Venture Capital Market Warming Up in Canada

The venture capital business hasn’t exactly been setting the house on fire in Canada in recent years. The number of successful exits has been tiny, and some funds have all but dried up or stopped making new investments. According to a recent survey released by the Canadian Venture Capital & Private Equity Association, investment levels in 2009 were the lowest they’ve been in over a decade. That said, there have been some encouraging signs that money is starting to flow — or may soon begin to flow — into smaller-stage companies: A new $20 million investment fund called Mantella Venture Partners launched this week, and the Quebec government also announced that it’s selected three seed-capital venture funds to receive a total of C$100 million ($96.82 million) in provincial funding.

Mantella Venture Partners is a collaboration between Mantella Corp. — a family-owned real estate development firm based in Toronto — and Basecamp Labs, a technology fund run by Robin Axon and Duncan Hill. Both Axon and Hill were formerly at Vancouver-based Ventures West, and left to set up Basecamp Labs, which they describe as an “accelerator” for early-stage companies. The fund provides financing for startups, but also gets involved in hands-on support, including business development, marketing and team development. Hill says that he feels that the “more passive investment model that is common in Silicon Valley” works there because the Valley has a strong ecosystem of repeat entrepreneurs, but that a more hands-on approach works better in a market like Toronto, where most startups are run by first-timers.

Hill says that Mantella Venture Partners is looking to fund 10-15 companies, and will provide initial rounds of between C$100,000 and C$500,000 with an option to join additional rounds or top up those amounts. Among other opportunities, Mantella says it is interested in startups that are emerging from the technology community that has formed around BlackBerry developer Research in Motion, which is based in Waterloo, Ontario. Basecamp’s current portfolio companies include Chango, which is developing a web-based advertising platform, and a mobile entertainment platform called PushLife (founded by a former RIM employee).

Despite the downturn in Canadian investment over the past few years, “innovation is still thriving,” Hill said in a statement. “With the venture market in such a state of flux, the timing could not be better for the launch of a new fund that is focused on both early-stage investing and providing the hands-on support entrepreneurs need.” Before he joined Ventures West as entrepreneur-in-residence, Hill was the founder and chief technology officer of Think Dynamics, a data center automation software company that was bought by IBM in May 2003. Axon worked at MD Robotics (formerly Spar Aerospace) and the Canadian Space Agency, where he helped prepare the Canadarm2 for installation onto the International Space Station.

The Quebec venture funds that are going to receive government financing include FounderFuel Ventures (which is focused on the information and communications technologies industry), AmorChem (focused on life sciences) and Cycle-C3E Capital (which will focus on green technologies). Quebec has agreed to provide a total of $100 million to the three funds through several provincial agencies, including $50 million from Investissement Québec, $33 million from the Solidarity Fund QFL and $17 million from a fund called FIER Partners. Each of the three new funds must also find a minimum of $8.25 million from the private sector in order to receive the government funding.

FounderFuel Ventures was created by the team behind a Montreal-based venture fund called Montreal Start-up, a group that includes entrepreneur and angel investor Austin Hill, the founder of Zero Knowledge Systems, now known as Radialpoint.

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Post and thumbnail photos courtesy of Flickr users Tico and rogiro.


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