Tech Capital Stays Fresh On New Fund

While U.S. venture capitalists continue to slow their pursuit of new investments in favor of spending more time with their existing portfolios, Canadian VCs haven’t stopped chasing new deals, or new money.

One of the only venture capital firms currently up and running in the distant Toronto suburb of Waterloo, Ontario, Tech Capital Partners Inc. recently raised $30 million CAD ($20 million U.S.) for its second fund, Waterloo Tech Capital. A sophomore successor to 1999’s $5 million CAD ($3.3 million U.S.) Waterloo Ventures, the new vehicle will invest an average of $1.5 million to $4.5 million in approximately 12 early-stage technology companies over the next five years, said Andrew Abouchar, a partner with Tech Capital Partners.

Specifically, the new fund will invest in information technology, software, hardware, communications, data communications and Internet infrastructure plays. It will generally shy away from service-oriented investments, however, in order to protect the fund and its limited partners from the market risks associated with those types of deals, Abouchar said.

“We call core technologies the secret sauce,'” Abouchar explained. “We’re looking for really smart scientists who don’t understand how to take technologies to market. We’ve funded a variety of early-stage companies before, and we know that’s where many tech companies stumble and fall.”

Additionally, the firm is hoping to capture a majority of its deal flow from the scores of publicly-traded high tech companies in and around the Waterloo area, such as Research In Motion Ltd., maker of the BlackBerry handheld wireless e-mail device. It also hopes to glean potential opportunities from the University of Waterloo, which Abouchar described as one of the finest engineering schools in the country.

“There are a lot of leading-edge technologies being developed here, and we feel like we have enough to do right here to deploy our capital effectively without going too far afield,” he added.

Although Tech Capital Partners likes to invest fairly close to home, Abouchar did not rule out the possibility of doing deals in Toronto, which is an hour’s drive from the firm’s headquarters, or in other parts of Canada if the right opportunities crop up.

With plenty of dry powder left in the Waterloo Ventures fund, the firm intends to invest that capital alongside the new Waterloo Tech Capital vehicle. As both funds’ strategies follow the same basic formula, it’s a natural pairing of resources, Abouchar noted.

Waterloo Tech Capital’s largest LP investor was the Business Development Bank of Canada. Other institutional LPs included the Ontario Municipal Employees Retirement System and Cranston, Gaskin, O’Reilly & Vernon Investment Counsel of Toronto. A number of high-net-worth individuals from Waterloo’s high tech business community also participated.

Abouchar and the firm’s only other partner, Tim Jackson, will jointly manage the fund.

“Our first fund was so small, we couldn’t give start-ups enough money to get far enough down the road to drive valuations up,” he added. “With the larger fund, we have more fire power to get them further down the road.”

Indeed, as Tech Capital Partners is usually the first institutional money in, most of the companies it finances are pre-revenue and their products are usually pre-beta.

To date, Waterloo Tech Capital has invested $600,000 CAD ($394,000) in just one company. Last week, it seeded VideoLocus Inc., a developer of next-generation video compression and processing technologies formed by four former employees of PixStream/Cisco.

Contact Robyn Kurdek at