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GrowthWorks limits redemption for unitholders

Venture capital fund lacks cash after eight-year holding period

By: Martin Cash

Posted: 07/12/2012 1:00 AM | Comments: 0

GrowthWorks Capital CEO David Levi

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GrowthWorks Capital CEO David Levi

SOME GrowthWorks Canadian Fund unitholders in Manitoba were recently surprised and concerned about their ability to cash in their units after the mandatory eight-year hold period.

The labour sponsored venture capital fund -- which entered the Manitoba market after acquiring the ENSIS Growth Fund in 2007 -- doesn't have enough cash on hand to satisfy all of the redemptions that are eligible.

Rather than hold a fire sale and wind down the $300-million-plus fund -- which has a handful of Manitoba holdings left in its portfolio -- Growthworks is seeking approval from the B.C. Securities Commission to dole out about $20 million a year rather than the $30 million a year that's forecast to be up for redemption.

(Investments in labour sponsored venture capital funds are RRSP-eligible and receive a 30 per cent tax credit, but investors must leave their money in place for at least eight years.)

In addition to being forced to slow redemptions, the GrowthWorks Canadian Fund is quietly exiting the market and is no longer raising new money.

David Levi, GrowthWorks' CEO and founder, said, "Because of the changes in Ontario (which is no longer offering the tax credit) and the decline in fundraising, we made the decision not to sell any more shares."

In fairness to GrowthWorks, it is standard procedure for there to be a clause in the prospectus that says under certain circumstances a fund can limit redemptions.

At its recent annual general meeting, GrowthWorks received 83 per cent approval from unitholders on its redemption management plan.

"The board has decided there is good value in the portfolio," said Levi. "They don't want to have to sell it off under pressure."

The GrowthWorks Canadian Fund was being sold in Manitoba, Saskatchewan and Ontario.

However, those retail venture capital funds have long since had any impact in the Manitoba market.

One local investor/entrepreneur said, "That asset class is basically dead, isn't it?"

It's probably true to say that in Manitoba, but it's absolutely not true elsewhere in the country.

For instance, last year two funds -- the Golden Opportunities Fund and the SaskWorks Venture Fund -- raised $85 million in Saskatchewan.

GrowthWorks' B.C. fund, the Working Opportunity Fund, raised 20 per cent more than the previous year and its Atlantic Canada fund is still in business, although Levi said that market is tough.

But not as tough as it is in Manitoba.

"It's hard to get past the past," Levi said in reference to the ice-cold chill in Manitoba caused by the demise of the Crocus Investment Fund.

The Saskatchewan fund, Golden Opportunity, which has a gross asset value of close to $200 million, was brave enough to enter the Manitoba market last year.

It barely raised $1 million. Levi said that was the same experience his GrowthWorks Commercialization Fund had in this province.

"We're hoping to turn the corner in Manitoba, but it is a struggle," Levi said.

But he also said it has nothing to do with the quality of investment opportunities in Manitoba.

"We are actively managing the portfolio and continue to make follow-on investment in companies that need it," Levi said.

But not for every company. For instance, GrowthWorks has several million dollars invested in two Manitoba companies that recently completed or are in the process of raising money -- Monteris Medical and LibreStream -- and it looks like GrowthWorks will not be part of those funding rounds.

Kerry Thacher, founder and CEO of LibreStream Technologies Inc., is about to start raising another $5 million to $10 million for his video collaboration technology. The company is launching an application that will allow its proprietary technology to be used on iPhones and iPads. GrowthWorks' predecessor ENSIS invested about $4.5 million in LibreStream in 2005.

Monteris Medical has raised more than $10 million over the last year and GrowthWorks has not been able to take part in that.

"Opportunities are clearly there in Manitoba, it's the fundraising that's a problem," Levi said. "It's difficult given the legacy in the province for labour sponsored funds. It is a struggle."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 12, 2012 B3

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About Martin Cash

Martin Cash joined the Free Press in 1987 as the paper’s business columnist.

He has spent two decades chronicling the city’s business affairs.

Martin won a citation of merit from the National Newspaper Awards in 2001 for his coverage of the strike and subsequent multi-million-dollar union settlement at the Versatile tractor plant. He has also received honours and awards for his work on agriculture and technology development in Manitoba.

Martin has written a coffee-table book about the commercial and industrial make-up of the city, called Winnipeg: A Prairie Portrait.

Martin Cash on Twitter: @martycash

martin.cash@freepress.mb.ca

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