$200M Canadian VC fund formed

Go big or go home.

That was the message Robin Louis, president of Ventures West, had for the media throng that gathered 553.33 metres above Toronto in the CN Tower on March 2.

Going big is exactly what Ventures West is doing via the largest Canadian venture capital (VC) fund in history targeted at early stage technology companies.

The $200,000 million fund – officially titled Ventures West 7 (VW7) – will be used to invest in companies in the biotech, e-business, Internet, telecommunications and wireless sectors. Moreover, Ventures West is also seeking “serious” entrepreneurs looking to build world-class technology companies.

“[The fund is] going to be a player in the technology world,” Louis said. “A lot of our companies are in a situation where they have to get big quickly and dominate their space or give up…we face a similar situation, so we’re getting big and we’re not going home.”

VW7 will seek investments in companies that boast rapidly growing markets that are large enough to allow the investee to grow to revenues in excess of $100 million; that demonstrate a technical, product or market expertise which will allow it to become a market leader; will offer the potential for a high valuation at the time of liquidity; and which will be led by entrepreneurs who are committed to building global, market-leading enterprises.

“This fund…is the biggest fund ever put together in Canada,” Louis continued. “It’s operating on Internet time.”

Louis also pointed to the VW7’s entrepreneurial residence program as a leading and unique aspect for the VC industry. “We’re going to hire experienced entrepreneurs and bring them into our offices…the idea is these people will not be permanent investment officers but will hopefully find a company that needs a CEO…or they might form a company and then the VW7 will invest in it.”

By comparison, there were three private VC funds formed in Canada in 1998 totalling about $50 million each, and five funds worth $100 million each in 1999, Louis said.

“The point is…the (VC) industry is growing…it’s very healthy for this industry and for this country,” he said. “One of the things I think this fund will do is provide more venture capital and it’s not just our fund but for the whole growth of the industry, and more companies will be strongly funded and tend not to sell out so much. We’ll build bigger, longer lasting, globally-leading companies in Canada.”

Although the VW7 announcement is big news, Louis cautioned the VC industry as a whole still has a lot of territory to cover comparable to the U.S.

“It’s bigger but it’s still not big enough,” he remarked. “We’ve got to make a plan to make this bigger, we’ve got to be able to raise enough money so the companies in Canada are on a level playing field with companies that are funded in the United States.”

Canada’s VC industry has been criticized recently for being too conservative. The Canadian E-Business Opportunities Roundtable released a report on Jan. 17 that identified several significant stumbling blocks for the nation to overcome in order to remain financially viable, including “the relative lack of Canadian-based, participative, early-stage capital prepared to invest in the ‘Internet space'”.

Louis agreed with the sentiment. “If you look at Canada and the amount of venture capital that’s available and the amount that’s invested compared to the U.S. we’re much smaller…my own view is the more (VC) in Canada, the better.”

Wilson Lee, chief financial officer for Toronto-based FloNetwork Inc., said the VW7 announcement will help initiate a healthy Canadian VC industry.

“We’re now starting to think like a U.S. capital venture fund,” he said. “In the U.S., companies are founded with an idea…(in Canada) we have to keep going back to the market (for funding).”

FloNetwork – formerly Media Synergy – is an application service provider offering businesses the technology infrastructure, software and services to market and communicate with consumers on the Internet. Specifically, the company handles all aspects of permission-based e-mail messaging campaigns, including designing e-mail messages, building and managing e-mail address lists, testing and deploying e-mail messaging campaigns and real-time tracking, reporting and analysis of results.

Ventures West invested $5.5 million in FloNetwork in 1998.

“Canadian companies didn’t have the luxury of getting the funding they needed all at once,” Lee remarked. “From a financial perspective, the focus on raising funds takes the CFO office out of the company.”

Since 1994, Ventures West – with 11 offices situated between Victoria and St. John’s – has invested an estimated $186 million in 69 companies, 45 per cent of which were start-up enterprises and another 30 per cent at the seed stage (prior to start-up).

“Over three-quarters of what we do is very early stage (investing),” Louis said. “The single biggest chunk of what we do is (invest in) e-business, Internet and software-related…our business is very much working with companies to help them build their operations.”

Some of the investors in the VW7 fund include the Bank of Montreal Capital Corp., British Columbia Investment Management Corp., Clarica Life Insurance Co., and the Ontario Teachers’ Pension Plan Board.

To date, the company has invested in over 120 technology-based companies. Notable past investments include Ballard Power’s fuel cell technology and Pivotal Software, a developer of enterprise electronic business management solutions.