Last week Techvibes reported on the stealthy seed round funding of Toronto's Hubba. While the cash injection dominated by Facebook friendly angels didn't sneak under the radar, a more interesting angle around another investor has emerged.
Toronto's Brightspark Ventures is listed as Hubba's lead investor and was responsible for more than $1 million of the round.
For those unfamilar with the 14-year-old venture capital firm, they won the CVCA's 2011 Deal of the Year Award for their joint investment in Radian6 (acquired by Salesforce for $326 million). But this time Brightspark has disintermediated its own industry and is using a new model built for a modern VC industry that is being challenged by innovative funding opportunities.
Techvibes got in touch with Brightspark's Managing Partner Mark Skapinker to learn more. According to Skapinker, Brightspark's new model is unique in Canada.
"We are the first Canadian VC to focus on accredited investors as fund investors instead of just relying on traditional fund-of-funds," he says. "As you likely know, the number of Canadian fund-of-funds has dramatically shrunk and is now made up of a few Government sources. So, instead of just relying on these sources, we now reach out and essentially crowdsource/crowdfund our fund investors."
Skapinker explained that Brightspark now creates a separate VC fund for every investment they make and finds angels (Canadian accredited investors) to invest in that fund. He describes it as essentially a “curated” deal model similar to efforts in the US (e.g. Fundersclub) and Israel (e.g. ourcrowd). Brightspark structures each investment as a "VC deal” and so are able to invest under the VC investment rules set by the security commissions.
To date Brightspark is thrilled by the response to this model and guinea pig Hubba is as well.
Skapinker's team has been in touch with Hubba CEO Ben Zifkin for about a year and a half: "We really like what we saw and always thought it would be a great first investment for the fund. And so we decided let’s do at test. And we went out to the angel network, to the family funds, to the accredited investor market and had a really, really good response. We had some real interest in it."
Bright Spark raised close to $1 million in a fairly short time and drove the investment attracting over 20 angel investors.
"The smallest investor was $25,000," explains Skapinker. "Some were much bigger, some were around that level. And we think it’s a model that we’re going to keep going with."
"From Hubba’s perspective, they get one investor which is a traditional VC investment," he continued. "From our perspective, it’s a traditional VC investment: we're on the board, we track the company, we follow the company like any other investments that we make. The only difference is instead of having these large pension funds and government investors, we have individuals."
It's a new, unique model in Canada—and according to Skapinker, they're the first Canadian VC to focus on accredited investors and Angels as fund investors instead of "just relying on traditional fund-of-funds."
Brightspark is in the process of scaling out the model and expects to make a lot more investments in 2014.
"Our focus remains the same," Skapinker affirmed to Techvibes. "Invest in great teams of early stage startups in Canada, just like we did in Radian6 which was one of the most successful VC deals in Canada the last few years."