The Toronto toy company behind Paw Patrol is getting into a new game: venture capital.
Spin Master Corp. said Tuesday it has established an US$100-million venture capital fund to back early-stage companies that can help accelerate growth in its toys, entertainment and digital game divisions. The company announced its first two investments, in Hoot Reading, a Winnipeg-based startup that provides online tutoring to children; and Stockholm-based Nordlight Games, a mobile game development company founded by a team that led technology and art for Candy Crush Saga.
“Our company is built on partnerships” with inventors, Spin Master chairman Ronnen Harary said in an interview Monday. “We view this as another leg on the stool in terms of being able to partner with talented individuals that are super passionate about their business and have really good ideas in a space we’re in. When you get to a certain size your ability to stay innovative becomes more difficult. This was a way to continue to tap into great ideas.”
He added the $100-million commitment “is to get us started. We’ll follow on with more capital.”
Spin Master follows toy giant Lego System A/S, which established a venture capital fund in 2018. It also marks an accelerating shift in the Canadian corporate landscape: Until recently, corporations with their own venture capital businesses have been relatively rare in this country. The best-known domestic examples are Telus Corp. and Power Corp. of Canada. “On a global scale, Canada is punching below its weight,” BDC Capital partner Thomas Park said in a blog post last year.
Observers say that means companies leading Canada’s economy aren’t getting the same early look at potential disruptors – both to stake out future challenges and to take advantage of investment opportunities – as peers in other countries.
“It makes no sense” that more Canadian corporations don’t have a venture arm, said Chris Arsenault, a partner with Canadian venture capital firm Inovia Capital. “The traditional corporate establishment in Canada always have been extremely conservative in how they … integrate technology in their businesses. We’re good at letting Americans show us the way. We need to be more aggressive.”
But the ranks of venture-funding Canadian companies have grown recently. The Weston family that controls Loblaw Cos. Ltd. began a dedicated venture capital arm in 2019. Shopify Inc. has emerged in the past year as Canada’s busiest corporate early-stage financier, backing startups that service its customers. Several financial services companies have become active startup financiers.
And last week, Canadian Imperial Bank of Commerce said it had earmarked $300-million to invest mostly in venture capital and growth equity funds, while information services giant Thomson Reuters Corp. launched a US$100-million fund to support and accelerate innovation in its sectors.
“More Canadian corporates are realizing that when done right – like their peers around the world have done for years – corporate venture capital is an important tool in innovation and transformation, both for the thinking it drives and the opportunities it creates,” said Rich Osborn, former managing partner of Telus Ventures.
Mr. Harary said his company decided to get into venture capital after passing on a few acquisition opportunities that were too expensive. “If we would have invested earlier in those companies or taken a minority position and grown with them, we would have had a much better seat at the table,” he said. “One of the reasons we missed it was because we don’t have a venture arm.”
He said the intention is for Spin Master to buy the most successful companies it funds. The company will invest between US$500,000 and US$5-million initially in companies ranging from startups to revenue-generating companies.
Hoot, co-founded by ex-Spin Master brand manager Carly Shuler, incubated at the U.S. non-profit Sesame Workshop. Hoot has 500 teachers on the platform and says it has grown revenues by 30 per cent month-to-month for the past year. “We were looking for somebody who had money, distribution opportunities, industry knowledge, marketing brilliance and great brands we could tap into,” Ms. Shuler said in an interview. Spin Master, which led its $3-million seed financing, “ticked all those boxes. And being a Spin Master alumnus, it felt like we’re already a team and could hit the ground running.”
Ms. Shuler added that while Spin Master would bring Hoot many synergies to tap into, “we’re not going to be selling toys to kids” through her platform. “It’s not that type of partnership.”
Spin Master was founded in 1994 by Mr. Harary and fellow University of Western Ontario business students Anton Rabie and Ben Varadi. Their first success was novelty toy Earth Buddies, a nylon-covered head filled with grass seeds that grew “hair” when it was watered. That was followed by successful toy and game launches including Air Hogs, Bakugan and Paw Patrol. The company has also bought legacy toy brands including Etch A Sketch, Meccano, Gund and Rubik’s Cube.