Some days ago, Toronto, Ontario, Canada-based venture capital firm Whitecap Venture Partners announced the close of its third fund at $100m in commitments for its third fund. Following the announcement, we had the opportunity to make some questions to Joe Catalfamo, one of the partners, about the targets of the firm and opportunities ahead. He also shared with us some thoughts about the Canadian ecosystem and the future of the tech world.
FinSMEs: Hi Joe, tell us a bit more about you…what’s your background?
Joe: I’m a partner at Whitecap Venture Partners, working alongside two other partners – Carey Diamond and Blaine Hobson – and two key principals (Russell Samuels and Shayn Diamond). While Russell and Shayn joined our investment team at the outset of launching Whitecap III, my partners Carey, Blaine and I have a long standing history of working well together and backing many special people that went on to build world class companies. In Canada, the three of us are among the grey hairs of the industry and one of the few groups that has been consistently successful in this asset class over the past few decades. My primary focus has been on mobile, enterprise software, video and data markets. In addition to some of these areas, my partners have also built some great competencies in Med Tech and Food Tech.
FinSMEs: What’s Whitecap Venture Partners?
Joe: Whitecap Venture Partners is an early stage venture capital fund investing in high growth companies across three verticals: Information and Communications Technologies (ICT), Food Tech, and Med Tech.
The Whitecap Venture Partners team is a group of former operators and investors who have invested together for more than 25 years. We partner with entrepreneurs in verticals where we have deep domain expertise and can bring significant operational and strategic value to companies.
Whitecap Venture Partners began as the Venture Capital arm of Whitecastle Investments Ltd., the Diamond family office operating in Toronto. The Diamond family, with its roots in real estate development, has a long history of VC investing in Canada. They were pioneers in this ecosystem, helping to launch some of the first VC funds in the beginning of the 1990s before advocating a direct investment only strategy, which was unique in Canada for a family office. The firm has a longstanding tenure in this industry and is among the very few venture groups that have been investing since the early 1990s with the same or similar team.
Whitecap III is the first technology venture fund for the Diamond family that also takes in non-family capital under management.
FinSMEs: You just closed the third fund…was it hard to raise? Who supported it?
Joe: We certainly recognize it is a difficult venture fund raising environment in Canada, where typically it can take 18 months or longer to fully raise a fund due to the lack of liquidity in the system for this asset class and competition for that capital. We were, understandably, very pleased with the strong market reception, which enabled us to fully raise our $100 Million fund in 120 days. We believe this is a function of the significant commitment of the Diamond Family and managers, which was far greater than the norm; and our ability to successfully market to sophisticated family offices, which we see as a new and sustainable inflow of risk capital into venture for Canada. To successfully market to these families, we believe you need three key things:
(1) Talented and experienced team;
(2) top investment performance; and,
(3) only be one standard deviation removed from a relationship of trust.
Committing a significant amount of our money is important to that trust relationship, as they know we treat their money as if it is our own.
Our LPs include Kensington Venture Fund under the Canadian Venture Capital Action Plan program, the Bank of Montreal (BMO), and a number of high net-worth families that represent in aggregate nearly 50% of the fund.
FinSMEs: Can you share which high net-worth Canadian families are LPs in Whitecap III?
Joe: We cannot as, understandably, they wish to remain anonymous. Suffice to say they are sophisticated and entrepreneurial groups that are known to the family and excited about supporting new innovation. They are also insightful and well-connected groups we hope to reach out to from time to time to tap their knowledge, relationships, and opinions in support of our investment strategy.
FinSMEs: what’s the fund (overall) strategy?
Joe: We are looking to invest in companies that are ready for Series A funding, but we are not limited to that (we expect to invest in selective seed and later stage opportunities). We like to focus on special people driving the next innovation cycle for our target areas of focus, which are ICT, med tech and food tech; companies that have the wherewithal to define and lead new product categories. Having a seat on the board and a productive relationship with management is a must for all our investments, as it is core to a high touch, value-add operating model that influences strategy, corporate and business development work, team mentoring or team building work, etc. in partnership with the management team.
Whitecap I was focused on the ICT market, including wireless, video, enterprise software, and Internet infrastructure. Whitecap II was primarily focused on Food Tech, Med Tech and ICT. Whitecap III builds on our experiences in all three markets; we like the diversified fund focus as it plays well in our local target markets with a focus on sub-verticals where we have not only built domain knowledge, but have also been successful.
Practically, we want to meaningfully invest in 10-14 category defining companies with this fund cycle. We expect this to include a mix of backing repeat entrepreneurs and first time entrepreneurs, which mostly defines the Canadian Venture landscape.
FinSMEs: Will you only be investing in Canadian companies?
