Posts Tagged ‘ Canada ’
Curated content from Rick Nathan of Kensington Capital Partners, August 9th, 2010
Investors have been on a scary ride in the public markets through the past few days. With near back-to-back 500-point drops, all of the major North American stock market indexes have turned decidedly negative for the year to date. The historic S&P downgrade of US Government debt adds to the weight of worry on investors, alongside falling commodity prices and the continuing risks in Europe and Japan. Most investors have suffered from these rapid and severe declines in public markets.
Private equity investors have greater stability in their portfolios. Of course, all markets are affected by a weakening economy. And if access to capital becomes restricted, the effects will spread to private equity dealmakers soon enough. We saw this happen in 2007-2008, when banks stopped lending, public equity markets fell, and private equity firms found it difficult to buy businesses at realistic prices through 2009.
The correlation between public and private equities is indirect. Private equity portfolios will obviously be affected if the current market correction leads to a sustained period of lower valuations, or a new recession. But only after investors have connected this capital market activity back to the real economy. Private equity portfolios are not seriously affected by day-to-day gyrations in the public markets that do not lead to new economic conditions.
When public market turmoil does foretell a slowdown in the economy, the impact on private equity portfolios is typically muted. The chart below shows the Net Asset Value (NAV) of the Kensington Global Private Equity Fund measured against the major public market indexes in the period from August 2008 through July 2010.
Kensington Global Private Equity Fund vs. Public Market Performance
July 31, 2008 – July 30, 2010
As can be seen in the chart, the sharp declines in the public markets in September 2008 and following did not have as significant an impact on the Fund’s NAV. The values of private companies were re-set more gradually over subsequent months as it became clear that a recession had begun, with weaker prospects for sales and profits across the Fund’s diversified portfolio of more than 100 companies. During that period, the valuations of private companies declined, but nowhere near the levels reached at the depths of the public market panic.
Private companies are valued on Main Street, based on the real economy. Their prospects change with the economic cycle, but not every day or every minute. This can create a sharp contrast to the valuations of public companies established on Wall Street and Bay Street, so heavily influenced by rapidly changing market sentiment, program trading and other immediate distractions.
One reason for the different valuation approach is the lack of liquidity in the private markets. Investors cannot buy and sell at will, and so they see no need to continuously revalue their portfolios. When valuations are prepared, they are based largely on business fundamentals or completed corporate transactions (such as the sale of the company), which results in much less volatile pricing.
An allocation to private equity can therefore act as a shelter from stormy public markets, or at least as a shock absorber. Large institutional investors such as public pension funds have learned this lesson, and continue to increase their allocations in recent years, now in the range of 10% to 20% of total assets.
Individual investors can find similar shelter through a similar allocation to private equity in their own portfolios. A diversified private equity investment such as the Kensington Global Private Equity Fund can add real stability during times of market stress.
Of course, a diversified private equity portfolio such as the Kensington Global Private Equity Fund is not immune to public market fluctuations. Many private equity funds hold a small portion of their portfolios in publicly traded stocks, typically as a result of an IPO of one of their portfolio companies. For example, our Kensington Fund currently holds shares in a company that completed its IPO on the NYSE in June. These shares remain restricted under standard underwriters’ lock-up agreements for a six-month period following the IPO date. As a result, the Kensington Fund will experience some volatility based on this exposure. Public market stress may also reduce our ability to sell additional portfolio companies into the public markets for some time. However, since most of our portfolio companies are in the mid-market where company sales are primarily completed through strategic M&A transactions, this impact should be relatively less significant.
Thanks for supporting the Startup Visa Canada Initiative. It’s been about 5 months since we launched. During that time, the team has been busy reaching out to government officials, influencers and organizations across Canada to gather data and garner support for an alternative visa for entrepreneurs.
Here’s a quick update on our progress:
Chris Arsenault, iNovia Capital joins the Founding Team
Startup Visa Canada has also received some great coverage in CVCA Magazine, BC Business, Techvibes, StartupNorth and Hacker News. You can find links to more stories in the Press section on the Startup Visa website.
How You Can Help
The Startup Visa Canada Team
I love drive and initiative. Don;t wait, do it and see what happens approach to life’s challenges. Ok, in this case, the deadline to apply is really short (May 25th) but you have to give it to these young entrepreneurs, they reached out and they are making things happen.
