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Whitecap opens up to outside LPs, raises initial $70 mln for Fund III

Whitecap Venture Partners, one of Canada’s oldest family-owned venture firms, has exceeded the initial target set for its third technology fund after opening the door to third-party investors for the first time.

The Toronto-based firm announced in late April that Whitecap III LP has secured $70 million in committed capital. That’s 40 percent more than its first close target of $50 million, putting the fund within reach of hitting its goal of between $80 million and $100 million.

Fund III completed its initial raise in less than 90 days. That pace may owe to a recent decision by Canadian family office Whitecastle Investments to suspend its traditional role as the sole limited partner in Whitecap funds and to instead welcome commitments from outside sources.

Limited partners that took advantage of the opportunity included Kensington Venture Fund, a fund managed by Kensington Capital Partners, the Bank of Montreal, and several high net-worth families.

Whitecap Partner Carey Diamond, who is also president and CEO of Whitecastle, said the decision to welcome outside investors stems from the firm’s view that the range of venture opportunities in Canada has never been better.

“After more than 20 years of investing, we felt it was time to create a new, long-term and sustainable venture platform,” he said. “To leverage the tremendous opportunities we see in the Canadian market, especially in the Series A space, it was necessary to expand Whitecap’s capital base and team, and to focus on making larger investments than in the past.”

Diamond believes Fund III’s new limited partners signed on because of Whitecap’s “talented and experienced team,” which has accounted for 25 deals since 1993. They include Partner Blaine Hobson, who joined the firm in 1995, and Partner Joe Catalfamo, who is returning to Whitecap after nearly eight years spent as a managing partner at Summerhill Venture Partners.

Diamond said investor confidence was also inspired by the firm having its “own skin in the game.” At Fund III’s final close, Whitecastle and the fund’s partners are expected to reflect about one-quarter of committed capital.

Fund III will show continuity with Whitecap’s long-standing focus on early-stage investments in three key verticals: Information and communications technology, medical technology and food technology.

“We are interested in traditional industries in which technology adoption has been trailing,” said Hobson, who played a central role in the growth of portfolio company Protenergy Natural Foods, a food and beverage manufacturer acquired by Treehouse Foods in 2014.

“Protenergy was our first foray into the food industry and when we invested in 2004 it was days away from bankruptcy,” he said. Whitecap helped the company re-emerge to become a technologically advanced brand manufacturer. By 2013, it had sales of about $130 million and was a leader in North America’s “soup and broth space.”

Treehouse paid $170 million in cash for Protenergy, giving Whitecap a gross 28 percent internal rate of return compounded annually over 10 years of investment, said Diamond.

Another high-profile Whitecap investment might be on the verge of leaving the portfolio. Real Matters, a cloud-based provider of property intelligence to mortgage and insurance industries, and one of Deloitte’s 2014 Technology Fast 50, is reportedly preparing for an IPO sometime this year.

Catalfamo said investments like Protenergy and Real Matters have given Whitecap “domain competencies, which have driven evolution of the portfolio over time.” He said Fund III will continue to “build category-leading companies” by drawing on the team’s operational skills and by partnering with repeat founders who share a history with the firm.

Once closed, Diamond said the fund will “get meaningfully behind eight to 12 companies.” It has already made its debut investment, and is expected to complete a second over the next few weeks.

Whitecap’s other investment professionals include Principal Russell Samuels, who formerly worked at Mantella Venture Partners, and Principal Shayn Diamond.