Venture Capital: Investing in Innovation
The PolyFinances 2022-2023 cohort will focus on the theme of Technology and Venture Capital at both campuses, the Montreal campus and the international campus.
Here are a few lines on the reflection that led to the selection of this theme, presented by Léo Lamy-Laliberté, President of PolyFinances:
For many, innovation evokes an image of scientists in lab coats in a research laboratory. However, it represents much more than this concept. Polyfinances, at the intersection of finance and technology, has given itself the mission for the year 2022-2023 to study the ecosystem connecting all the actors of the innovation cycle, from idea to commercialization.
With the recent tabling of the Quebec Research and Innovation Investment Strategy 2022-2027, the provincial government will allocate more than $7.5 billion over the next five years to provide Quebec with a solid foundation in research and innovation. Of this, $600 million will be used to develop the venture capital sector to further stimulate sectors that need more support.
Artificial intelligence, quantum technologies, life sciences, aerospace, transportation electrification, natural resources and renewable energies are niches in which Quebec already excels and is internationally recognized. For the coming year, the objective is to understand not only how to continue to distinguish ourselves in these sectors, but also how to promote innovation that addresses major societal issues, such as climate change. All this to continue to advance the Quebec of tomorrow.
President and coordinator
What is venture capital?
Venture capital is a form of investment made early in the life of an unlisted company that is considered to have high growth potential. The initial investment is therefore provided by venture capital firms and not by angel investors, being wealthy individuals. It was developed in 1946 in the United States, but experienced enormous growth in the 1970s.
What is the process of selecting a company?
The first step is to study the company’s business model. While this step can take several months, investors analyze the development objectives as well as the target market.
The second step is the development of the company, which usually takes between 3 to 7 years. During this time, the investor supports the company in its growth.
The last stage consists of the exit of the capital. Investors exit the company in several ways:
- They sell their shares back to the original partners;
- They sell their shares to a new buyer;
- They take the company public.
What are the advantages of venture capital?
At the company level, since venture capital allows to increase the equity capital, it allows a start-up company to reduce its debt risk and helps during the seed phase. It also provides security for creditors and guarantees additional support in the growth of the company, especially through the network of contacts of investors.
At the investor’s level, when a company grows adequately, the investor can resell his shares and thus gain a capital gain compared to the initial value of the company.
What are the disadvantages of venture capital?
One risk that the venture capitalist may encounter is the failure of the company’s development. Indeed, if the company does not grow adequately, it will be difficult for the investor to sell his shares and find new buyers. All losses will be felt by the company, but also by the investor because of the considerable initial investment. It is therefore important for investors to carefully select the companies they invest in.
Why does venture capital promote innovation?
While innovation is essential for companies operating in a competitive market, the vast majority of investors choose innovative companies that want to create a new market. Thus, venture capital facilitates this passage towards a sometimes unknown market. This is why PolyFinances has taken on the mission of studying this ecosystem, which is now established in all fields.