There are a variety of ways to differentiate one VC fund from the next, as different funds will have different focuses and investment theses on how they will create outsized returns for their investors. Every fund will have a specific mandate that has been pitched to its LPs, and it may be defined by a variety of factors, including those set out below:
One defining characteristic of a fund is what stage in the lifecycle of a company at which the firm is willing to invest. The industry typically sets out three stages for VC investment:
The second way to distinguish between funds is through their focus on specific industries or sectors. Although the Canadian venture capital landscape doesn’t allow for as much specialization as their American counterparts, different funds will have different target focus. Similar to stage of investment, venture capital firms may also be agnostic when it comes to sectors.
The distinction may be based on industry focus, at a high level. Although the majority of Canadian VC funds will focus generally on technology, some will target any growth opportunity in specific sectors such as healthcare and life sciences (Lumira, Genesys), agriculture (Avrio), energy (EnerTech), water (XPV), cleantech (Cycle Capital, BDC) and retail & consumer (Campfire, Brand Project, District Ventures). Within software and technology, funds may be further defined by technology or vertical focus, such as fintech (Information Venture Partners, Portag3, Impression, Ferst), mobile (Relay, Golden) and Internet of Things (McRock).
The third way a venture firm can distinguish itself is through the size of the fund it raises - which also differ in levels of risk and return. Due to the high level of risk venture capital carries, the required rate of return for investors is often around 20% to 30%. As a result, large funds require a significantly higher number of large exits for investors in their portfolio to achieve meaningful returns. In contrast, microfunds can more easily generate the target 20% return with smaller exits that are more common with Canadian startups. While not a hard and fast rule, the larger the fund size, the more likely it is to focus on later stage investments.
Overview of Active Canadian VC funds