Venture capital is notoriously difficult to come by in Canada. The best way for entrepreneurs to find an investment partner is to put themselves in their shoes, understand what they're looking for, and find a way to fit in to their overall strategy.
Neal Hill, vice-president of the Business Development Bank of Canada's Fund of Funds – which provides investment capital for funds across the country – says entrepreneurs need to consider the aspirations and limitations of the investors to whom they're pitching.
"Earlier in the investment period, VCs (venture capitalists) are more likely to consider and invest in things that are earlier stage or riskier," he explains. "As they get closer to the end of the investment period, they've got to think about seeing a return from these companies sooner."
VCs look at hundreds or even thousands of investment opportunities during each fund cycle, and only a small handful will ever see their names on a cheque. Entrepreneurs must do their homework and have a thorough understanding of what the venture capitalists are looking for before they enter a pitch meeting.
What follows are profiles of four active funds from across Canada:
- Fund opened: 2011
- Fund size: $110-million
- Based in: Montreal and Calgary
- Active portfolio companies: 42
- Investment location: 2/3 Canada, 1/3 United States
- Stage: Pre-revenue to early revenue
- Field: Technology
Since opening its first fund in 2003, iNovia Capital has built a reputation as one of the top early stage technology venture-capital funds in the country. Through the years its strategy for sourcing prospects has evolved, and after more than a decade in the industry the firm finds most of its investment opportunities through recommendations.
"Our entrepreneurs are providing us with over half the deals that we are doing," says managing partner Chris Arsenault, adding that much of the other half comes to us from referrals from our existing investors and co-investors. "The new entrepreneur gets introduced to us through an existing portfolio CEO, because we already trust our portfolio company."
An introduction to Mr. Arsenault or one of his partners is only the beginning of a long vetting process. His firm often spends months working with and advising prospects before writing a cheque.
"When we start working with someone or providing them with insights, we get a better feel for what they do with those contacts," he says. "It's basically pre-due-diligence, where we get a feel for how they work and act, and at the same time it helps their business, and they get a better feel for how we work and act."
- Fund size: $60-million
- Based in: Halifax
- Active portfolio companies: 26
- Investment location: Nova Scotia
- Stage: Early stage and seed round
- Fields: Life sciences, communications technology, clean technology and ocean technology
Innovacorp was founded in 1995, as a provincial crown corporation to provide seed and early stage funding to companies in Nova Scotia's burgeoning technology industry. "There is a gap in the private sector risk-capital community in terms of early stage risk capital, and that is precisely the role that Innovacorp was made to fill," president and CEO Steve Duff says.
Mr. Duff adds that many of Innovacorp's prospects are sourced proactively, through networking events in the startup community, engagement with industry associations and through hosting entrepreneur competitions. "We try to work with these early entrepreneurs to get the company shaped to a point where we feel it's a venture-grade opportunity."
Innovacorp's board looks for five aspects before making an investment: strength of the team, intellectual property, scalability, competitive advantage, and a well-thought-out plan.
- Fund opened: 2011
- Fund size: $400-million
- Based in: Toronto
- Active portfolio companies: 19
- Investment location: Global
- Stage: Early to late
- Field: Technology
As the largest, most active venture investor in the country, OMERS Ventures doesn't have to spend much of its energy seeking out investment opportunities.
"Probably 90 per cent of our deal flow comes to us, just given our presence in the market, our name and our size," says director Damien Steel. "The remainder is from us actively targeting certain areas that we have an interest in."
When considering prospects, Mr. Steel says he tries to determine whether the entrepreneur seems "coachable."
"When we meet an entrepreneur, not only are we evaluating the technology or the market or the business, we're also evaluating the person and asking ourselves, 'is this somebody we want to work with for the next five years?' says Mr. Steel, adding he often identifies this quality in the initial pitch meeting.
He adds that entrepreneurs need to be able to tell their story in five minutes, and to spend the next 55 engaging in a candid back and forth.
"As investors, we're trying to figure out if we can work with the entrepreneur, if it's somebody that has that ability for critical thought, has that ability to be challenged, and is ultimately coachable," he says. "The only way you can find that out is by having those candid conversations."
Version One Ventures
- Fund opened: 2012
- Fund size: $20-million
- Based in: Vancouver
- Active portfolio companies: 20
- Investment location: 50-per-cent Canadian, 50-per-cent American
- Stage: Early stage
- Field: Marketplace platforms, software as a service (SaaS), e-commerce
Since founding Version One Ventures in 2012, serial-entrepreneur-turned-investor Boris Wertz says he comes across roughly 1,000 investment opportunities a year. Of the handful he invests in, each has demonstrated three important qualities.
"First, an exceptional entrepreneur that is passionate about solving a specific problem, and they will do that with or without funding," he says. "Secondly, these people have usually figured out a unique approach to solving a problem. And thirdly, we love to see a big market that we can disrupt as an incumbent or create a new market."
Like many venture capitalists, Mr. Wertz is only interested in companies with massive growth potential.
"We're not interested in a company that can build to $1-million in revenue in five years, we want to see a company that can reach $100-million in revenue over the next five years, and that you only get if you get an exceptional entrepreneur with a unique approach to a really large problem."