What we’ve learned running an early stage venture capital fund in Alberta.

Posted by Accelerate Fund | October 28, 2020

Alberta is relatively young in the life cycle of a tech-based economy and full of early stage companies who often have significant challenges raising capital as they are at the riskiest stage of a company’s life cycle. This is where Accelerate Fund comes in: to support and encourage companies that have proven their concept, found their initial customers and need the capital to hire talented people, scale their marketing, grow their sales, and prove that there’s a significantly large market out there that wants what they’re offering.

Accelerate Fund II was launched by Alberta Enterprise Corporation (AEC) in December of 2016 and was the second in a series of venture capital funds designed to support early stage technology companies here in our home province. With a 10 million-dollar fund to work with, a team was charged with creating a portfolio of about a dozen start-ups that had validated their product market fit and were already selling their solutions into a potentially large market space. Given that Accelerate Fund is a venture capital fund that matches angel investment – Fund II attracted participation from private angel investors, and helped to attract institutional investors to the increasing number Alberta Startups that level up in sophistication each year.

The team chosen to manage the Accelerate Fund II is comprised of Brad Johns (Partner) and Arden Tse (Investment Manager) from long-time Canadian venture firm Yaletown Partners, along with David Edmonds (Industry Chair) of the A100, a non-profit organization promoting the growth of the technology sector in Alberta. By April of 2020, the Accelerate Fund team had reviewed hundreds of companies and made investments in 12 great Alberta ventures to complete Accelerate Fund II’s portfolio. And in May of 2020, the same fund team was awarded the privilege of continuing the work with Accelerate Fund III.

Brad, Dave and Arden thought this would be an opportune time to reflect on and share what they have learned, as well as what they see ahead for the Alberta technology startup environment. Here’s what they had to say…

It’s incredibly satisfying to help founders, their companies and the startup community to grow

Brad kicked off the conversation. The first company supported by investment from Fund II was Passportal in 2017. Just two years later, they were acquired. Seeing the founders get an exit early in their story was hugely satisfying, and we are proud to be continuing our relationship with co-founders Colin and Mike, who exemplified the potential for Alberta startups to succeed. It has also been quite an experience managing a portfolio during a pandemic. No doubt it is a challenging time, but many of our portfolio companies are showing strong growth and keeping people employed despite the environment we’re currently living in.

Our team has worked hard to support our portfolio companies’ beyond investment dollars by identifying programs that could be helpful to them, or introducing them to subject matter experts, other investors, and potential customers. As an institutional investor with a structured due diligence process, our participation can add to a startup’s credibility, which can have a positive effect on helping them get access to other support like additional investors or government programs.

When I think about how we’ve had an impact, I look back to the early days when we kicked off Fund II. The alignment with the A100 and the tech community was just beginning to take hold and the connections weren’t yet very strong. Our team really built on those relationships and I’m excited that we get to continue that work in Fund III. The visibility and reputation we’ve built in the Alberta startup community keep us involved in ongoing conversations with promising and ambitious local entrepreneurs. That gives us plenty of opportunities to build a strong portfolio.

For David, a significant achievement has been for the Accelerate Fund II team and the A100 to become thought leaders in building our ecosystem and provide advice and be influential at the provincial government level without being a lobbyist. The A100 has members on the Alberta government’s capital attraction committee and economic recovery sub committee, and the organization has relationships across the Alberta tech community that are stronger than ever. Another standout experience was sponsoring and generating sponsorship for the first Women in Tech event at the A100’s annual industry event, AccelerateAB, which completely sold out. As a community member, we were able to support Andrea Drager (Azure Capital) and Ha Nguyen (McRock Capital) as they got an Alberta Female Founders movement going. We are seeing more female entrepreneurs appearing in Alberta and that’s exciting for Fund III as we’ve become more intentional about female-led investment opportunities.

Arden Tse, being located in Edmonton says, “It’s definitely a highlight for me that half of the companies in Fund II were from Edmonton. There is so much promise in both the Calgary and Edmonton tech communities. The tech community I get to be a part of is full of some of the most amazing people I’ve come across in my career and I’m proud of the work that we do.”

Things are changing for the better

On the early days of Fund II, David explains how the team began spending a lot of time on the front lines of the community, working to establish a presence through various activities such as speaking on panels, sponsoring events, and participating in mentorship sessions. This increased the awareness of us as a funding source and as trusted, credible advisors. Dave emphasizes that “Having Arden join our team in Edmonton helped us build on that momentum due to the significant networks he brought from running the University of Alberta’s Venture Mentoring Service. We’ve seen the community really ramp up – more angel investors have come into the ecosystem, grassroots organizations have brought entrepreneurs and investors together, and programs like CDL Rockies have helped create an incredible amount of connections, mentorship and investment activity. Other venture funds have increased their activity in Alberta, and more family offices are now investing in the technology sector.”