Joe: We think the VC landscape has never been better suited for building a world-class company based in Canada. This is very different than the late 90’s where there was a direct correlation between success and a California postal code. As we would like to be involved and available to our portfolio companies, we have made the decision to focus on businesses that are within a three-hour flight radius of our office here in Toronto. That means we will be looking at companies in markets that include Winnipeg in the west and Atlantic Canada in the east. While our primary focus will be on Canada, we may also look at some businesses in the northeast U.S. that fit our fund focus.
FinSMEs: What do you like to see in entrepreneurs before backing them? Can you make some examples from your experience?
Joe: Simply, brilliant people with a vision, strong leadership, clear solution path to a large market problem and a plausible means to tackle it. I think our advisory board members represent some of the best examples of exceptional entrepreneurs and business leaders from the formative ventures Whitecap’s partners have previously backed. These include Marcel LeBrun, former co-founder and CEO of Radian6 and iMagicTV; Jason Smith, CEO of Real Matters and Basis 100; and Wael Mohamed, COO and director of Trend Micro and former co-founder and CEO of Third Brigade and key executive at Entrust. Over the decades we have been fortunate to have backed (and often as the first institutional investor) some impressive people that have pioneered and built several world-class companies that were Canadian venture backed. Not only do we hope to partner again with those entrepreneurs and teams that have flourished under our mentoring, but also value how these lifelong experiences have helped us refine the lens we use to select first time entrepreneurs as our partners. Special people always have a multitude of options, and we are mindful of the fact they are choosing to partner with us as well, making the relationship mutually beneficial.
FinSMEs: Trends….what will be hot in the next few years?
Joe: We are thesis driven in our investment approach, but identifying trends must be filtered by what new company generation we are seeing in our local target markets. The very good news for Canada is the degree to which new innovation has prospered across the board the past decade due in part to a strong academic environment, robust incubation landscape, strengthening GP landscape, and several notable success stories that create passion and fuel for innovation right across the value chain. We still find that there is a funding gap at the Series A / early B stage when meaningful institutional investment is required to further these initiatives before they truly are growth investment stories:
Med Tech and Food Tech, at the local level, are increasingly becoming more relevant and exciting for venture investment. We have developed some expertise in both areas via our successful past investments and have access to people, and key industry contacts that may be helpful. We find these areas somewhat more underserviced by local VCs, and both areas are ripe to benefit from current technological change, including cloud software, data analytics, sensors and innovative devices etc. Locally, through the Ontario hospital system, the University of Toronto, and MaRS, healthcare technologies and companies are beginning to blossom.
Our first deal for the new fund in the Med Tech space is a molecular diagnostic company launched by a repeat entrepreneur. Here we are applying some specialized tools developed for photonics companies in the identification of bacteria and fungi in blood at the molecular level.
In Food Tech, we will look at things from food replacements to marketplace models, verticalized ICT plays where significant disruption is achieved marrying real-time data, analytics and digital strategies to what is still a relatively “analogue” vertical with lots of “efficiency gain” still to be had.
As we would expect, ICT is a large sector in Canada and if you look at some of the recent stats from the CVCA, more start-ups are emerging in the ICT vertical than all others combined, so it cannot be ignored. Here we are looking for companies that build in whitespaces or have a fundamental advantage to disrupt a legacy space with software and data as the core ingredients. We still have a preference for business to business (B2B) and business to business to consumer (B2B2C) opportunities.
Through the success of Whitecap I, Whitecap II, and other partner deals, we have developed some great insights and views into areas still very relevant today, like marketplace models where data and analytics are core to the offering (Teranet, Real Matters), Enterprise and Software (PC Docs, Radian 6), Mobility (BNI), Video (iMagicTV), Security (Trust Digital, Third Brigade), and Internet infrastructure (Positron, Loran).
Within ICT our preferences are constantly adapting but we currently are interested in themes like,
(1) real-time content marketing;
(2) data collection, analytics and engagement platforms;
(3) machine to machine applications;
(4) “Social Science” and enterprise applications;
(5) new mobile, social and cloud security and management applications; and,
(6) disruptive cloud based financial technology applications.
This is just a small sample of potential areas of interest being addressed by a local entrepreneurial talent pool.
FinSMEs: Toronto is a fast-growing innovation and tech hubs…do you recommend people to come and work there?
Joe: Yes, absolutely but not just to Toronto. I think this is a trend for Canada in general as there has never been more of a level global playing field to successfully start or build a world class Canadian based company. The perception that Canada is just a great R&D base but a market you must leave to successfully build a company, has been radically changing for the better these past several years. A case in point is my own experience several years ago with Radian 6, an Atlantic Canada company that was a transformational pioneer in the social enterprise ultimately being acquired by Salesforce, expanding its presence in Canada. We found many talented people wanting to come back to Canada to work for this exciting company. We are seeing a greater appreciation for the talent pool in Canada and more and more US multinationals are expanding their footprint in Canada as well. Our job as VC’s is to help young companies rise above the noise floor and gain visibility as leaders in their markets; at which point more talent and capital comes to Canada without apprehension.