Government money is continuing to trickle through to tech startups, as Whitecap Venture Partners opened a new venture fund for technology firms this week. The Toronto-based company has started Whitecap III, a $70 million fund targeting ICT, healthcare technology, and food tech. The firm is aiming for a total final fund of up to $100 million.
Whitecap’s first and second funds channelled money from the Diamond Family, which owned Whitecastle Investments Limited, into early stage investments. With the third fund, it is working more extensively with limited partners, including several other family offices, but also the Bank of Montreal, and Kensington Capital Partners’ venture fund.
The Kensington link is significant, as that company was the first of three venture capital companies to begin channelling money from the Canadian government’s Venture Capital Action Plan (VCAP). That fund, announced two years ago, committed $400 million to funding high-growth Canadian firms, providing one dollar of government money for every two dollars raised in the private sector. The money was a long time coming, but the faucet is turning now, as Kensington distributes money to funds like Whitecap.
One significant point about Whitecap Venture Partners’ Whitecap III plans is that it is allowing for up to 30 per cent of its investments to be targeted outside companies. It will typically fund investments within a three-hour flight of Toronto, putting the northeastern US within its remit. Boston is a strong centre for Whitecap’s med-tech target base, and New York is only an hour and a half away.
With a portion of its funding coming from a government-funded ‘fund of funds’ partner, shouldn’t all of that money be going to Canadian firms?
“Having some deal flow in the US and some ties to US investors is a positive, and typically, not an issue so long as the head office is in Canada. Several Canadian VCs have an even greater US presence than that,” said a spokesperson for the firm. “We may also find we have more Canadian content depending on the deal flow.”
In Whitecap I and II, the firm typically aimed at a 10-15 per cent ownership by the time its investments matured. With the third fund, it’s aiming for 15-30 per cent ownership. That puts projected investments at $1-5m per company.
“We hope to meaningfully invest in 8-12 companies in this next fund cycle as we pay close attention to the board loading exercise and how much partner time is committed per company,” said Whitecap partner Carey Diamond, adding that while the firm is a Series A investor, it would look at seed-stage or later-stage deals if the parameters were right. $10m deals or more are a possibility.
Why food tech and healthcare tech? “We find these areas somewhat underserviced by local VCs and both areas are ripe to benefit from current technological change, including cloud software, data analytics, real-time, new sensors and devices,” said Joe Catalfamo, another partner in the venture firm.
The fund’s first deal is a pre-series A investment in a molecular diagnostic company launched by a repeat entrepreneur that was funded in Whitecap I. It’ll be using photonics tools to identify bacteria and fungi in blood at the molecular level.
“Locally, through the Ontario hospital system, the University of Toronto, and MARS, healthcare technologies and companies are beginning to blossom,” said Catalfarno.
ICT, its other area of interest, is far broader, but as Catalfamo argued, it cannot be ignored. The Canadian Venture Capital Association recently pointed out that more ICT startups are emerging in the ICT vertical than in all others combined.
In this sector, areas like real-time content marketing, data collection, analytics and engagement platforms will feature highly on its radar. Other areas of interest include machine to machine (M2M), social enterprise, and new mobile, social and cloud security and management applications. The fund will also take a friendly stance towards disruptive cloud-based financial technology applications.
“It is important to remain selective, as the greatest opportunity cost for us is the management time devoted to a company through its life cycle,” said Catalfamo. “We want people to think big. There are many wonderful business ideas, but not all of them require venture capital. The big ones do!”