“The Young Entrepreneurs’ Club is an initiative to help foster youth entrepreneurship in Canada. It is a 10-week launchpad program that brings Canada’s top young entrepreneurs together on a weekly basis to learn from an established expert. At the end of the summer, they will pitch their businesses to a group of investors. YEC will accept 10 young Canadians that are high potential founders to form a ‘class’ of other young entrepreneurs going through the same thing, connect them with 10 top Canadian entrepreneurs and CEOs (confirmed speakers include a founder of Grocery Gateway and CEO of Claymore Investments) who will provide weekly education over a 10 week period, and culminate in a pitch session where participants have the opportunity to pitch their refined business ideas to angel investors.”
Think of it as 10 x 10 x 10 + 1: 10 founders, 10 prominent speakers, 10 weeks, 1 culminating pitch session to angels.
Applications in the form of resume and cover letter are due May 25th. Please visit www.youngentrepreneursclub.ca for more information
More info on the Young Entrepreneurs’ Club:
The YEC team is currently made up of Jennifer Turliuk, Ahmad Iqbal, Jeremy Einhorn and Rameez Gulam. Jennifer, Ahmad, and Jeremy each at one point ran the Queen’s Entrepreneurs’ Competition, Canada’s largest international undergraduate business plan competition, which has been featured in the New York Times and has $25,000 in cash prizes. They are experienced with supporting entrepreneurs and know what is needed to make them successful.
Jennifer Turliuk holds a Bachelor of Commerce from Queen’s University and is the Assistant Brand Manager of Tide at Procter & Gamble, where she leads the digital strategy for all the Fabric Care brands and the launch of the biggest initiative in 27 years on P&G’s biggest brand, Tide Pods (laundry unit dose). She has 3 years of experience organizing Canada’s largest international undergraduate business plan competition, the Queen’s Entrepreneurs’ Competition, most recently as Co-Chair. Jennifer subsequently developed a concept for a wireless internet startup while on exchange in Australia that led her to place second in two international business plan competitions (in Canada and Brazil) and be written up in the New York Times. She also has her own DJing business (www.djturly.com) and has DJ’d at many events and nightclubs including one of the top ten black tie events in the world (according to David Letterman). In her spare time, she enjoys kiteboarding and salsa dancing.
Ahmad is a third culture kid, having lived in eight countries before arriving in Canada to attend Queen’s School of Business. During his schooling in Kingston, Ahmad invested his time and energy into the Queen’s Entrepreneurs’ Competition trying to help other young innovators achieve their business goals. It was here Ahmad was bit by the entrepreneurship bug and since graduating has embarked on his own journey to build a successful business. He is currently a partner in Atendy.com; he and his business partner have recently opened a satellite office in China. Ahmad has high hopes for YEC and would like to see it established as Canada’s premier club for business savvy risk takers.
Jeremy received his Honours Bachelor of Commerce at Queen’s University where he specialized in Sales Communication and Strategy. He currently works at the Medcan Clinic where he is focused on exceeding client service expectations and business development. Prior to his time at Medcan, Jeremy helped jump-start a public relations practice that created and implemented customized advertising campaigns for small businesses. Jeremy recently chaired an advisory board at the Safehaven Project for Community Living, an organization dedicated to providing care for children with multiple disabilities and complex medical needs. He was also heavily involved with Canada’s largest international undergraduate business plan competition, the Queen’s Entrepreneurs’ Competition, most recently as Co-Chair.
Rameez is currently completing a degree in Chemical Engineering at McMaster University. Simultaneously, he is currently working Full-Time at Unilever Canada in Supply Chain as a Planner for Hellmans and Becel. Rameez founded his first startup in 2009 where he implemented Small Business advertising strategies, and received an Ontario Summer Company Award. He has also competed in Impact’s Apprentice and been involved with several Undergraduate Business and Technology conferences. He is currently a mentor at McMaster where he emphasizes the need for students to complement their education by being involved and gaining experience. Rameez is an organizer for McMaster’s LipDub this summer. He loves volunteering; locally for the Toronto Raptors, and has also led students to participate in Habitat for Humanity’s Collegiate Challenge in Miami, FL.
Please visit www.youngentrepreneursclub.ca for more information
So for the longest time the problem in Canada was phrased as follows: we are great at R&D but we can’t commercialize or build products that can generate revenue from that R&D.
