Garage Capital staking bigger claim in region’s startup sector
Investors taking advantage of Garage Capital’s tech expertise
KITCHENER — A trio of young entrepreneurs wants to buy an old, city-owned building in the downtown core to house a venture capital firm called Garage Capital that has already invested in about 60 local startups.
The plan to buy the building at 48 Ontario St. N. follows Mike McCauley’s recent return to Kitchener from California, where he was working for Google.
Before going to California, McCauley and two friends, Michael Litt and Devon Galloway, founders of video analytics firm Vidyard, pooled some of their personal money, investing $25,000 to $50,000 each in 10 local startups. It was a three-way partnership among friends. That’s how Garage Capital started.
Word spread among individual and institutional investors, who wanted in on the ground floor if another fund was started.
After all, the trio has deep, local knowledge of the startup scene. After going through the Y Combinator program in Silicon Valley, all three returned to Kitchener to build their companies, giving the budding startup scene here a major boost.
Litt and Galloway oversaw the venture capital firm’s Garage Fund Two as it grew to almost $10 million. The fund invested early in Thalmic Labs, Sortable, Bonfire and Clearpath Robotics, among others. In total, it has invested in about 50 local startups.
“What you see is guys like us saying: ‘We are going to raise money from other people to invest because we have a good idea what the companies look like, but we don’t have the cash to do it.’ We are going to leapfrog that process and use other people’s dough,” said Litt.
Litt and Galloway are busy running Vidyard, so McCauley will oversee the investments made across Garage Capital’s first two funds. McCauley has also started talks with potential investors for a third and larger fund.
The trio has hooked up with Perimeter Development Corp. in a bid to buy the heritage building 48 Ontario St. N. from the City of Kitchener. Perimeter has redeveloped several heritage properties in the downtown, including the Walper Hotel, 117 King St. W., 305 King St. W. and the Breithaupt Block.
The 14,000-square-foot building, which was a Bell Canada office and later home to Branch 50 of the Royal Canadian Legion, would become the headquarters for Garage Capital. Other venture capitalists interested in the startup scene could lease space there, too. There would also be room for some startups.
Garage Capital and Perimeter are among five bidders for the city-owned building. City staff expect to recommend a buyer by the end of June. The bids will be evaluated based on a number of criteria, including retention of heritage features; the quality of the design; the extent to which the project attracts people to the downtown; and the bidder’s demonstrated ability to complete the project.
The Garage Capital-Perimeter proposal includes a glass-walled addition of about 9,000 square feet to the existing building, which has been empty for years and recently was protected under the Ontario Heritage Act.
A physical presence in the restored building would boost the profile of the investment activity and underscore its importance, said Litt.
Every thriving startup hub has a university that graduates talent, a regional innovation centre such as Communitech and venture capital, he added.
“Let’s build gravity around that situation, and fill the gap that exists in the ecosystem,” he said. “And so the building is an important part of that puzzle.”
McCauley is excited about leading the next chapter in Garage Capital’s growth. For him, it is a chance to lead by example in giving back to the startup scene that made him tremendously successful by his midtwenties.
“This community has been absolutely tremendous to us,” said McCauley. “That’s a big reason why I am back.”
McCauley founded BufferBox in 2010 with partners Jay Shah and Aditya Bali. Online shoppers could have parcels delivered to a BufferBox box where it could be easily picked up. Google acquired the startup in November 2012 for more than $25 million but shut down the venture two years later. McCauley continued to work for Google in California.
He worked on Google Express, an online shopping platform, and helped launch Project Fi, the Internet giant’s new wireless service. His last assignment was at Google X, the super-secret Moon Shot Factory where Google develops cutting-edge technology.
“Worked with some of the smartest people I could ever imagine,” he said.
McCauley noted that the majority of investments in local startups are from American venture capitalists, and they reap the financial benefits when those startups are sold, said McCauley.
“And so we looked at this, and said: ‘We need a track record so we can start to build a bigger fund so that when those exits come, that money is coming back locally,’” he said.
The institutional investors in Garage Capital’s second fund include the BDC (the Business Development Bank of Canada) and iNovia, based in Montreal. It also has participation from investors in Silicon Valley, including Social Capital and 8VC.
“As we grow bigger we need to look at institutional investors, because they are willing to write bigger cheques,” said McCauley.
“They looked at us and are like: ‘We don’t want to have an office in Waterloo, we don’t have the resources to have someone there. You guys as Garage Capital are going to be our Waterloo strategy.’”