Why development needs a capital D in Canada: The VC blueprint
Last week, BDC released its 2023 Canadian VC Landscape Report, finding Canada’s VC industry, and the innovation hubs they support, remains robust despite the global slowdown. It’s been a long journey for Canada’s VC ecosystem, something we are all too well aware of at BDC because we’ve been on that journey with them since 2011.
Back then, investors were seeing poor returns on their investments, and very few people believed the Canadian VC industry could grow or become competitive. After 40 years helping Canada’s entrepreneurs scale, BDC had unique insights into what makes a small business ripe for growth that could help transform Canada’s VC ecosystem. And so my predecessors asked themselves three questions: should they, could they, and how?
The first question for my predecessors was the easiest question to answer, because it spoke to our development core. It’s right in the middle of our name, with a capital D, after all. Canada, with an economy that is structurally and geographically unlike any of our G7 peers, needs to approach growth and productivity differently than others. Its crowns, including BDC, reflect that reality.
VC is a critical engine of economic growth, spurring innovation and job creation, and so BDC’s CEOs before me challenged themselves in 2011 to grow Canada’s VC tenfold, 1 billion to 10 billion, in a decade. It needed a champion anchor, and they rose to the challenge. Not because it was good for BDC, but because it would make a real difference to Canada’s economy
They were convinced on the second question, because they had done a lot of research as SME experts. They knew they could, but BDC had no assurances of success. They committed nonetheless and remained undaunted in their pursuit. VC investments grew annually at 22% since 2014, compared to growth of 1.3% for the decade prior. Canada’s investment funds are still delivering returns north of 15%, even in the current environment, compared to losses of 9% just ten years before. Today, BDC is the largest and most active VC investor in Canada.
A key part of BDC’s developmental approach was to leverage our investments as safe harbor anchors that would draw in private sector investment. This was the answer to question number three, what we now call “crowding in.” One deal at a time, we found new ways to create enticing opportunities that meant for every dollar that we invested, we saw six dollars more from the private sector than if we hadn’t been involved.
One of the most impactful aspects of a developmental bank is its ability to generate commercial support in the best interests of Canada. It is indeed BDC’s role to create new market segments to help grow Canada’s economy. As a crown corporation, we do play an important role as gap filler or shock absorber in economic downturns, as we saw when we grew our client base by 40% since the start of the pandemic and boosted our VC investments by 40% in the past two years.
But the unique nature of the commercial crown is to play a purpose-driven, catalyst role in addressing serious economic and social challenges. BDC dared to think outside the box, drawing many critics at the time that BDC aimed too high and didn’t belong in VC. Today, the industry values our leadership in the space. What a difference a decade makes.
Crown corporations are the bridge between the public and private sectors, fluent in both cultures. They can, and should, carry a bigger load in Canada’s economic and social sustainability. There are many challenges ahead of us, with economic, climate and social problems that must be addressed, and we are setting ourselves to these tasks.
BDC’s blueprint has shown us that Canada has unique tools in crowns that can help our country chart its own course, even if it means going into unknown territories. It turns out we’re pretty good at that when we dream big.
Isabelle Hudon is the President and CEO of the Business Development Bank of Canada