A U.K.-based investment fund that specializes in developing ultra-early-stage tech companies by backing individual entrepreneurs directly is launching operations in North America with a new office in Toronto.
Backed by industry notables such as Reid Hoffman, co-founder of Linkedin, Entrepreneur First (EF) fund has raised more than US$500-million worldwide and built up companies such as Magic Pony Technology, a machine-learning company acquired by Twitter Inc. in 2016 for US$150-million, and Bloomsbury AI, a natural language processing (NLP) technology company acquired by Facebook Inc. in 2018. In early 2019, EF raised a new round of US$150-million, and part of that will back the first new ventures the firm supports in Toronto.
Canada’s world-class university programs and research labs are part of the reason for choosing the city for the North American headquarters, according to EF’s Toronto general manager, Rachel Zimmer. She co-founded and then sold 5Crowd, an on-demand marketing production platform developed in the city, to U.S.-based Sgsco in 2017.
Ms. Zimmer adds that cities such as Toronto also offer a much larger pool of “untapped talent potential” than San Francisco and other more mature tech ecosystems.
“EF as a whole believes a disproportionate share of the next decade’s big tech giants will actually be built in Canada,” she said.
EF did a “soft launch” in Toronto in March and has been accepting applications for funding from entrepreneurs since then, but has yet to officially open a physical office because of the pandemic. Its offices in Europe and Asia also remain closed for the time being, according to company spokesperson Alexandra Annable.
EF’s structure is “quite unconventional,” according to Ms. Zimmer. The fund prefers to call itself a “talent investor,” rather than an incubator or venture capital fund, because it targets and helps individuals with nascent ideas who have the talent and potential to carry out big plans.
With operations in Europe and Asia, the nine-year-old fund selects cohorts of 50 individuals in five different cities twice a year. They then have three months to come up with an idea for a company to pitch to EF at the end of the period.
Each candidate is given a monthly stipend of US$3,500 to build a structure, choose potential co-founders from colleagues in the program and prepare a funding pitch. Toronto is now the sixth city, and the 50 chosen entrepreneurs here will compete with groups in Europe and Asia to gain further funding from EF, which gives a small number of companies US$100,000 each for a 10-per-cent ownership stake.
There are currently 15 spots still remaining in Toronto’s first cohort.
After the US$100,000 round of funding, new ventures then have opportunities to receive follow-on rounds from EF and other institutional investors the fund brings in.
“A lot of people thought it was completely crazy to go so early stage,” said Alex Dalyac, co-founder of U.K.-based Tractable AI, which uses artificial intelligence technology to assess damage and estimate repair costs from car accidents and natural disasters. Mr. Dalyac built up his company as an EF cohort member and now mentors new members.
Typically, early-stage tech investors look for companies that have laid out concrete plans and established their teams. But Mr. Dalyac says EF defied those expectations by taking on talented people who just want to build a company.
“We don’t have enough programs that invest in raw talent and get them to the point where they can create new companies,” said Alex Norman, co-founder of Tech Toronto and Canadian partner at AngelList.
Mr. Norman will be one of the mentors for EF’s Toronto cohort, helping members prepare to pitch their companies to the fund at the end of the three-month trial. He will also provide continued coaching to teams that make it beyond that point.
As an investor, he adds, the role will give him an early look at what talent is out there.
“I get to meet and get a preview of some hopefully exciting companies that will make it and grow Canada,” Mr. Norman said.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.