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Foreign funds help Real Ventures raise $180-million for two new capital pools

Gloria Niet/The Globe and Mail

Canada's most prolific venture capital firm, Real Ventures, has raised $180-million from investors for two new funds, including backing from international heavyweights Tencent Holdings Ltd. and Singapore sovereign wealth fund Temasek Holdings Private Ltd.

It's a significant increase from the last time Real raised money in 2015, when it closed its third fund at $89-million. Since then, Real has added to its roster of accomplished investing partners – which includes former eBay executive Janet Bannister and Facebook's past director of engineering Mike Shaver – and emerged as the most active domestic investor in the hot Canadian artificial intelligence space. While there were no foreign investors in Real's previous fund, non-Canadians account for one-quarter of the latest capital pool. It's the second-largest venture capital fund closing this year in Canada, behind OMERS Ventures' $300-million third fund last spring.

That inflow – notably from Tencent, the Chinese Internet giant that has invested in a number of prominent Canadian startups in the past two years, including Kindred Systems, Wattpad, Element AI and Kik Interactive – "is a confluence of things, some directly related to Real and some related to Canada," Real partner John Stokes said.

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Real has emerged as a central force in Canada's tech renaissance, after setting up shop in Montreal 10 years ago when Canada's venture capital and startup scenes were moribund. Real played a key role in reviving the sector, not just as a financier but also by creating the FounderFuel accelerator program and co-founding the OSMO Foundation, which owns the 30,000-square-foot Notman House, a hub for early-stage tech firms in Montreal. Real also co-launched the Toronto arm of accelerator Techstars.

"Real Ventures is a great example of a new generation of Canadian venture managers," said Senia Rapisarda, managing director with HarbourVest Canada Growth Fund, an investor in the fund. Real "has been at the forefront of innovation over the past ten years, painstakingly building an ecosystem around promising technology companies and supporting entrepreneurs across Canada."

Canada's startup scene is now flourishing, with domestic firms raising more venture capital in 2016 – $3.7-billion – than in any year since the dot-com bubble. Industry watchers forecast the figures for 2017 should be even higher. Now, entrepreneurs "can raise money without getting on a plane [to the United States] at the earliest stage" as they once did, Mr. Stokes said. If anything, foreign investors are likelier to fly in: Many prominent U.S. venture capital firms, as well as the investing arms of global tech giants, including, Microsoft and Intel, have actively invested here recently, while conservative Canadian institutional investors are increasingly warming up to investing in private tech firms.

"The strength of the Canadian ecosystem has multiplied in the last couple of years" Ms. Bannister said. "That's extremely exciting and the strength of our fundraising reflects that."

Mr. Stokes also noted Canada has emerged as one of the most stable and immigration-friendly countries during a tumultuous geopolitical period, which could work in the country's favour if more skilled foreigners migrate here or Canadians working abroad return home.

Real, which has invested in more than 200 startups and typically ranks as the most prolific venture deal maker in Canada, has had nine of what Mr. Stokes describes as "material" exits, meaning it recouped three times or more of its investment upon disposition. Those include Intel's purchase of PasswordBox and Autodesk's takeover of Lagoa. Both Real-funded startups sold in 2014.

But Real's real calling card is the fact it was a relatively early backer of the thriving Canadian artificial intelligence scene, investing in close to 20 AI firms in the past two years, including Montreal-based Element AI, which Real helped to create along with past Real-backed entrepreneur Jean-François Gagné and renowned deep-learning pioneer Yoshua Bengio, and which raised a stunning $102-million in early-stage financing this year from global investors, and Toronto-based, founded by former Facebook executive Steve Irvine.

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The Real proceeds will be split into two capital pools: a $150-million fund will be earmarked for seed-stage and early-stage investments in Canadian startups in a range of technology subsectors across Canada; and a $30-million fund, backed by Quebec institutions Caisse de dépôt et placement du Québec, the Quebec Federation of Labour's Solidarity Fund and the province's investment division, that will back young Quebec firms seeking "pre-seed" funding, including firms at the FounderFuel and Techstars Toronto accelerators.

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