Shortfall for startups
Venture capital firm says it won’t be raising a new fund,
Companies in the Internet startup space vying for a notoriously short supply of Canadian venture capital may find it even harder to get funding. That’s because Extreme Venture Partners, a Toronto-based venture capital firm, will reportedly not be raising a new fund.
Several Canadian venture capitalists confirmed their knowledge of the news this week that the firm, one of a few Canadian funds dedicated to investing in early-stage Internet startups, was out.
“It’s a group that we really liked and they’ve done an extremely good job in Ontario,” said Jacques Bernier, head of Montreal-based Teralys Capital, the largest technology-focused fund-of-funds in Canada, who called the news “disappointing.”
“In certain cases you see groups like that disappearing because they couldn’t raise new funds, which is not the case here. They were going to be able to raise a new fund, the money was there.”
Sources in the industry would not speculate about the reasons behind the apparent turn of events. If the money was on the table it’s strange that the venture capital firm couldn’t raise a new fund. One anonymous Canadian angel investor said the decision revolved around “personnel change.” Extreme Venture Partners could not be reached for comment.
“New” or first-time venture capital investments into companies in Canada was slightly less than $400-million in 2012, the Canadian Venture Capital & Private Equity Association (CVCA) reported. Extreme Venture Partners’ new fund was expected to be $20-million. The number may seem like a small chunk of Canada’s total, but for startups vying for investment dollars the reported closure creates a sufficient gap in funding.
Extreme Venture Partners was founded in 2009 for earlyor seed-stage startups — companies that present investors with a high-risk, high-reward scenarios. As one of three dedicated venture capital firms at this stage (along with Montreal’s Real Ventures and Vancouver’s Version One Ventures), the fund earned high praise in the Canadian startup community.
It invested in several Toronto-based companies that had successful exits, including BumpTop, a customizable desktop tool, acquired by Google Inc. in 2010 for $35-million; social performance management platform Rypple, which was acquired by SalesForce.com Inc. in 2011; and Locationary, which was recently purchased by Apple Inc. for its mapping app for a sum reportedly in the tens of millions.
Sunil Sharma ran Extreme Startups until he recently moved to join STEM 7 Capital, a new Torontobased investing company. Extreme Venture Partners invested $7-million in Extreme Startups in 2012. While he couldn’t comment on Extreme Venture Partners, he said that Canadian venture capital funds have long struggled in raising their own money. As a result the demand for early-stage capital “far exceeds the supply.”
“Quite simply we need more seed funds, not less, and its in everyone’s collective interest because there’s going to be tremendous opportunities in investing in this space,” he said.
“Part of the solution may be individual high net-worth investors who recognize that this asset class of early-stage technology can be very rewarding and can and should be a meaningful part of their strategy.”
David Crow of Torontobased OMERS Ventures said the implications of Extreme Venture Partners’ reported closure should point to new sources stepping in to fill the void. One less source of capital increases the level of difficulty in an already difficult process, said Mr. Crow, who co-founded Influitive, an advocate-marketing firm that received funding from Extreme Venture Partners.
“Extreme did a lot of great things and now they’re not, so the end result is that there’s probably an opportunity for additional room in the funding market,” he said.
Mr. Crow thinks investors such as Matt Golden at Golden Venture Partners and Boris Wertz at Version One Ventures could make an impact, as well as Vancouver-based LX Ventures, Toronto- based Mantella Venture Partners or possibly the Investment Accelerator Fund at Toronto’s MaRS Discovery District.
Mr. Golden said he’s “incredibly optimistic,” about the rapid growth of seedstage startups in Ontario. “It’s a fascinating time for the Toronto/Waterloo tech ecosystem,” said the managing director at Golden Venture Partners. “My portfolio has always been focused on helping mobile- focused earlystage entrepreneurs succeed.”
Another fund that has acknowledged the potential gap is Montreal-based Real Ventures, the country’s largest seed fund at $50-million. While Real Ventures typically stocks its portfolio with local companies, the group invested in four Ontario-based companies in the past eight months. John Stokes, a partner at Real Ventures, indicated the firm is meeting with a few Ontariobased companies each week. “Our team is a big user of Billy Bishop Airport,” he said.
Mr. Stokes expects Real Ventures will pick up its level of investing activity in the Toronto-Waterloo area. He also hopes new investment firms will step in to alleviate the early-stage funding gap.
“They were a good coinvestment partner for Real so it’s a shame [Extreme] isn’t going to be around” he said. “But Toronto, Waterloo and Ottawa have some great entrepreneurs that have already proven that they can build great businesses. Money goes to where the opportunities are.”