In Other Innovacorp News…

Tim Bousquet of the Halifax Examiner has been making the point that the $104 million Innovacorp made on its META exit could be used to fund affordable housing in Nova Scotia. He even did the math:

But Innovacorp — judging by this interview with Andrew Ray, VP of Investment — thinks the money should go back to Innovacorp.

Andrew Ray

Innovacorp Investment VP Andrew Ray

The pretext for the interview, done by Avery Mullen of Entrevestor — the Innovacorp newsletter that masquerades as an actual news source — is that Innovacorp, having received $80 million from the provincial government (generally in $25 million increments) since its inception, is doing so well this year it may soon be able to self-finance:

…Ray said Innovacorp’s portfolio is the strongest it’s ever been, boosted by an exit, a few public listings and some companies that have booked high dollar-value funding rounds, reducing the need for the Halifax-based agency to seek external funding…

This interview is dated July 26 — meaning, after Innovacorp’s META exit, which Ray told me took place over “about eight days in the first two weeks of July 2021” — and yet, the $104 million windfall is not mentioned, although META is:

Much of the growth in Innovacorp’s portfolio has been courtesy of a few companies that have tapped public markets for funding, such as Meta and Appili Therapeutics. On the VC front, Innovacorp this year led a $1.9 million funding round by Halifax’s Audioptics Medical, and major raises by its portfolio companies included a US$3 million round by QRA Corp. and $2.5 million by ReelData…

Meta, formerly Metamaterial Inc., another Innovacorp portfolio company, recently became Atlantic Canada’s first publicly traded unicorn when its shares opened on the Nasdaq with a market capitalization of C$2.7 billion.

It has since shed almost two-thirds of its valuation and fallen to US$961 million or about C$1.2 billion, imperiling its unicorn status. But Ray said he sees the company as having substantial growth potential.

The example given of an exit “likely to pay Innovacorp handsomely,” is the March sale of Medusa Medical Technologies to Bellingham, Washington-based Emergency Reporting, although Ray won’t say how handsomely — apparently we must wait for the 2020-21 accountability report to find out.

But I’m going to go out on a limb here and say it’s the $104 million META exit that has sparked this talk of “self-financing.” Meaning, forget your affordable housing dreams, Tim Bousquet, this money must be used to “scale Innovacorp.” To back this notion, Mullen notes:

Innovacorp runs an “evergreen” fund, meaning that instead of returning capital to shareholders, it continually reinvests its gains.

Although the press release announcing the META exit suggested otherwise, noting:

Innovacorp is working with government to determine what happens to gains resulting from the sale of META shares.

 

Sell?

To make things even more interesting, Nova Scotia Independent Senator — and former “entrepreneur” — Colin Deacon read that interview with Ray and had a completely out-of-the-box idea:

Senator Colin Deacon and wife Jennifer

Source: Senate of Canada

Deacon — who apparently moved to Nova Scotia in 2000 — is generally described as a “Halifax-based entrepreneuer” who served as CEO of Charlottetown-based SpellRead, a “phonological auditory training program” for students struggling to read, from 1997 until 2006, when it was acquired by Kaplan. His LinkedIn profile says he worked as an executive director with Kaplan in New York until May 2007. In 2009, he founded BlueLight Analytics, a company that licenses technology invented at Dalhousie to produce equipment used to test dentist’s “curing lights.” In 2017, he was named entrepreneur-in-residence at the Startup Zone in Charlottetown and in 2018, Prime Minister Justin Trudeau named him to the Senate.

Innovacorp invested in BlueLight.

Permjot Valia, Innovacorp’s entrepreneur-in-residence in Cape Breton (who lives in Halifax) sits on the BlueLight board as does Andrew Ray.

Entrevestor reported on Deacon’s appointment to the senate.

But Deacon, who followed up that tweet with an interview with Mullen in Entrevestor, now seems to be biting the hand that once fed him. He’s decided the “concept of Innovacorp is fundamentally flawed” for several reasons — although none of the ones I would have listed.

For example, he finds it problematic that Innovacorp dominates the VC market in NS because startups have “only got one door to walk to and knock on.” But Innovacorp was launched precisely because there were no doors for local startups to knock on.

And Deacon’s answer — to have the government invest “$20 million every five years in private sector VC funds with the stipulation that the money be spent exclusively in Nova Scotia” — might mean startups had more doors to knock on, but the province would effectively be answering all of them.

The benefit would be to the fund managers, whom Deacon paints as hungry risk-takers but who generally earn nice management fees.

And 25 years — 25 years! — after Innovacorp was established, Deacon has decided “Crown corporations are not necessarily subject to market forces in the same way that private companies are, meaning capital might be allocated less efficiently than it would be at a private fund.”

Which brings us back to why would now be “a great time to privatize” Innovacorp. Could it be because the fund has actually made some money and so, of course, that money needs to be given to the private sector?

I don’t actually think Deacon is biting the hand that fed him — Entrevestor printed this interview, after all, which makes me think Innovacorp is okay with this idea. So the question becomes, why does Innovacorp like this idea? And what does Deacon mean by “privatizing” it?

Folks, we need to follow this closer than brokers on a quarterly earnings call.