An article appearing in the Financial Post earlier this week about new venture capital initiatives in Quebec and Ontario got me thinking about current expectations for future performance of venture capital in Canada.
After reading much of the press this past year surrounding the new $300 million Tandem Expansion fund launched here in Quebec and some thoughts on growing fund sizes South of the Border, I did some very quick, back-of-the-envelope, fuzzy calculations to gauge how high the bar is currently being set.
Not being familiar with the terms or structure of the new fund, I have assumed:
- the new $300M fund will aim for a return of at least 20% over 7 years;
- the management fee is 2% (I suspect it is actually lower given recent comments on fees by Jacques Bernier, managing partner of Teralys Capital, an investor in the new fund) with a carry of 20%; and
- the fund will have an average 30% equity stake on exits.
In order to return 20% to LPs in seven years, the managers would have to turn that $300 million into just under $1.4 billion, after annual management fees and carry are factored in. If the fund holds a 30% stake on each exit, then they will need to create nearly $4.7 billion in market value.
While I don’t have any recent numbers on value creation by later-stage Canadian VC firms to contextualize my fuzzy math, those are some quite impressive numbers.