While Canada’s technology ecosystem is gathering momentum, it continues to struggle with a shortage of growth capital. Studies point to a $1-billion gap that is growing by $250-million a year.
Unless this gap is closed, Canadian startups will fail to reach their full potential because they are unable to attract enough follow-on financing. Canadian government initiatives to stimulate innovation and help fund VCs are laudable but not enough. We have to find ways to encourage private capital to be invested in the venture asset class. To date, this capital has been concentrated in the large-cap public markets and alternatives like real estate. Why not VC?
The traditional VC model pools capital into large 10-year funds that need to chase Unicorns (companies with billion-dollar valuations) to generate returns, and investors wait a long time for a liquidity event. A recent VentureBeat story suggests the average time for a VC-backed company to be acquired is five years, and over eight years to achieve an IPO. So how can Canadian private investors be convinced to climb on the technology bandwagon? At Plaza Ventures, we address this situation by taking a different and innovative approach.
Rather than raise mega-funds that require Unicorns to generate healthy returns, we create a series of micro-funds concentrated in a small number of growth-stage companies with strong management teams, metrics-driven business models, and robust revenue growth. We back “Beavers”. These venerable animals built the early Canadian economy and they are known for tireless hard work and determination. Beavers aren’t flashy, but they deliver.
Of course, we hope they turn into Narwhals, the rare and magnificent Canadian version of the mythical Unicorn.
An example of a successful Beaver investment is Montreal-based SweetIQ, which was recently acquired by Gannett/ReachLocal.
The sale happened just 18 months after we led a $4.2-million series A financing for SweetIQ, which helps local bricks and mortar retailers manage their online presence and convert online advertising into in-store foot traffic. With four straight years of 300% growth and 150 employees, SweetIQ was looking for Series B financing to accelerate its growth before it attracted Gannett/ReachLocal, which was enticed by the strong platform and team. The proceeds from the SweetIQ deal returned nearly two-thirds of the funds from PV Fund II and one-fifth of the funds from PV Fund III (in just three months!).
While SweetIQ’s purchase captured the headlines, our portfolio includes many fast-growing tech companies like Q4, Mobify, Miovision, StackAdapt and FanXchange — who on average have doubled their revenues year over year since we invested in them.
Our newest fund, PV Fund IV, will invest two-thirds of the capital raised in follow-on financing for five or six of our proven portfolio companies, while one-third will go towards four or five new Series A or Series B deals. The ability to recycle capital in high-growth companies that generate quick returns is a key element of our investment model.
As important, we operate with transparency and our interests are aligned with our startups and investors. We don’t take fees from managing money so our success is fueled by creating enterprise value, and nothing else. As we have done in our first three funds, the capital in Fund IV will be fully invested over the next twelve months.
Established in 2008, Plaza Ventures invests in growth stage B2B companies with high-performing, metrics-driven business models.