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When Rhino Ventures backed online course platform provider Thinkific Labs Inc.’s $22-million financing last year, its team dressed as pirates and took the company’s senior leaders on a treasure hunt.Courtesy of Rhino Ventures

When Vancouver’s Klue Labs Inc. raised US$15-million amid pandemic lockdowns last year, one of its backers felt a celebration was still in order. Rhino Ventures partner Fraser Hall showed up at the home of Klue CEO Jason Smith dressed as Rich Uncle Pennybags, the top-hatted Monopoly character. His colleagues brought bags of fake bills and gold balloons while For the Love of Money played on portable speakers.

That’s an unusual stunt for a venture capital firm, but typical for Rhino.

“Each new investment is cause for a unique celebration … tailored to the company and its founders,” said Rhino community manager Candace Hobin.

When Rhino backed online course platform provider Thinkific Labs Inc.’s $22-million financing last year, its team dressed as pirates and took the company’s senior leaders on a treasure hunt. In 2019, Rhino trucked in two tonnes of sand for a “full moon party” to celebrate the acquisition of portfolio company Grow Technologies, and held a toga party when Rhino-backed Tutela sold. Every time the firm invests, it presents the company with a fake rhino head trophy.

“They care, they’re fun and you want to be around them. … They’re kind of the un-VC,” Mr. Smith said. “They’re enjoyable and smart and they’re on it but they don’t take themselves too seriously.”

Fun and games aside, Vancouver-based Rhino has put up the kind of results any VC firm would celebrate. Its first, a $14-million fund raised in 2015 when Rhino was called Vancouver Founders Fund, has generated an average internal rate of return, net of fees, of 84.1 per cent, ranking it among Canada’s top funds.

Much of that was driven by its stake in Thinkific, which after its initial public offering last spring was worth $130-million. Other investments have performed well, including Klue and online furniture seller Article. Rhino’s second, $33-million fund, raised in 2018, has generated a 31.5-per-cent internal annual return so far. Six of the 20 companies it has backed have been sold or had IPOs.

Rhino’s unrealized and realized gains rank among the top quartile of Canadian funds and “we do believe there is still significant value to be extracted” from the two funds, said Kristina D’Amico, director of fund investments with backer BDC Capital.

Now, Rhino is charging ahead with a much larger, $120-million third fund as it expands its investment area from Western Canada to North America and abroad. Backers include Canadian Imperial Bank of Commerce and Bank of Montreal, BDC, Kensington Private Equity Fund and 12 entrepreneurs it has backed, including Thinkific CEO Greg Smith and Aamir Baig, CEO of Article.

“They are friends, I believe in their thesis, and I believe that because of the way they treat entrepreneurs, which I’ve personally experienced, they will get more opportunities and they’ll be more likely to help those companies succeed,” Thinkific’s Mr. Smith said in an interview.

Of all of the Rhino team's fun and games, Klue CEO Jason Smith, left, says, 'They care, they’re fun and you want to be around them. … They’re kind of the un-VC.'courtesy of Jason Smith from Klue

Rhino was created by Mr. Hall and Dan Eisenhardt with the goal of giving founders the kind of support they would have wanted while building smart glasses startup Recon Instruments, bought by Intel for $175-million in 2015. Mr. Eisenhardt has since left to lead another startup; Mr. Hall also co-founded Article.

“Part of the pitch is that our definition of VC is not to make [fund investors] happy,” Rhino partner Jay Rhind said. “That’s not our goal; it’s an output of serving entrepreneurs incredibly well.”

The partners aim to strike close bonds with founders they back with a “community-driven approach and high-conviction portfolio construction strategy,” Ms. D’Amico at BDC said. Thinkific’s Mr. Smith said Rhino played a vital role in guiding his company on strategy, coaching and recruiting, which “contributed to a culture of transparency and willingness to talk about the brutal facts, problems and challenges.”

Rhino raised a much larger fund because the partners didn’t want to invest in a “capital unconstrained way,” Mr. Rhind said. For example, Rhino sunk $50-million in Thinkific, drawing capital from its two funds plus a special-purpose vehicle after hitting the maximums it could invest. “We’d prefer not to go the SPV model and keep it simple within our [investor] base,” Mr. Hall said. “We felt we could do that comfortably following this model.”

Rhino is moving “at a furious rate,” and should have 20 per cent of the new fund committed to three companies by year-end and ultimately invest in up to 15 companies, Mr. Hall said.

It will typically invest $500,000 to $5-million per startup initially – targeting companies with sustainable competitive advantages that spend conservatively and focus on generating cashflows. Rhino can put up to 30 per cent of the fund in a single company.

It is also looking to focus on startups that provide tools that help entrepreneurs expand their businesses digitally, Mr. Rhind said. Rhino has made four “entrepreneurial enablement” investments so far.

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