Vancouver's Vanedge Capital Partners Ltd. has closed B.C.'s largest venture capital fund since 2004 after raising $161-million in its second limited partnership.
Investors in Vanedge's second fund include federal agencies BDC Capital and Export Development Capital, the B.C. government's $100-million B.C. Tech Fund as well as two fund-of-funds partially funded by Ottawa's $400 million venture capital action plan (VCAP), Kensington Capital and HarbourVest Partners. Vanedge also raised money from 40 individuals and family offices, including wealth manager John Nicola.
It's the largest new venture fund managed out of B.C. since Ventures West Management Inc. closed a $250-million fund in September 2004. That was one of the last major Canadian funds before many institutional investors retreated from the underperforming Canadian venture capital market, creating an investing void that lasted for several years. The venture finance space has rebounded recently due in part to federal taxation changes that made it easier for foreign venture capital firms to invest here as well as the launch of VCAP. Last year was one of the best years ever for venture investing in Canada, according to Thomson Reuters and the Canadian Venture Capital and Private Equity Association.
Vanedge managing partner Paul Lee said while his fund fell short of its $200-million goal, management "consciously chose to sacrifice some fund raising and size of fund" because it would have required more time and effort to meet with potential funders in eastern Canada. He said all BC-based venture capital funds had struggled to raise money but added Vanedge benefits from less competition in its home market when making investments, and said its "longer term approach" to generating strong gains should draw strong invsetor demand for subsequent funds.
Mr. Lee added he was happy with the outcome and said the fund size matches Vanedge's plan to make four to five investments per year. He said Vancouver's tech sector remains "strong" and is attracting talented U.S.-based tech executives to move north.
The firm began raising its second fund in 2015 on the heels of some solid "exits," including the sale that year of Vanedge-backed computerized sunglasses maker Recon Instruments to Intel for a reported $175-million and the 2014 sale of Vanedge-backed cybersecurity technology firm Wurldtech Security Technologies Inc to General Electric Co. In total, six Vanedge portfolio companies have been profitably sold to others, contributing to an 18 per cent internal rate of return since the launch of its first fund, a $138-million capital pool, in May 2010.
However, annualized returns have been significantly higher - just under 50 per cent - since Vanedge rebooted in 2012, Mr. Lee said The fund originally focused on investing in B.C.'s bustling video game sector, (Mr. Lee used to be president of video gaming giant Electronic Arts), but after an industry downturn in the early 2010s Vanedge broadened its mandate to other areas of tech and replaced most of its original team.
"We are very excited about this investment and the access it affords our investors to the expertise of the Vanedge team," said HarbourVest Partners principal Chris Walker,. "The firm's history and reputation in the Vancouver venture market, as well as their connectivity to Silicon Valley and other important venture hubs in the U.S., is a significant advantage."
Vanedge typically invests $2-million-plus in series A early-stage fundraising rounds by startups that have had early market traction with their products. Vanedge has already made four investments out of its second fund.