The following article appeared in the Winter 2010 issue of Private Capital Magazine and was co-authored by Steve Hnatiuk and iNovia's Chris Arsenault.
No point in letting a good crisis go to waste. Opportunity emerges during times of market challenge. At the tail end of perhaps the toughest decade that the global – and Canadian - venture capital industry has endured, a flurry of new fund managers have hit the fundraising trail in Canada and successfully raised first time funds.
It takes guts – and patience – to launch a new venture at times like these. You may have heard that the venture industry in Canada has been declining for years, that LPs are ‘pruning’ managers rather than adding new ones, and that raising a new fund is nothing short of a suicide mission. What cannot be said is that entrepreneurial spirit and guts are not alive and well in the Canadian venture capital industry.
Compelling market opportunities, good teams, and perseverance in a difficult fundraising environment is paying off for a new generation of emerging VC managers in Canada. In more than one way, we are witnessing the re-birth of the Canadian Venture Capital industry.
Canada has always been, and continues to be, a venture market that is dramatically underserved by capital, and so there is plenty of room for new entrants – indigenous, entrepreneurial and from outside our borders. Over the last year, against all odds, a new generation of emerging “entrepreneurial investors” teamed up around specific domains and market segments, built strong teams the same way a startup builds an A-Team, and launched into a world of opportunities and chaos.
Impressive accomplishments on the fundraising trail by upstart GPs has created a dramatically changed landscape in Canadian venture capital. Not to belittle the effort, it should be pointed out that some of these debut funds were on the money raising trail for a few years. And now we have a whole new crop of opportunities being pursued, by a whole new crop of new venture investors. Global digital media funds, global water business funds, expansion capital where none existed before in Canada, to name a few.
Capital: $100M first closing
First Close: May, 2010
Partner Locations: Vancouver and Shanghai
Investment Focus: Digital media
Sources of Capital: Numerous Canadian and foreign institutional, corporate, and private LPs.
Team: Paul Lee is the former President of Electronic Arts responsible for the worldwide studios, as well as an active and successful angel investor. Glenn Entis is the former Chief Visual and Technical Officer of Electronic Arts and former CEO of Dreamworks Interactive. Divesh Sisodraker is the former CFO of Taleo Corporation, former CEO of Pivotal Corporation, and former finance head at ALI Technologies (McKesson). Jason Chein is former General Manager of EA China and former Asia Developer Relations with Microsoft's Xbox group.
Capital: $100M +
First Close: February, 2010
Partner Locations: Toronto
Investment Focus: Water technologies and water-related businesses
Sources of Capital: Canadian and International institutions.
Team: XPV's team is a marriage of investment expertise, sector knowledge and deep industry operating experience.
"Tenacity, focus and an enormous team effort has positioned XPV to capitalize on the growing investment opportunities now present in the water sector", said David Henderson.
Capital: $50M +, first closing
First Close: July 2010
Partner Locations: Toronto
Investment Focus: Growth equity firm investing in expansion and later-stage enterprise software and information aggregation companies.
Sources of Capital: Institutional investors form Canada and USA.
Team: Georgian Partners Justin LaFayette, Simon Chong and John Berton, all have hands-on experience in operating and managing expansion stage technology ventures.
Capital: $300M first close
First Close: November 2009
Partner Locations: Toronto, Montreal and Vancouver
Investment Focus: Later-stage Canadian technology companies
Sources of Capital: Anchored by commitments from BDC, EDC and Teralys, which sponsored the formation of Tandem in collaboration with two of Canada’s best known business leaders.
Team: Tandem’s managing partners – David Bookbinder, Andre Gauthier, Christopher Legg and Alex Moorhead – all have significant investment and entrepreneurial experience domestically and internationally.
“Tandem is the only Canadian based growth equity fund, this give us a unique advantage in both sourcing and working closely with our portfolio companies”, said Christopher Legg.
Mantella Venture Partners
First Close: March, 2010
Partner Locations: Toronto
Focus: Invest in domain expert entrepreneurs who are building early stage mobile and Internet software companies, surrounding them with an ecosystem of experienced operators to get their ideas from conception to market.
Sources of Capital: a family owned commercial and residential real estate developer
Team: The main investment partners are Robin Axon and Duncan Hill. Robin is ex-Ventures West and Duncan was an EiR at Ventures West and previously founded Think Dynamics (acquired by IBM back in 2003).
“At MantellaVP we believe strongly in maintaining alignment between founders and investors. We work shoulder to shoulder with entrepreneurs to build their business, and provide the right capital at the right time. This ensures that at all stages of the company’s evolution, a good outcome for the founders is a good outcome for everyone”, said Duncan Hill.
Capital: $50M initial closing
First Close: October, 2010
Partner Locations: Montreal
Investment Focus: Seed stage venture capital firm investing in Internet, software, mobile, digital media, social and casual gaming startups.
Sources of Capital: Invest Quebec, Fonds FTQ and private LP’s.
Team: John Stokes, JS Cournoyer, Alan MacIntosh, Mark MacLeod, Austin Hill and Daniel Drouet, who have all been entrepreneurs, angels and/or VCs.
“The Web and mobile web are creating major disruption, incumbents are being challenged and new markets being created; The productizing and commercialization of ideas can be done with significantly less capital and as innovation is becoming harder to realize internally, established companies are using acquisitions to fuel revenue growth...what a great time to be starting a business ... or a venture fund!” said John Stokes.
