Comparative Venture Capital Governance: Private Versus Labour Sponsored Venture Capital Funds

Abstract:     
Many governments have become interested in venture capital (VC) and, as a result, have promoted initiatives designed to strengthen their domestic VC industry and their high-technology sectors.The Canadian Labour Sponsored Venture Capital Corporation (LSVCC) is an example of one government initiative which acts as a mutual fund and a VC fund hybrid. The LSVCC was initially created by the Canadian government as a means of creating jobs, providing worker education, and promoting local investment.This study focuses on the LSVCC to determine if the tax expenditures supporting it are being well spent.Previous research on the LSVCC indicates many areas for concern, including inefficient governance mechanisms, low managerial quality, low returns in absolute terms and, in comparison to mutual funds and private VC funds, large taxes, significant capital accrual despite low returns, and suppression of more efficient private VC funds. Each area for concern is discussed in terms of its respective relationship to and impact on the LSVCC.The performance of the LSVCC is then compared and contrasted to U.S. investment opportunities.The LSVCC program has been costly for Canada and has contributed to its own failure.It is recommended that these inefficient programs be terminated. (AKP)

Keywords: Canadian Labour Sponsored Venture Capital Corporations, Limited liability partnerships (LLP), Canadian Venture Capital Association, Mutual funds, Organizational structures, Program evaluation, Public investments, Public policies, Venture capital, Venture capital, Business assistance programs, High technology industries

Accepted Paper Series