When Code Cubitt set out to start a "micro" venture capital fund in Ottawa four years ago, it took him half a year to raise his first $10-million and another 18 months to hit his $25-million goal. How much easier has it been to raise his second fund? "Infinitely," the veteran venture capitalist says.
The oddly-named Mr. Cubitt says just four months after telling backers of his Mistral Venture Partners that he was raising a second fund he's "red-circled" commitments for $20-million of his $25-million to $30-million goal from investors. He expects to do a first close on the fund before Christmas. "We've done everything we said we'd do and we've been successful doing it," Mr. Cubitt said. He's also looking to hire a second full-time partner in Toronto.
Mr. Cubitt, who previously managed money in Silicon Valley for the venture capital arms of tech giants Ciena and Motorola, moved to Ottawa in 2012 at the behest of Bruce Lazenby, then head of local economic development agency Invest Ottawa. Mr. Lazenby's goal was to stimulate the local technology startup scene, and his pitch was that there was ample opportunity for a new local VC fund led by a Valley veteran.
The opportunity – and chance to enjoy a more affordable and balanced family life away from the intensity of the Valley (Mr. Cubitt has two children) – enticed the 45-year-old Canadian native to give Ottawa a chance. He concluded there were ample opportunities to invest in solid, young companies that were lacking for early-stage capital. It was a good time, at a relatively early stage of what has become a golden era for the Canadian startup scene.
Since then, Mistral has made 14 seed investments – half in Ottawa, and all but two in Canada – including smart clothing maker OMsignal, business dashboard software provider Klipfolio and CENX, which tracks mobile network operations data. Several have raised follow-on financings including big-name U.S. venture capital firms such as Bessemer Venture Partners, Greylock Partners, Highland Capital Partners and Sequoia Capital.
"He's done a great job at picking portfolio companies for the first fund as well as nurturing and helping those companies grow" said Ottawa tech entrepreneur Michael Weider, one of 43 limited partners in Mistral's first fund and who is considering backing the second fund. "He got traction with great investments. Now he has that success and track record to point back to, it's a lot easier" to raise money.
Although Mistral hasn't yet had any "exits" (IPOs or sales that would return capital to investors), its returns as measured by the growth in valuations from subsequent financings of portfolio companies place it among the top performers among its peers in Canada, says Nicolas Gravel, director of fund investments with BDC Capital. "He stuck to his game plan – that's one thing we really like," said Mr. Gravel, who oversees BDC's $6-million investment in Mistral. BDC has not yet committed to investing in the second Mistral fund but is considering it.
Mistral has targeted enterprise-focused firms with developed products and pilot customers. The fund typically avoids consumer-oriented firms, mobile app developers and companies in gaming and health care.
Mr. Cubitt's plan is to make the first seed investment in young companies who have otherwise relied on friends, families and their own savings. He gets to know the management teams and if they hit a series of milestones to grow their companies, he helps them secure their next level financing, typically increasing the value of his initial investment by three to five times.
"If it doesn't hunt, I can walk away" at relatively low cost, he said.
Mistral's success rate so far has been better than expected said Mr. Gravel – only one of its portfolio investments has failed.