Canadian Venture Firms Merge

Two Ontario-based firms, Skypoint Capital and Venture Coaches, have merged to weather a demanding fund-raising environment in the Great White North. And there may be more unions on the way among Canadian firms.

The idea for Skypoint and Venture Coaches to join was initially hatched by the five-year-old Skypoint, which was looking to add investment professionals to its team last spring. Meanwhile, Venture Coaches was coming to the end of its initial investments for its inaugural fund from 2000.

The firms merged Dec.1 with the smaller Venture Coaches staff moving into the offices of Skypoint.

Claude Haw, Venture Coaches’ founder and managing partner, will be Skypoint Capital’s new GP addition. The new Skypoint boasts a staff of 17 and will remain based in Ottawa.

Partners and staff from both firms are now investing Skypoint Telecom Fund II, Skypoint’s second fund that closed in 2002 with $100 million.

“When we spoke to the limited partners of Skypoint II, they were very much in favor of the merger,” says Andrew Katz, a Skypoint general partner. “The majority of our long-term LPs are large institutions and we will continue to be a target for their investments. They were quite supportive.”

The two firms share some common LPs, namely the Business Development Bank of Canada (BDC), the Canadian Broadcasting Corp. Pension Fund and individual investors.

The combined firm now manages $185 million. Skypoint launched its initial fund in 1998 and held its final close for Skypoint Telecom Fund I in 2000 with $55 million. Its second fund closed in 2002 with $100 million.

Venture Coaches raised its one and only fund three years ago with $39 million. That fund is nearly two-thirds invested and will not make new investments. The fund is reserving its remaining $12 million for follow-on investments for current portfolio companies.

The newly enlarged Skypoint plans to raise its third fund late 2004 and hopes to raise between $150 million and $200 million and close in in 2005. Its investing will continue to be in Canada.

“It’s likely we’ll look more broadly than before and to focus more on the Montreal and Quebec markets which are starting to become quite strong in terms of deal activity,” says Haw.

Skypoint has three deals it is currently reviewing and one of those is in Quebec. The others are in Ottawa.

The merger is the latest in a string of Canadian venture capital firms that have been fused together or been bought out. For example, towards the end of 2002, Growthworks from Vancouver acquired the Toronto-based Working Ventures. And Covington Capital Corp. has taken control of the Triax Family of Labor-Sponsored Venture Capital (LSVC) funds, including Triax Growth. The firm started making new investments as a combined entity in February.

Also, Technology Investment Management Corp. and Capital Alliance Management, both LSVC funds, merged. The combined entity operates under the TIMCO name and manages about $80 million in assets.

“In 2003, we saw a major slowdown in the market,” says Kirk Falconer, director of research for Macdonald & Associates, which tracks private equity in Canada. “That kind of pressed some firms into marriages they might have otherwise not considered. Some of that had to do with where you’re raising money and where you’re able to raise money.”

Falconer adds that the mergers of Canadian venture capital firms may not be over.

“We might see more of them, because the slowdown certainly isn’t over,” he says. “But we have to see if the moderate growth weve seen in the last quarter is sustained or not.”

Email Matthew Sheahan