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The B.C. government has finally announced the launch of its BC Renaissance Capital Fund.

The concept is that the government will seed—with $90 million over five years—a large slush fund to assist B.C. technology, clean-tech, life sciences and new media companies at critical points of their lives.

But the fund's structure is causing much confusion and some cynicism among people who apparently don't have a clue about how venture capital works. For instance, a sticking point among many is that the fund will provide money to six venture capital firms, most of who have little to do with B.C., without a corresponding demand that they reinvest (and add to) it in B.C.

But that's old-school thinking about how government should finance economic development. If it did make such a demand, it wouldn't have any partners, and the fund wouldn't exist. Also, existing direct financing models – like the immigrant investment fund, from which some of the money is coming – haven’t really worked that well.

Here's why. With venture capital, or VC, a person or a company invests in a promising company, helps it grow, and presumably cashes in that investment for a healthy return in future. It isn't a tax scheme, and doesn't involve governments making semi-educated (or lobbied) guesses about what companies should receive funding.

Basically, VC is knowledgeable professionals placing bets on promising companies with their own money. It's the last part that most people don't get. With the Renaissance fund, the BC government is for all intents and purposes going in as an investment partner with the pros. In return it requires that the pros hang around BC and show the locals how venture capital works at a certain level.

The certain level is the second part of the equation. BC has a reasonably healthy venture capital scene at the start up and early stage level, but it's dreadful at the next stage – where a company is established and ready to grow to a much larger size. It’s one reason why BC is still a small company province.

In B.C., we just don't have the risk capital—stock exchange financing or predatory hedge fund money doesn’t count—it takes to grow companies to a larger level. The result is that when a company is ready to leap to the next growth stage, it has to look for funding elsewhere—usually in the U.S., because ultra-conservative Canada is a mid-stage venture funding wasteland. But since most VC's, U.S. and everywhere else, prefer to invest in companies close to them, many fund-hungry BC companies end up being sold so they can continue growing.

Presumably, the aim of the Renaissance fund is to establish a Venture Capital node that’s close to the companies in which they invest. In turn, this node will, it’s hoped, grow into a VC culture and then an industry in this province. It’s a model that’s been quite successful in Israel and New Zealand, jurisdictions where an invitation to VCs to set up shop have grown the technology industries exponentially.

So back off on the bitching, people. The long-term thinking is that a full-fledged Venture Capital culture will grow here and stop the inevitable path that sees most of our promising companies sold off as soon as they’re established.