Historically, the Canadian venture capital market has been very centralized. This is because institutional and angel venture capitalists tend to spend and transact with firms within a close geographic proximity. In recent years, only two in ten institutions were located outside of central Canada.Endnote 43 Capital supply and disbursements have typically been concentrated in Ontario and Québec, and to a much lesser extent, in British Columbia and Alberta. Up until very recently, there has been very little representation of venture investors on the Prairies, in Atlantic Canada, and in the northern territories. This is also true for many regions and communities within provinces.
Actually, since the late 1980s, entrenched disparities in the allocation of venture resources and investment opportunities between the country's economic centre and its periphery have further widened. This was clearly apparent in the first half of the 1990s - which, of course, included an economic recession - when inevitable market fluctuations were moderate in Québec, more serious in Ontario and in western Canada, and very serious in the Atlantic provinces where already modest activity came to a virtual standstill.Endnote 44
CLMPC research has found that much government support for labour-sponsored investment funds, especially at the provincial level, happened because the funds promised significant change in this area. Indeed, the evidence suggests that redressing regional imbalances among and within provinces is among the most important contributions the funds have made in the Canadian venture capital market to date.
The very creation of provincially-based labour-sponsored funds - or, in the case of Working Ventures, a fund organized nationally to act on a province by province basis - ensures some fostering of venture capital sub-markets since it is the residence of the institution that counts. All funds are bound by very strict statutory prerogatives in every jurisdiction to turn savings acquired locally over to investments in local production.
Some funds have highlighted this as being fundamental to a "capital retention" strategy for promoting economic growth and development. It was stated at the outset that provincial and regional economies in Canada have historically experienced a migration of savings and investment, perhaps largely due to non-resident firm owners and financial institutions (though resident savers also invest away from home). A labour-sponsored fund is theoretically intended to prevent such savings leakage. Instead, it mobilizes capital that might otherwise take flight and uses it to build a venture capital sub-market. This can be of value even to capital-rich provinces where sub-markets still require strengthening.
Capital retention is key to the operation of the Crocus Fund. Indeed, the fund approaches this task comprehensively by offering shares not just to individuals in Manitoba, but to institutions as well. For instance, the fund has enjoined union pension and strike funds, and other financial entities, by means of incentives, such as purchase warrants that allow for future share ownership at reduced prices. In this way, Manitoba has set a precedent for other Canadian provinces that also have limited population bases from which to gather savings.