Venture capitalists are known for financing high-risk early-stage companies and running with them, investing cash in exchange for an ownership stake in the company.
But start-ups are risky, and the hope is that at least a few of the pitches they fund will take off. To be considered at all, a company already needs to have significant development behind it.
“When we come to invest, somebody has done some research and built some technology already, and in an ideal case, they already have a working prototype,” says John Ruffolo, Chief Executive Officer of OMERS Ventures.
In other words, the product or service has already been built, and venture capital gives it a boost to help it grow faster and find a customer base.
To get to this stage at all, a lot of investment has already gone into development. This is a role that has to be filled by the government, says Ruffolo.
He likens it to tending a farmer’s field: the government’s job is to pull out the weeds, decide which seeds should be planted, and spread out some fertilizer to get the seedlings started.
Venture capital only comes in to provide a bit more water and sunshine to help them grow a bit faster so that the fruits can get to the market.
“We cannot make any investments until the farmer has plowed the field,” explains Ruffolo. “That’s the research. And this is just like infrastructure of a nation, and why the government is really the only source of capital that can properly fund it and really bet for the long term.”
Sometimes these long-term investments take decades to come to fruition, but when they do, it’s this initial backing that makes sure the trees have rooted in our own backyard.