound - and, in many cases, a positive - influence in Canada's institutional marketplace for venture capital with regard to organization, supply and investment activity.
So far, the impact of the funds is most palpably felt in the area of capital supply. Additional information highlighting the contribution of the leading funds to venture investment, available in 1996, is required to draw more definitive conclusions about this investor type beyond those that might be made solely about the Fonds de solidarité. Conclusions that rely on investment records of the majority established in 1994 is, of course, still a few years down the road. The importance of labour-sponsored funds to provincial and regional sub-markets is covered in Section vi.
Understanding of the precise effect of labour-sponsored funds on the nature of Canadian venture financing requires research on investor-investee relationships and a comparison of findings with the traditional behaviour of institutions. This work was substantially advanced with the micro-level study performed by CSTIER in 1994. Certainly, directors and officers of the leading funds believe they are adding value to the investment process and expanding the mentoring role assumed by venture backers, through unique efficiency-enhancing policies and services, such as those that deliver skills formation and modern workplace techniques. Illustrations of this can be found in succeeding sections.
It is vital to mention that labour-sponsored funds have also helped to precipitate unintended effects in the venture capital market. With fast growth in the number and size of funds, for example, comes the danger of concentration of resources in too few hands. Over time, this may lessen the influence and representation of other investor types (e.g. private independents) that make different, but equally positive, contributions to market competition, specialization, syndication and deal flows.
Rapid fund expansion may also affect the pricing of venture capital. Some venture capitalists have expressed the concern that tax-subsidized funds could alter the cost of capital and, by extension, overall competitive trends. A true picture requires independent study which, of course, must account for government support for all investor types, including the funds.
Market analysts also say that some funds may be too strongly emphasizing certain kinds of investment - for example, large restructurings and turnarounds. While such projects suit the employment mandates of some labour-sponsored funds, another result may be somewhat less focus on smaller financings and smaller companies. These and other issues must be dealt with by the funds, other venture capital institutions, and public policy-makers, in a manner that does not jeopardize benefits.Endnote 19