Since the coverage we received in Techvibes, it appears that the “floodgates have been opened” and we are seeing lots and lots of dealflow. And frankly, the quality of dealflow is quite impressive.
As the Techvibes article explained, Brightspark is making new investments again. We have found a model of financing that, we believe, makes a huge amount of sense in the Canadian market.
A little background: We have been at this for decades. We founded our first major startup in 1988, long before most current startup founders knew what a startup was. After growing Delrina (Winfax) to over $150m in sales, with 700 employees and a Nasdaq IPO, we sold the company for over $450m. We then created a bunch of startups in the early days of the Internet before founding Brightspark in 1999. Since 1999, we have been active in the Canadian Venture Capital industry.
Unfortunately, the tech VC industry in Canada is not in a “good place” – since the early 2000’s, almost every Canadian institutional “funder of funds” (otherwise known as institutional LPs) has fled the marketplace. For many reasons (mainly the lack of decent returns), the banks, the insurance companies, and the pension funds have decided that the Venture Capital asset class is not where they want to invest, and today we have a “fund of fund” market (with a few exceptions) made up almost entirely of government monies. And while there are some valiant efforts being made with government funds (such as Quebec and Ontario programs and the Federal VCAP process), we do not believe that the solution for the VC industry should lie just with government funding; after all, if the tech industry has the potential we all speak about, surely investors should be interested?
So, we invested a great deal of time in speaking to individual investors. Because of Canadian security laws, we focused only on Accredited Investors – and there are over 500,000 accredited investors in Canada.
Here is what they told us: They would like to put some investment into early-stage Canadian Tech companies that could one day create lots of value and give them a great return on investment. They understand that these companies are very risky and that most inevitably fail, but they are looking for a way to look for the best companies. Many are Angel investors, either in Angel groups or independent investors.
And so here is our model: We apply the decades of experience we have in looking for what we consider the best early stage tech companies in Canada. We apply all the discipline we have learned in selecting and setting the terms of investing in these companies (rejecting a lot of them along the way). When we find companies that fit our criteria, and where we can negotiate fair investment terms, we issue a term sheet to the company for Brightspark to invest. We then raise a specific VC Fund for that company with investment from individual accredited investors in Canada (and the US).
So far, the reaction has been incredibly positive:
For the portfolio company, they negotiate with very experienced VCs that will work with them through the investment until exit stages, and they only negotiate with a single investor representing all the individual investors. This works for larger co-investors, entrepreneurs looking for fewer larger investors, and for entrepreneurs looking for value-add investors.
For the investor, they are presented with a “curated” deal; they get a good look at the due diligence, the negotiated terms, and the company. They are investing in a great company with a good manager, knowing that we will monitor the investment for them and work closely with the company through its life cycle. They are able to see all the best deals that were previously not available to them, and they are able to rely on a very experienced team to manage their investment without making long term fund commitments.
We made our first investment through a Brightspark VC Fund set up specifically for Hubba, a solid early stage company in Toronto. We picked, what we believe, is one of the best teams, and best investment prospects. Reaction was very positive from investors and the Hubba team. As we prepare now for a second closing for that Fund/ Hubba, we continue to receive very positive feedback.
We are very excited so far. Brightspark usually invests early in the process – not at “the idea” or first level (we leave that to the accelerators, early seed money, incubators), but at the next level – usually when there is already a product, but before “scale us” stage. There are very few (an understatement) investors in Canada for investors focused on this stage. We usually prefer experienced teams, and we usually like lots of IP. We are seeing MANY great companies, lots of talented entrepreneurs and lots of teams interested in our model. Couple that with the fact that we are meeting many accredited investors who are looking for great deals and are looking for someone to help manage those great deals for them.
For us, we are exactly where we hoped to be – working with investors looking for exceptional deals with great potential returns, and working with entrepreneurs that have founded startups that will change the world. And now to scale up our business…
If you are an Accredited Investor, please register at our “Private Area” section of the Brightspark website. Just click on Private Area on the top right of the website to register. There, you can see diligence material on current financings.