Canadian government to fund new venture capital businesses

Prime Minister Stephen Harper will give $400 million of taxpayers’ money to high risk venture capital plans under a new program to stimulate the economy announced Jan. 14.

The “Venture Capitalist Action Plan” consists of $400 million in federally funded subsidies available to companies with the potential for “high-growth”, which Harper is betting will provide stimulus to the Canadian economy.

Venture capitalism is high-risk with potential for high-reward for investors. It is also a type of business usually restricted to the private sector, not traditionally a place for public funding. Using public money to fund risky private ventures has led some Canadians to reconsider the effectiveness of this new action plan.

Maclean’s Magazine says that the most important dimension of a venture capitalist agreement is the control factor. Ownership stakes involving the government may get overly controlling.

The Globe and Mail wrote a reminder to Harper that government should not be in the market picking winners and losers.

The Financial Post argues that the structure of Harper’s plan remains unclear. NDP Finance Critic Peggy Nash discredits the plan as “woefully insufficient”.

Meanwhile, CBC reports that Harper believes the key to Canada’s global competitiveness depends on Canada’s venture capital industry having the resources to be sustainable.

What is your opinion? Do you think the creation of “funds of funds” through federal funding is a good thing? Is this a successful method to stimulate Canadian economic growth? Or is it a waste of time and money?

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