According to Arden, “The Edmonton tech community is starting to hit its stride. A lot more community leaders are popping up like the group at Startup TNT. We’re gaining momentum, now our challenge is scaling up the activity.”

The community of tech companies in Alberta is maturing and we have a growing number of anchor tenants in both Calgary and Edmonton as proof: Benevity, Solium (now Shareworks), Jobber, Bioware and AbsorbLMS to name a few. The newest to grow beyond 100 employees in four years are Attabotics and Symend. 2020 also saw some of the largest venture financings in recent Alberta history from Attabotics ($66MM CAD), Symend ($73MM CAD) and Drivewyze ($81.7MM CAD).

The most important ingredients are discipline, team and community participation

We’re pretty strict about the fact that we don’t back ideas on a napkin, explains Brad. Companies need an initial product offering with some revenue as proof they have an interested market. We reduce the risk to investment returns by helping market-tested companies to grow. Our team set a narrow focus for the stage and type of companies we invest in and we use a disciplined process to stick to it. That gives our team a clear set of decision-making criteria to work with despite our different backgrounds. Each of us brings different experiences, networks, and skill sets to the table so we can thoroughly evaluate opportunities.

With the multitude of companies in Alberta seeking funding, hard choices often need to be made around who makes it through screening. Our method of evaluating companies requires us all to answer the same questions every time, and we all must agree that the investment is a fit. That protects us from the risk of judgement being clouded if one person happens to “fall in love” with a company. We have a formal due diligence process, and an Investment Committee that involves the other partners at Yaletown.

Our process for evaluating the companies we look at for funding helps to manage the wholistic approach we take to developing deal flow. Our philosophy is that helping who we can where we can is just the right thing to do whether we’re investing in them or not. Sometimes our close relationships with entrepreneurs turn into an investment opportunity and sometimes they don’t and that can be hard. The most challenging thing to remember sometimes is that it’s not just about whether we really like a founder or team. Once we assess the fit of an investment, our answer is clear – even if that might feel disappointing.

As Brad illustrates, “In every conversation we’re wearing multiple hats as both investors and supporting members of the startup ecosystem. Above all we’re champions of a strong Alberta tech community. The three of us are highly active community members and sounding boards for entrepreneurs – it could be about how to structure a capital raise or leadership issues, anything. We don’t operate with the intent of “I’ll only help you if I’m investing in you” as we look at the growth of any Alberta tech company and their success as a success for everyone.“ We strive to be safe allies and experienced mentors for founders to feel safe asking questions.

The promise of the Alberta technology scene

Brad, Arden and David agree the Alberta technology startup scene has made significant progress over the last few years but they feel it’s still early days in the journey to becoming a world class tech hub. There’s no doubt that Alberta has world-class education facilities and world-class talent. There’s more investment money showing up, and Alberta’s got a good funnel of startups beginning to grow. Still, the fund team sees Alberta as having a lot of maturing to do to come of age as a tech hub and sees the need for a coordinated province-wide effort. As industry advocates, the fund team is excited to be collecting some benchmark data on Alberta’s population of technology companies in place – from there we can set real goals.

Brad expands: Alberta needs to be a good, fertile place for early stage technology companies and that’s the real focus for Accelerate Fund III. There are promising signs for Alberta’s tech growth both from the anchor tenants that are now here, and the entrepreneurs staying and returning. Where you’ve built your business and personal networks is often the natural place to launch a startup and we’re seeing new ones popping up all the time. There are many reasons to be optimistic and like the entrepreneurs we support, our team is intent on rolling up our sleeves and making things happen to grow a thriving technology sector , and more great anchor tenants, in this place we all call home.

Looking ahead – ambitions for Fund III

Some final thoughts from each of the team members on what they want in the future:

Arden: “I envision a flourishing private and institutional investor base, especially in Edmonton. The investment management industry is sparse in this province and there’s nothing I’d love more than to see new professional investment jobs being created. More successful companies will attract more capital, and with any luck, more funds will be created. It’s a virtuous cycle that can benefit our economy in so many ways.”

Brad: “With more than 700 companies in our database, I want to keep up our engagement with the community, keep supporting growth for Alberta tech businesses, and do everything we can to attract more capital and more co-investment.”

David: “I want to keep supporting women in tech and invest in women-led startups in Alberta. We need to keep building relationships with co-investors and other funds by continuing to share our deal flow and get early stage Alberta technology businesses much more exposure.”

Fund III is now actively evaluating new startups for investment – learn about what we fund.

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