National Post (National Edition)
EXTREME’S SECOND ACT
Venture firm’s new fund aims to start and finance 40 firms in Toronto-Waterloo area
Speculation last year about Extreme Venture Partners bowing out of the funding business turned out to be unfounded as the team launched a second fund in July and plans to bring in startups from abroad.
“The rumours were greatly exaggerated,” said Ray Sharma, co-founder and executive manager of the Toronto-based venture capital firm.
Last fall, when two of the founding partners left the firm, industry insiders speculated Extreme Venture Partners would shut down. Amar Varma and Sundeep Madra had spearheaded a few successful exits, such as the $65-million sale of Xtreme Labs to the U.S.-based Pivotal, largely driving the first fund’s initial success.
“In this case, we thought it would be best to respond once a new fund had actually been created,” said Mr. Sharma, who chose not to comment on Bay Street speculation until he was ready to come back with a “bang.”
Since its launch in 2007, the first fund, EVP I, helped create more than 1,000 well-paying jobs in the 22 mobile technology startups it supported, some of which are now part of Google, Electronic Arts and Apple Inc. With internal rates of return near 30%, compared to the 5% average, EVP I is among the best performing VC funds in Canada.
“EVP were our first investors and supported our vision as we built the company through the twists and turns,” said Grant Richie, founder of Locationary, Apple’s first Canadian acquisition in 2013. “EVP introduced us to the lead investors for our second round and helped us close the deal on favourable terms.”
The second fund, EVP II, aims to both finance and create up to 40 startups in the Toronto-Waterloo corridor with Extreme Innovations, an accelerator program set to launch within a year. EVP II will also focus on “big data” (machine learning, open public databases and analytics) as well as the “Internet-of-things” (robotics, drones, wearable tech and connected devices). “My spidey sense is really tingling when it comes to anticipating what IoT is going to bring to the world,” Mr. Sharma said of the looming opportunity Cisco Systems Inc. pegs as a US$19-trillion market.
Frank Mersch, chairman and vice-president of Front Street Capital, said this cutting-edge technology is becoming increasingly integrated in virtually every other industry. “Legacy companies are getting hurt and the new companies that embrace it are winners,” said Mr. Mersch, who has been in the investment business for more than 35 years. He saw a twofold increase on his EVP I investment in BumpTop, an application that gives desktops a customizable 3D look, which Google acquired in 2010 for $35-million.
Extreme Venture Partners will also be scouting international talent in countries such as India, Columbia and Japan. “We’re going to be importing some of the best entrepreneurs from the best tech startups in the world,” Mr. Sharma said. “We’re probably going to de-risk the international nature of these investments by going after some of the better ones.”
To leverage its global relationships, the firm brought in Sunil Sharma (unrelated to Ray Sharma), who co-founded and managed Extreme Startups. Before joining the team, he held relevant positions as international director of Canada’s Venture Capital and Private Equity Association and head at the Canadian Consulate in San Diego, Calif.
Sunil Sharma said Canada is an optimal ecosystem for entrepreneurs, with strong university programs, high-tech innovation hubs and tax incentives for research and development.
“There may be some founders who are contemplating a U.S. existence but are unable to do so, so they may be quite taken by the opportunities to be in Canada,” he said, touting Canada’s new startup visa which speeds up immigration for entrepreneurs, beating out the quota system used in the U.S. with the H1B visa.
On July 24, Extreme Venture Partners teamed up with law firm Fasken Martineau Du Moulin LLP to host pitches by 11 digital startups from India with GSF Global Accelerator, a 13-week program with stops in Silicon Valley, New York City, Waterloo and Toronto.
“Innovation in the whole Toronto-Waterloo hub is very vibrant especially on the mobile and new tech front,” Rajesh Sawhney, founder of GSF India, said in an interview at the demo day in Toronto. He noted that building connections with partners such as Communitech and Extreme Venture Partners is important.
“In this Internet and mobile age, ideas travel at speed of light, so startups with global ambitions and smart ideas need to take their ideas to different markets at speed of light,” he said.
But with venture capital still in the upswing from the 2008 recession, Sunil Sharma said, Canadian investors are playing “catch-up” with entrepreneurs. He said Extreme Venture Partners does not plan to bring many foreign companies under its wings, but rather to focus on a few winners.
“It’s really an art more than a science picking the best founders, ones who have the wherewithal to create billion-dollar companies. That’s ultimately what were trying to do,” he said.