LEXPERT MAGAZINE
|
SEPTEMBER
/
OCTOBER 2018 31
Sponsored by
BROADEN VC FUNDS
INVESTMENT BOUNDARIES
TO DEVELOP A REAL
AI HUB IN MONTREAL
By: Guillaume Lavoie, partner, Lavery Lawyers
I
n recent years, Montreal has enjoyed a cer-
tain level of success in the field of AI. Many
large companies have made announcements
regarding the opening of research centers in
this field and some people now talk about
Montreal turning into a real AI hub.
A prerequisite for the creation of such a
hub is promoting and sustaining a strong
startup community that will ensure the participation
of local businesses in AI innovation.
A study completed by the BDC in 2017 showed
that Canadian VC funds are smaller than their inter-
national peers and that Cana-
dian startups only raise half as
much capital on average com-
pared to their U.S. counter-
parts. Evolving in a capital-re-
strained environment leads to
slower growth for startups con-
sidering their need for constant
access to capital. One potential
explanation for the smaller size
of Canadian VC funds is that
the smaller size of the Cana-
dian economy does not pro-
vide the level of deal flow that
would be required to sustain
more or larger VC funds. Any-
one involved in fund formation
knows that large amounts of
capital are available for invest-
ments in VC funds but that VC
fund managers need to convince
institutional investors that they
will be able to meet the neces-
sary deal flow to concretize such
investments. A potential solu-
tion to that problem resides in
promoting wider investment
policies for Canadian VC funds
allowing them to invest not only
in Canada but in the United
States or elsewhere.
There are obviously numer-
ous investment considerations
that legitimately lead to limiting
the scope of a VC fund's invest-
ment policy. For instance, ensur-
ing that the latter will be able to
create value in the startups in
which it invests requires a certain
geographical proximity between
the manager and those startups.
Political considerations (particu-
larly with respect to institutional
investors) should not also play a
role and further restrict where
those VC fund managers can
source potential investments.
By allowing our VC funds to
invest in startups elsewhere, we
will promote the development
of a broader startup community
and expertise in Canada and as
a result, ensure the sustainability
of one of the key components of
what could eventually become a
true international AI hub.