Much money and effort was spent on figuring out ways to help move R&D from our universities and hospitals into the marketplace. To that effect, in Toronto, we saw the establishment of MaRS (of which coincidentally I’m a fan and supporter), and later MaRS Innovation, and the reorganization of much of the tech transfer offices across the GTA.
We also saw the establishment of brave new early stage venture funds, like Extreme Venture Partners and Rogers Ventures, who are not scared of jumping in “early” and taking a risk on early stage companies.
This is great everyone said… we will be the next Silicon Valley (see Toronto Life cover article in November 2010, and letter to editor from yours truly in response in December issue).
Hold on now. We have shown we can spin out technologies from universities (coincidentally all the above companies were spun out of the same lab in the computer science department at UofT)… and our ecosystem has matured… and so have our entrepreneurs… but we are not scaling our businesses.
While entrepreneurs and fund managers are making good multiples on their exits (and many are friends, so I’m delighted for them!), we need to scale our companies if we ever plan on building the next RIM or Nortel on home soil. Otherwise, we will have become experts at commercializing R&D but not at building businesses.
That will require 2 ingredients: later stage venture capital and a focus on building scalable businesses (i.e. acquiring customers and selling products and services to generate revenue).
We can only then start to build a critical mass of innovation and truly contribute to Canada’s economic development and the establishment of a thriving knowledge industry.
Last evening, nextMontreal featured a post about an unusual upcoming boxing match that will see an LP and a GP of a Venture Capital Fund go at it, in the ring!
These Knockout Entrepreneurs! are Jacques Bernier of Teralys Capital and François-Charles Sirois of Telesystem. Sounds crazy to hear that two major players in the Canadian Entrepreneurial and investment community are going at it, with gloves? Well at least, it’s for a good cause. It’s an “Invitation-Only Event” and all proceeds from the event will support both St-Justine and the Centre of Excellence for Cellular Therapy of Hôpital Mainsonneuve-Rosemont.
It should be a memorable match.
Here is an excerpt of the blog post by Chris Arsenault on the nextMontreal web site October 28th, 2010.
Canadian GP & LP put-on the Gloves for a great cause on Nov. 18th
Do you remember the last time you got into a heated argument that culminated with your adversary laying down the proverbial gauntlet by issuing those infamous three words – “I dare you!”? Then, without even a shadow of a doubt and before you can even comprehend the seriousness of the situation, you responded with a testosterone-tinged “Sure, I’ll do it – name the time and place!” More often than not, the consequences of such actions end up being more than you wished for.
Now, to be honest, I’ve given more than my share of cocky replies over the last 20 years in the business. That being said, I can also say none of my “quick replies” ever landed me in a prize-fighting ring versus a trained boxer who also happens to be Canada’s largest VC and PE fund investor!
Yes, ladies and gentleman; Jacques Bernier, Managing Partner at Teralys Capital, has dared the VC community to face him in the ring. He is wants to go at it, one-on-one and show what it what he’s made up of.
Personally, stepping into a ring is already something I consider a little crazy. Furthermore, to go out and face one of my future potential investors in a boxing ring is almost suicidal. It’s definitely a lose-lose proposition…Or is it?
François-Charles Sirois, a dynamic young entrepreneur (and also President of Telesystem – one of Canada’s most active entrepreneurial investor through its numerous funds), heard the calling in October 2009. When Jacques threw out his “I dare you” in a friendly meeting, François-Charles rapidly evaluated the odds of winning or losing, the time he needed to train, the muscle-mass he needed to gain to face Jacques, identified Jacques’ main weaknesses, calculated the difference in age and speed, and rapidly (because all of this happened within a micro-second) answered back: “Sure, I’ll fight you. Give me a year to prepare. Oh, and by the way, I care tremendously for a specific foundation that gives support for kids and want to give 100% of my winnings to the Fondation Sainte-Justine.” “My winnings” – talk about a bold statement! Jacques quickly replied: “Perfect – but to be clear, my winnings will go to the Centre of Excellence for Cellular Therapy of Hôpital Mainsonneuve-Rosemont, which is a cause close to my heart”.
Definitely, François-Charles is walking into this adventure with but one objective in mind – to win! While Jacques already knows he has won!
