Inovia Capital, one of Canada’s largest venture capital firms, will announce a new US$334-million fund on Thursday dedicated to re-investing in its top-performing portfolio companies to take further advantage of their growth.
The announcement comes the day after Quebec private-equity firm Novacap revealed a US$1.1-billion fund with a similar mandate, and months after Georgian Partners and two prominent seed investors, Vancouver’s Version One Ventures and Toronto’s Golden Ventures, each raised new pools of capital to deepen their stakes in previous investments.
Though relatively new to Canada, these kinds of “continuation” or “opportunity” funds have been on the rise in the past several years as companies stay private longer, prompting early backers to deepen stakes in some of their best-performing portfolio companies. The funds are emerging just as competition for funding private companies in Canada heats up, with significant international funding players such as Tiger Global Management circling domestic companies.
Inovia’s new Continuity Fund I “is a sign the market is mature enough and ready to support building bigger companies,” said Chris Arsenault, a partner at the Montreal-based firm.
Many long-standing Inovia investors are returning for the new fund, including Northleaf Capital Partners, Hollyport Capital, Kensington Capital Partners, and HarbourVest Partners, which is co-leading the fund alongside BlackRock Inc.’s Secondaries and Liquidity Solutions group. Inovia said the new fund brings its total capital under management to more than US$1.9-billion.
Much of the fund has already been disbursed to nine portfolio companies, Mr. Arsenault said, as Inovia sought to buy out early employees and investors. Those companies include fast-rising Canadian scale-ups such as the e-commerce merchant financing company Clear Finance Technology Corp., which operates as Clearco; the digital textbook publisher Tophatmonocle Corp., or Top Hat; the home-care software provider Alaya Care Inc.; and video-marketing platform Buildscale Inc., known as Vidyard.
Inovia first invested in most of these companies with funds it launched in 2007 and 2011, and from which no further capital is available. “The well has dried, but the potential is huge,” Mr. Arsenault said in an interview.
The venture firm has trumpeted these kinds of “secondary” transactions before, including as part of a 2017, US$166-million buyout of U.S. venture capital giant Accel Partners’ stake in the Montreal point-of-sale technology company Lightspeed Commerce Inc. Inovia kept a stake in Lightspeed even after it went public in 2020, and Inovia general partner Patrick Pichette – a former Google chief financial officer and current chair of Twitter Inc. – chairs Lightspeed’s board.
Some of Inovia’s Continuity Fund I will be dedicated to future growth-financing rounds for its portfolio companies, and Mr. Arsenault said its investors will also be willing to dedicate additional funds for these rounds, especially if a company is preparing to go public.
Inovia is aiming to help “educate the market” on how to build long-term companies, breaking the rule of the standard venture capital cycle of seven to 10 years, “and we’re allowing these companies to continue to grow and become potential IPO targets,” Mr. Arsenault said.
The new Inovia fund marks the first Canadian investment for BlackRock’s new Secondaries and Liquidity Solutions Fund, which closed on $3 billion this past March to take advantage of the growing market for secondary transactions.
“We found the quality of the portfolio, which was comprised of a diversified mix of high growth, well performing technology assets addressing a range of end markets, along with meaningful remaining runway, to be particularly attractive,” Veena Isaac, managing director of BlackRock’s Secondaries and Liquidity Solutions team, said in an e-mail.
Northleaf has backed numerous similar funds, including those announced this year by Georgian Partners and Golden Ventures. In recent months, Northleaf managing director Ian Carew said, “a significant percentage of deal flow in the secondary market is in these continuation vehicles.”
Mr. Carew said he likes the collection of companies in Inovia’s new fund. They’re at different stages, and Inovia has been “thoughtful as to how they’ve put together this portfolio.”
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