An old and a new example of direct pension participation, the Caisse de dépôt and Ontario Teachers PPB, are presented here. The former is important to any discussion of venture financing in Canada given its long history in the market, beginning almost two decades ago. Unlike most other pension funds, the Caisse de dépôt persevered following the downturn at the end of the 1980s and accounted for most new capital commitments coming from this category of institutional investor until the mid-1990s.
The Caisse does not segregate internally-managed venture supply and portfolio investment. Rather, a number of different subsidiaries within the Caisse Private Investments Group, such as Capital CDPQ and Capital d'Amerique CDPQ, offer venture capital as one of several financing options for new and developing SMEs and frequently as part of a multi-layered transaction that utilize assorted debt and equity instruments. This is consistent with the overall Caisse strategy for facilitating business formation and growth in Quebec at all stages, from seeding to listing on public securities exchanges. Coupled with this investment focus is close the attention paid to specialized requirements, such as an SME's industrial context or product line, some of which may evolve over time (see Caisse de dépôt: Ways and Means).
Capital CDPQ and Capital d'Amerique CDPQ invest in growth-oriented SMEs situated in both traditional and non-traditional industries, with the former assuming relatively small deal sizes ($1 million and below), and the latter, somewhat larger ones (above $1 million).
Independent of these operations are Caisse subsidiaries featuring venture financing that is directed to certain knowledge-based and technology-intensive sectors. Capital Communications CDPQ invests in SMEs in communications industries, such as the Internet, multimedia, and assorted other telecommunications production, while Sofinov, Société financiere d'innovation focuses on those in biotechnology and health, information technology and industrial goods. Recently, Sofinov also initiated pools with seed financing mandates (see From Acorns to Trees). Both subsidiaries follow SME development across all stages, including those associated with the venture phase, such as start-up, early stage growth and rapid expansion.
In-house subsidiaries have also allocated a portion of assets to indirect and external management of selected pools, such as Miralta Capital (see below). Another is TechnoCap which also enjoys the support of Bombardier Pension Trust Fund and Regime de Rentes du Mouvement Desjardins. Diversification is one rationale for this approach, as is the Caisse objective to network with other venture capital institutions in the province.Endnote 43
In all, Quebec-based venture investing under the auspices of the Caisse Private Investment Group totalled almost $500 million in 1998.Endnote 44
Another example of direct participation is seen in a relationship initiated by Ontario Teachers PPB with Newbridge Networks Corporation. For several years, Newbridge has operated an affiliates spin-off program whereby new product ideas are nurtured internally to eventually create information technology start-ups and early stage firms. An essential part of this strategy is Celtic House International, a venture subsidiary capitalized in 1996 by Ottawa Valley angel investor Terry Matthews. Today, with $65 million available, it typically commits between $1-4 million per investment project.
Celtic House is an innovative Canadian model of what is called "corporate venturing", a concept pioneered worldwide by American and Japanese enterprises with respect to emerging high technology industries. Corporate venturing entails a large and well-established business entity providing a small and young one not simply money, but access to in-house experience, skills and networks of value to developing commercial and financial management resources and marketing strategies. Frequently, the target is an affiliated spin-off that can yield not only returns, but also a window on new products. In the case of Celtic House, spin-offs also benefit from Newbridge's collective expertise and position in global telecommunications.