Vancouver: Working Opportunity Fund – the new catalyzing force in Vancouver’s domestic film and television industry – has invested $12.6 million in local companies and expects to buy into other companies to the tune of $8 million in the near term.

‘About two years ago when the fund reached $100 million, we moved into film and television,’ says David Levi, president and ceo of GrowthWorks Capital, the management arm of wof. ‘Twenty million dollars [worth of entertainment sector investment] is today’s figure. We’ll have to watch how the sector evolves.’

Already the labor-sponsored venture capital corporation has put $2.5 million into International Keystone Entertainment, $1.5 million into distributor Red Sky Entertainment, $3.6 million into Peace Arch Entertainment (formerly Vidatron Entertainment) and most recently $5 million into Mainframe Entertainment.

Entertainment companies now represent about 10% of wof’s $120-million portfolio, which also extends to 50 b.c.-based high-technology, biotechnology, advanced manufacturing and tourism companies.

(In July, wof hit a home run with its three-year-old $4-million investment in Vancouver-based HotHaus Technologies Inc., which creates software that transmits digital voice, fax and data packets over data networks, including the Internet. HotHaus was acquired by Irvine, California-based Broadcom Corporation for $414 million, which is the biggest acquisition in b.c. history and will result in a net gain for wof shareholders of up to $135 million.)

Typically, wof’s ownership is through a combination of debt and shares, depending on the deal. wof offers companies money with an eight-year horizon and hopes to liquidate its ownership in four to six years.

On the film and television side, the challenge has been finding b.c. companies that have the ability to create growth – for instance, owning copyright.

‘It’s largely a service industry primarily to u.s. producers,’ says Levi. ‘The industry is not designed for companies to realize certain capital gains. You can’t make money in cost-plus scenarios. So we are looking at companies that go beyond servicing to create value.’

That means wof has identified ‘five or 10 significant’ b.c. companies that demonstrate leadership potential.

For example, wof’s analysts observed that there was no viable ‘number two’ distribution company for film in Canada. Consequently, wof took a position in Red Sky to build a company that would cater to distribution partners that preferred not to go through the Alliance Atlantis gateway.

After acquiring two live-action production companies, an animation company and a distribution company, wof has turned its attention to infrastructure companies such as studios and, despite its concerns about content ownership, service companies.

No details have been divulged on new targets, but companies that have the ability to finance projects in-house, have strong entertainment-sector expertise, enjoy growing recognition from the Canadian funding organizations, and have sophisticated management are most attractive.

‘We have no agenda of consolidation,’ says Yad Garcha, GrowthWorks’ vp of investment who oversees wof’s film push, responding to a question about the vertical nature of wof’s investments.

‘We’re not looking at this time to develop an Alliance Atlantis type of company,’ he explains. ‘We are just going after companies that are leaders in discreet sectors.’

So why is wof investing in b.c. film companies when their stocks are doing so poorly?

On Aug. 3, Mainframe was trading at $2.04 per share compared to its year-high of $5.25 and its year-low of $1.21. Peace Arch Class a and Class b shares are creating new lows in their year’s stock cycle in the $8 and $7.50 ranges. Rainmaker Entertainment Group, which doesn’t have wof investment, was also creating new lows, with its shares trading at $1.15, off the year-high of $3 per share. And International Keystone, trading on the Montreal Exchange, was at $0.45 compared to its year-high of $0.85 and year-low of $0.15 per share.

‘We’re less interested in the short-term valuations on the markets than the longer-term opportunities,’ says Garcha. He admits that undelivered promises and a lack of faith on the part of market analysts have marred the share performance of local companies.

‘We’re unusually hands-on for a venture capital company. We’re not passive investors,’ Garcha explains, adding that wof will take seats on the board of directors of companies in which it invests. ‘There are tough spots in the early days of growth. We have experience in growth and we are able to add years of experience to a young management team.’

For Tony Cianciotta, former ceo of Red Sky, and Chris Brough, former ceo of Mainframe, wof’s hands-on approach has meant the proverbial ‘highway’ – though Garcha will not explicitly state that the executives were squeezed out.

‘We invest or don’t invest [in a company] based on how we like or don’t like a certain management team,’ said Garcha in an earlier interview about wof’s investment in Mainframe. wof only finalized its investment in Mainframe after Brough resigned.

Cianciotta, meanwhile, told Playback this spring that he didn’t leave Red Sky voluntarily and that there was a dispute about the long-term vision for the distributor regarding its future role in profit-driven mainstream movies rather than art-house fare.

Much of Garcha’s role as the heavy in these investments is shared with Royal Bank Capital Corporation, represented by vp Vincent Lum. The Royal Bank has been the investment partner with wof in each of its first four film industry investments.

Noting that wof has a $5-million cap on its investments, Garcha says it’s prudent to have an investment partner with ‘deep pockets’ to respond to potential cash calls to keep the initial investment viable.

‘There are few entertainment sector investors,’ says Garcha. ‘The Royal Bank has a lot of expertise.’

However, wof is on track to begin investing without the Royal Bank attached to the deals, he adds.

Over the long term, the b.c. entertainment sector will mature and consolidate, says Garcha. ‘There are a lot of smaller players now,’ he notes. ‘We’re trying to identify the early leaders.’