New deeper pool of venture capital to refresh local startup scene

Kensington Capital Partners managing director Rick Nathan is using the B.C. Tech Fund to rejuvenate local venture capital funds | Photo: Patrick Blennerhassett

Money is a must for Vancouver tech startups looking to grow.

And it’s why Brent Holliday figures he may end up logging 75,000 Air Miles by year’s end as he flies between his home on the West Coast and Toronto, where much more capital flows to later-stage tech companies.

Holliday, CEO of Garibaldi Capital Advisors, launched an office in Toronto last year and has three employees on the ground advising tech companies on raising capital.

But he may be spending more time in his hometown following the injection of new capital into Vancouver throughout 2016.

“I see 2017 and 2018 as being the years of the Series A investment – the early-stage investment – in B.C.,” said Holliday, whose firm specializes in Series B — or growth-stage – funding.

“The next couple of years look like a nice time to be the pretty girl at the dance and getting proposals from all of this capital in the technology markets.”

He expects Vancouver’s latest early-stage venture capital injections will eventually spin out and create more opportunities for growth funds. For now, he’s spending more of his time in Toronto.

Vancouver is home to a half-dozen significant venture capital funds focused on tech: Version One Ventures, Pangaea Ventures Ltd., Chrysalix Venture Capital, Yaletown Partners Inc., BDC Venture Capital and Vanedge Capital.

In 2016, Vanedge launched a new fund and was the first beneficiary of the province’s B.C. Tech Fund with a $15 million investment; BDC Capital launched a $150 million IT fund; and the aforementioned B.C. Tech Fund has $25 million earmarked for Series A investments.

Meanwhile, the local biotech industry is benefiting from the October launch of Quark Venture Inc., a US$500 million venture capital fund backed by Chinese investment bank GF Securities Ltd.

Although it’s a global fund, Quark made its first investment (US$30 million) in Vancouver’s MSI Methylation Sciences Inc.

In total, there is approximately $920 million in new available capital looking to move off the sidelines.

Bill Tam, CEO of the BC Tech Association, said all the new funding finding its way into the province is a potential game-changer for Vancouver, which has experienced a shortage of Series A capital funding over the last four or five years.

“We’ve seen probably close to a 50% drop in terms of the number of venture funds that participate in first-round financings that are locally based in British Columbia. We’ve seen some evidence that the amount of capital that’s available for new investments has dropped by 60% or 70% in the last three years,” he said. “It’s our hope and expectation that the B.C. Tech Fund will help to rejuvenate the local [venture capital] capital environment here.”

The $100 million B.C. Tech Fund is “a fund of funds” that Toronto’s Kensington Capital Partners Ltd. manages on behalf of Victoria. Although $25 million is earmarked for direct Series A investments, the remaining $75 million must go to B.C. venture capital funds for investments in B.C. startups.

Although on paper there are six notable venture capital firms, Tam said in reality there are really only two active funds if one excludes the Crown’s BDC Capital.

“We would expect that most of the investments that are fund-of-fund investments out of that [B.C. Tech] Fund would be smaller than [Vanedge’s $15 million],” Rick Nathan, Kensington Capital’s managing director, told Business in Vancouver.

“But Vanedge, in our view, is a clear market leader from a performance standpoint.”

Tam said he expects the new capital to launch as many as eight active funds that would be based locally.

torton@biv.com

@reporton
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