Please checkout the nextMontreal web site for the full article (clik here)
This is a repost from the amazing video-blogger Kristina Tomaz-Young of Venture Cap TV
Welcome to our THREE part video cast series of the Canadian Venture Capital 2010 Conference. And, what an event it was! Check out the must see videos below, here for the link to file of all speaker bios and here for the link to the picture gallery.
Prominent leaders from the private equity and venture capital community participated in record breaking attendance! It’s speaks much to the energy that the CVCA passionately commits to the industry.
Sleeves were rolled up, ideas were churning….you could literally feel the exciting energy pulsating throughout the crowd at the panel discussions and in the hallways. Lessons & opportunities were shared, valuable contacts were made, and fun was also most definitely had at the evening gala with their Entrepreneur of the Year Award and the hilarious Rick Mercer show, not to mention the Scotch tasting event and great mingling!
This year’s theme was Driving Innovation. And we were privileged to learn from impressive keynote speakers like Glenn Hutchins co-founder and co-CEO of Silver Lake and red carpet panelists including Jacques Bernier (Managing Partner of Teralys Capital), Chris Albinson (Managing Director of Panorama Capital & co-founder of the C100), Paul V. Lee (Managing General Partner of Vanedge Capital and so many more who shared their perspectives and sector possibilities to explore. If you’d like a full line up of the presenters and their bios, please click here. Conference Chair David Adderley of Celtic House Venture Partners and his organizing committee certainly put on an unforgettable, valuable conference for the private equity and venture capital community.
So if you’re raring to go…come check out:
Before we dash, a few words of thanks for the accomplishments, kindness and generosity of our colleages..so:
And, thank YOU for visiting VC-TV. Come back again real soon!
(*Please note that out video casts are normally posted very soon after each event or interview. This was the first time we were delayed. We’re a start-up, and like many start-ups, we ran into some start-up challenges. But, solutions were actively sought, situations were co-operatively resolved, and we’re so pleased to share our coverage of the event with you. And this time, rather than one videocast released at a time, here’s all three! We hope you enjoy them!)
Is there any questions that the Canadian venture captial industry is in turmoil? There is a change that is happening, it might just not be happeing as fast as it could. Mark McQueen talks about the the creative destruction of the VC industry in Canada.
“There’s no robust “new class” of VC firms coming in behind the current oligarchy, with a similar amount of capital to deploy as those they are planning to replace. We are witnessing the destruction piece of the equation, for sure, but not the rebirth that is the essence of “creative destruction” if it is to succeed.” – Mark McQueen, Wellington Fund
While there are a few new players entering the market… (read the full blog post here)
Trees are falling in the forest.
The sound you didn’t hear the other day was the fracturing of one of Canada’s best known venture capital firms. One of the teams that had the experience and track record to be a survivor in the ever-shrinking Canadian VC industry. One of the firms that had been tagged to likely make it through the Star Chamber.
One of the firms that, like so many others, was once backed by some of the biggest LP names in the land. One of the firms that has had to replace those very same big LP names as folks increasingly pulled their horns in — one after another — on direct fund allocations over the past five years.
Earlier this month I was invited by Rob Hyndman to post some of my views on the topic of: The Future of Venture Capital in Canada, as part of a series of posts at The Mark – Canada’s daily online forum for news, commentary, and debate. I ended up posting a short view of the “VC Ecosystem”, outlining only but a few key elements critical to having a stronger and most importantly a viable tech industry supported by venture capital in order to compete on a world wide basis. David Crow, added some valuable comments relating to “Creating a Venture Culture” so as did ex-VC and entrepreneur Rick Segal, tech CFO Mark MacLeod and others, participated in the discussion and shared their views on the topic. If you haven’t read the posts, I strongly suggest you give it a read.
I fundamentally believe in the early stage venture capital model that supports promising high growth tech startup entrepreneurs. And through my efforts and those of my colleagues and partners at iNovia Capital, MSBi Valorization, the CVCA, the C100 and numerous other initiatives, we are trying to make the model work by approaching venture capital the same way you one would build any other tech business: with the right people/team at the right time (entrepreneurs vs. operators); by building a strong network of knowledgeable partners with complementary skills sets and long term relationships; and by understanding what startups and entrepreneurs need from their early stage VC’s and deliver results/returns to our Limited Partners while properly managing expectations. Building an Ecosystem takes time, commitment and passion.
