New VC fund, right approach

On June 18, 2012, in Uncategorized, by Neil Milton

Best wishes to Bruce Croxon and his team at Round 13  – much of what he is saving about the need for sophisticated VCs in Canada willing to fund and able to grow (note, ”able to grow”), tech ventures beyond infancy is absolutely correct. (When I was young and naive I also shared some of his economic nationalism, but […]

Best wishes to Bruce Croxon and his team at Round 13  – much of what he is saving about the need for sophisticated VCs in Canada willing to fund and able to grow (note, ”able to grow”), tech ventures beyond infancy is absolutely correct. (When I was young and naive I also shared some of his economic nationalism, but age has replaced my nationalism with agnoticism: now, I simply believe that smart entrepreneurial and hard-working people anywhere deserve all the kudos and assistance that they can get, regardless of where they call home.)

The crux of the Round 13 exercise will be raising funds from institutional LPs, especially in any follow-on fund. Institutions have both the wealth and the staying power necessary to properly capitalize a real VC fund for the long haul; individual limited partners are great for cachet, for networks, and potentially for skills and advice, but ultimately, it is pooled money that makes the world go round and thus Round 13′s big challenge will be talking money out of pension funds. I have a hunch that they may actually raise more money south of the border than in Canada, because in addition to the reknowned cautiousness of Canadian institutional investors, natural resources have sucked all of the oxygen out of every other aspect of the economy and I have great difficulty envisaging them believing that they should invest close to home in a tech fund (notwithstanding that that is precisely why I believe that returns in this space should be substantially better than market in many others, including resources, over the next generation).

As to placing funds in high quality companies, I suspect that Round 13 will have some challenge finding enough mid-sized deals worthy of mid-sized placements because the start-up ecosystem has beeen barren for so long. But, that said, there is sufficiently little competition, especially in Ontario, from other sophisticated investors, that they should be able to source enough good deals if they are patient and if they focus on companies with customers rather than companies in the hotest, coolest, areas of technology (Ironically, both Montreal and Vancouver appear to have more venture capital per-capita than the GTA, Ottawa, and Kitchener-Waterloo. ).

At the risk of sounding snarky (or just jealous), I cannot help but notice that the snapshot bios of all of the founding advisors feature the sale of their companies to US companies. At least most of these folks appear to have actually run real businesses (ie. companies with customers, not science projects that are ‘customer-free’), but why is that the highlight of their career was the exit? Did none of them aspire to be the big dog in their space? Are the genetically disposed to be the poodle and not the doberman? If so, that does not bode well for Round 13. Or, is the desire to get into something like Round 13 perhaps indicative that they were not as ambitious then as they now wish they had been? Cashing out is understandable – but no one ever built a ’great business’ (or made it in ‘Good to Great’) selling out early.