The Changing Face of the Canadian VC industry

by on Monday May 25th, 2009

New yet familiar faces are marching into the Canadian VC landscape with different approaches towards supporting tech entrepreneurs in their endeavour to change the world. At last’s year CVCA annual conference, the theme was utmost appropriate: The Face(s) of Change! Only one year has gone by, yet so much has already changed, new and familiar faces are showing leadership and paving the way for an industry revival.

Today’s BDC announcement of a $75M commitment towards the newly createdTandem Expansion Fund (link to press release), is yet another example of how the Canadian venture capital landscape is being reshaped from an entrepreneurial angle. The managers behind this $300M later stage fund are experienced operators, with investment backgrounds and core entrepreneurial values. Interesting enough are the powerhouses that will provide global networks behind this new fund: Charles Sirois (Telesystem Ltd) and Brent Belzberg (Torquest). I know Charles Sirois and the Telesystem Ltd group pretty well, having worked for Charles for a few years in the past and for having co-invested with his other VC funds (note: Telesystem is a small investor in iNovia Capital’s second fund). I have much respect for Charles, not only because he founded and managed companies, some he built from scratch and lead them to several hundreds of millions and even billions in value, but rather because Charles has been a fervent and active supporter of entrepreneurship, understanding what drives entrepreneurs and accepting that they have the right to try, to fail, adjust, and succeed.

What does Tandem means to me?

It means that many great Canadian companies and strong tech entrepreneurs having built their businesses up to the point where a substantial amount of capital is needed to either help them consolidate a market segment, or to simply support their growth, won’t be obliged to only look south for a strong financial partner. For iNovia Capital, it means that in some cases we will have a later stage co-investor able to lead those few $10-20M rounds required to further fuel the growth of our most successful companies.

The Tandem Expansion announcement comes on the tail of Quebec based Cycle Capital – who has recently launched its cleantech investment activities with the addition of new partner/recurring VC fund managerBernhardt Zeisig; Western Canada’s warming up to the recent formation of an interactive entertainment venture capital fund called Vanedge – the team are all gaming industry veterans from Electronic Arts and Dreamworks Interactive – Paul Lee, Glenn Entis, Owen G. Mahoney and Jason Chein; Celtic House’spreparation for their new fund IV fund raising activities with the addition of entrepreneur and VC experience Pierre-André Meunier; and Steven Hnatiuk and his team out in British Columbia at Yaletown Venture Partnerswho announced not too long ago the first closing of a second early stage cleantech & IT fund.

Interesting enough, many new VC faces are in fact venture capital knowledgeable operators and entrepreneurs. Others, like Bud Kirchner of Kirchner and Company are not only showing leadership, they are taking ownership! The Kirchner   and Company team havebeen extremely active and involved on both sides of the equation: as a VC, by partnering up with existing fund managers to raise funds and actively oversee direct investments such as with Avrio Ventures where Bud joined as a Partner; then, by being one of the most active investment bankers doing M&A and divestitures in Canada, sometimes representing the buy-side and other times assisting the sell-side; and finally, as a key partner to secondary fund managers, acquiring and managing the exit process for a broad range of portfolio companies (rumour is that they recently came to an agreement with Coller capital for the management of the old portfolio of Innovatech Montreal which was sold to to Coller in a secondary transaction a few years ago).

The following chart  outlines what Kirchner & Company say makes them different. Funny thing is that it doesn’t sound any different, right? Wrong. Its different because Kirchner and Company, like many new entrants in the VC ecosystem, are building their business on new paradigms, where the people in the team are less alike, more complementary and more driven by entrepreneurial fuel. Just take a look at Kirchner’s recent additions to the team: Barry Gekiere (ex-Ventures West), Les Lyall (ex-Growthworks), Claude Vachet (ex-Multiple Capital), Andy Agrawal (entrepreneur), Chris Butlin (entrepreneur), Mike Cooke (entrepreneur)… and I can keep going. Doesn’t this start to sound way more like a next generation VC fund than the typical investment banking firm?

It will be interesting to see how these new and returning faces in the venture capital landscape will affect the type of VC transactions we were once used to seeing.

My recent post about our industry being at a turning point is more and more appropriate. With the recent announcement of Teralys Capital, a $700M + Fund of fund, managed by Jacques Bernier, an entrepreneur turned VC who then turned Fund of Funds Manager for the largest Quebec based labour sponsored fund (Fond de solidarité FTQ), and who now manages Canada’s largest Fund of funds, it seems like we are witnessing change within change.

For Tandem Expansion as well as for Teralys Capital, our governments (both federal and provincial) are playing key roles of being “enablers”. By participating as pure investors, by expecting full return of capital in addition to reasonable returns, at the same rate and on the same terms as their private co-investors, our governments are setting a new tone: where they aren’t providing any bailout, any grants, any loans; they aren’t selecting or politically influencing the type of companies these funds should invest in; they aren’t trying to save any specific industry by giving tax credits for job creation; they are enabling sophisticated fund managers to attract important amount of capital into their funds (as we all know size does matter) as well as providing the level of commitment necessary to attract foreign co-investors into investing in promising Canadian tech companies. Anyway we look at it, having the means to invest and to support our entrepreneurs, directly creates high paying jobs, clusters of expertise and put Canada on the map (just think of what would of happened to these industries without venture capital: Quebec’s gaming and media production industries; British Columbia’s Biotech industries; Ontario’s semiconductor and telecom industries; Toronto’s software industries, Montreal’s aerospace industry, and I can go on and on). Our governments are doings the right things, now it’s up to our fund managers to do things right!

What is next?

As the Canadian Venture capital industry matures, we will witness higher returns, recurring entrepreneurs and an increase in local success stories. More high growth companies will not be obliged to be acquired by a foreign entity in order to provide exit opportunities to its stakeholders and with the recognition that this class of investment (venture capital), although considered high Risk, will prove to generate High Rewards. That should be enough to attract more Canadian pension funds, banks, insurance companies and private institutions,  with allocations of a fraction of their capital towards Canadian venture capital funds.

Thoughts and comments welcomed.

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