W Media Ventures
First Close: Started investing in November 2007
Partner Locations: Vancouver
Investment Focus: Consumer Internet, social media, online commerce
Sources of Capital: personal investment fund of sole partner, Boris Wertz
W Media has completed over 20 investment to date, with a majority done in the Pacific Northwest.
W Media also has a unique connection with Vancouver based Bootup Labs.
Incubators 2.0 (aka “Accelerators”):
In the late 1990’s, the first wave of private incubators arrived on the scene in Canada, emulating the models of their US counterparts. A few short years later, precipitated by the technology and equity market implosion, this part of the Canadian venture and start-up eco-system entered extinction. Various government programs attempted to fill some of the gaps in providing services (but usually not capital) to the new generation of post-bubble era technology startups. Now, nearly a decade later, with an explosion of new start-up activity in Canada’s major technology clusters in Vancouver, Montreal, and Toronto, a new wave of entrepreneurially-driven accelerators - such as Montreal StartUp, Vancouver’s Bootup Labs, and Ontario’s BaseCamp (Mantella-related), Extreme Ventures NeoTech, Bolidea, and newly-launched Year One Labs - are taking the Canadian startup landscape by storm. New comers such as these are helping build a more savvy roster of entrepreneurs eager to attract follow on financing from VC’s. Some are already generating exits before VC’s have an opportunity to get a seat at the table; witness Extreme two visible exits, one to Google and the other to Electronic Arts, within its first few years in operation. All provide hands-on support at every stage of a company’s creation and growth – from business development and marketing to financing and team development – to help facilitate early market traction. Oh yeah, and some also have cash, which, not surprisingly, still matters an awful lot to most start-ups even if the amounts they need are smaller.
Silicon Valley Comes Calling:
Not alone in their optimism for the Canadian investment landscape, the new crop of Canadian venture capital players are also joined by a number of new entrants from the Silicon Valley who are exhibiting keen interest in the Canada. In each case, there is knowledge of the Canadian market opportunity owing to one or more partners having roots in Canada
Altos Ventures, Bridgescale Ventures, and Panorama Capital– all Sandhill Road firms, have made investments in Canadian companies during 2010. All three firms focus on expansion-stage venture financing, while making selective earlier-stage investments on occasion. The deals being done by these Valley funds split quite evenly between Western Canada and central Canada. What is most striking is the visibly increasing commitment of partner time to the Canadian market. In the case of Bridgescale, two Canadian based partners have been added, both in Toronto, including the October 2010 announcement that Derek Smyth – the final partner remaining at now defunct Edgestone Venture Capital – was joining the Bridgescale team. Bridgescale is the first Silicon Valley firm to locate partners in Canada. A betting man might wager that they won’t be the last.
This fall, Silicon Valley’s technology accelerator on steroids, Plug and Play Tech Center, announced expansion plans into Canada. CEO, Saeed Amidi, made the announcement at a private gathering in Vancouver (where he also happens to have a second home), stating a keen personal interest in “strengthening and leveraging the bridge between Canada’s technology sector and Plug and Play’s industry and venture capital network in the Valley.” Virtually every major technology company in the acquisition game, and a list of venture capital funds that appear only in the wildest dreams of most Canadian entrepreneurs, is partnered in some way with Plug and Play in Sunnyvale, California. Plug and Play plans to set-up shop in Vancouver in 2011 and its venture arm, Amidzad Ventures - which has seed funded dozens of Valley start-ups including major players such as PayPal - comes along with the deal.
Canada Goes Calling in China. Russia Comes Calling in Canada:
With only a few short years into a landmark fund structure involving a major corporate capital commitment from Research In Motion alongside commitments from US and Canadian institutional LPs, the Black Berry fund managers - a newly partnership between JLA Ventures and RBC Capital – announced the first closing of a new Blackberry Partners China Fund. With $100M+ in initial commitments, this vintage 2010 fund represents a first in Canadian venture capital - a Canadian venture fund manager successfully establishing an international fund. Interestingly, VanEdge Capital, which closed during the same month as Blackberry China, also has designs on Asia and one of its initial three partners is based in Shanghai. Previous attempts to establish funds with an Asian focus, including efforts over the past decade by private independent managers such as McLean Watson, and even the Canadian government’s own BDC Venture Capital, have not taken flight.
More evidence of the growing international presence of Canadian venture capital, is on the Russian-Canadian partnership led by Rusnano, who has recently announced its plans to partner with John Varghese, CEO and Managing Partner of Canadian venture fund manager VentureLink. Varghese plans on assembling a new nano-technology focused fund that will pursue investments from a Canadian base. Is this a sign? A new direction for Venture Capital? A new Canadian reality? The Fund will invest in Canadian companies that have the potential for global expansion. The wrinkle or added benefit of the partnership with Rusnano is that each investment will have a corporate sponsor in Russia prior to the first investment being made. Thus the go to market strategy of each company will be established with a referenceable customer, facilitating global expansion. Can we say procurement assistance?
Domain expertise, cross-border partnerships, a growing network of valuable industry and private capital relationships, value-added support, seed acceleration facilities and teams, these are all trends gripping Canadian venture capital. A brave new world - with brave new leaders – it’s evolving, fast.