Venture capital funds tend to focus on investing in companies that are at a particular stage in the lifecycle of growth. We can divide these into 3 general stages:

  • Seed Stage
  • Early Stage (also referred to as Growth Stage)
  • Later Stage

Seed Stage

Seed stage VCs will tend to invest smaller amounts at an earlier stage in a company’s growth, with a typical seed round investment of $250k to $1M for a target ownership of 10-25%. Typically, the company will have a small team in place, some market validation and an early working version of their product offering. Seed investors are making many small investments, “seeding” their portfolio in the hopes of nurturing as many as they can into growth stage companies. Many seed funds will also operate “accelerators” which are programs where they work closely and intensely with their portfolio companies to educate the management team and refine their focus and execution. The more active technology seed investors in Canada include Version One Ventures (Vancouver), Extreme Venture Partners (Toronto), Golden Venture Partners (Toronto), MaRS IAF (Toronto), Real Ventures (Montreal), Business Development Bank of Canada (“BDC” - national) and 500 Startups (national). Mark MacLeod, one of the pre-eminent observers of venture capital funding in Canada examined some of the data behind Canadian seed funding in a post from last year.

LP’s investing in a seed fund should be focused on:

  • The investment thesis underlying the fund in order to get a diversified exposure to opportunities that conform to it;
  • The fund managers’ ability to source and select the most promising startups at an early stage; and
  • The fund managers’ ability to guide and influence their portfolio companies through a chaotic period of growth and execution.

Early Stage

As a company progresses from seed to later stages, they generally carry less risk and are able to obtain more funding. They will generally target a “Series A” round to fund its continued growth and execution of its business plan - cheque sizes run from $1M to $5M in these rounds, usually split between a number of investors. Compared to ‘Seed Stage’ companies, early stage and later stage companies will be characterized by positive revenues; however, most will still have negative net income as they will continue to invest in order to scale the operations. At the early stage, Series A funding will typically be used to significantly ramp sales and marketing efforts to drive revenue growth and to correspondingly increase production. Some of the more active early stage venture capital funds across Canada include Vanedge (Vancouver), Plaza Ventures (Toronto), Relay Ventures (Toronto), iGan Partners (Toronto), Celtic House (Ottawa), iNovia (Montreal) and Innovacorp (Halifax).

Later Stage

As a report recently published by the Canadian Venture Capital Association (CVCA) shows, later stage VC is characterized by less deal flow with higher dollars invested. Funds investing in Series B, C and up tend to be larger funds writing bigger cheques. They include Avrio Capital (Calgary), OMERS Ventures (Toronto) and Georgian Partners (Toronto). While much has been made in the press about the shortage of late stage capital for Canadian companies, the reality seems to be that good companies will attract deep pocketed US and international investors. An interesting take is presented by Wellington Fund’s Mark McQueen, whose blog posts never fail to entertain. Recent studies by BDC and CPE show that US investors now represent roughly half the capital being invested in Canadian late stage companies.

Agnostic VCs

While some venture firms may specialize in a specific stage, there are also some that are agnostic, meaning they invest in all stages of companies (ex. BDC and OMERS Ventures). Also, many funds will reserve capital in their fund to participate in follow on financings undertaken by their portfolio companies, giving their investors exposure to the subsequent stages.

Current Deals