Building an Entrepreneurial Ecosystem requires the right culture and mindset! For the last 12 years I’ve dedicated my entrepreneurial life towards helping to build successful tech business via my role as an active early stage investor. Over this same period of time I’ve witness important changes across the Canadian VC landscape which continues to evolve and now seems to be driven by a more entrepreneurial culture, one that includes Venture Capital savvy Entrepreneurs that understands the role of VC funding more than ever before. Hopefully the pieces will continue to fall in place and we will see the next generation of successful Canadian tech entrepreneurs that will change the way we work and live be funded by Canadian VC’s.
Earlier in March I was given the opportunity/challenge to discuss Entrepreneurial Venture Capital by giving a, “fast, 15 seconds per slide, 5 minute 20 slide presentation” at Ignite Montreal. My presentation was specifically on the topic of trying to communicate how to “Make Venture Capital Work”. I really like the Ignite presentation model, but it’s indeed a challenging concept, too bad I ended up doing the basic mistake of trying to say too much in too little time… thus not saying as much as I could if I would of said less!
So, many entrepreneurs these days are talking about “How the Venture Capital Model is Broken”, which is the wrong way to address the lack of capital Canadian entrepreneurs face! The VC Model isn’t broken because it never really worked in the first place, period!
With the exception of the 1980’ and the few last years of the Internet bubble, the model has never been successful for the masses, but has been only for a handful. And, when it comes down to Canadian numbers, we have to account for an additional level of difficulty: the fact that Canada doesn’t have the “weight” of numbers in its favor. Not only does Canada have a less mature IT and Biotech industry when compared to the US, it also has a small and nascent private equity and venture capital industry, and still only has a handful of privately managed venture capital funds today.
The stories about the highly successful technology entrepreneurs as well as those about the rockstar venture capitalists (note: over 80% of all venture capital returns are generated by less than 25% of the venture capital funds out there) created the impression that the only thing needed to build a high valued successful startups was an entrepreneur with an idea and an investor with cash! This meant that venture capitalists could blame poor returns on unsuccessful entrepreneurs while those entrepreneurs could blame their failures on the lack of capital or restrictions tied to the capital they did raise.
The math is the same for a Canadian venture capital fund as it is for a US venture capital fund. Investors in venture capital funds usually expect a high IRR (internal rate of return) – Top tier venture capital expected returns in the +30% IRR, a rate that is far above banking rates due to the high level of risk involved. A Venture Capital fund will usually has a ten year life and will require a certain level of management fees over that period. Therefore, in order to understand the type of capital that needs to be returned to the investors of the Fund (the Limited Partners) one needs to plan on generating three times (3x) return of capital to be successful and part of the Top tier firms that are able to continuously raise additional capital and funds.
In a nutshell, that means that a $100M size fund must return approximately $300M in order to generate the expected level of returns of a Top tier fund! So, knowing that for an early stage venture capital fund, one can expect it owning on average 20% of any given company in a portfolio of around 15 companies (for a $100M size fund), this would translates into $1.5 billion of aggregate portfolio enterprise value at exit, or $150M in cumulative EBITDA based on a 10x EBITDA exit valuation, needed to generate those type of returns. That’s pretty demanding! Managing expectations also sets the bar as regards the type of actions that will be put forward to achieve those expectations. Maybe it’s time we set an aggressive but achievable bar that would benefit the whole industry, no?
Reality is that entrepreneurs operate in a living “Ecosystem” that feeds itself by growing and building new connection. No party can do it alone! The community feeds itself off its own growth. High growth technology companies need venture capital to succeed and the venture capitalists need to back successful entrepreneurs to generate strong returns. Not only do we need to have better return expectations for venture capital funds, we also need better collaboration within the community to build networks strong enough to support promising technology companies and deliver high shareholder value.
The more successful entrepreneurs are, the more successful venture capital funds will be, leading in turn to more funding for entrepreneurs.
We have to learn how to expect more and know how to get more. Yes, funds and large institutional investors like pension funds and insurance companies should expect better returns from their venture capital investments. The last 10 years of Canadian venture capital returns represent -0.2%, yet expectations were in the unrealistic + 30% range, while solid manageable returns should be more in the 15% level. Large institutional investors can help themselves achieve such realistic returns by selecting fund managers with entrepreneurial backgrounds and experience with building successful companies. Managers who think and act like the entrepreneurs they back are better suited to select the ones who understand how build a successful start-up and have the most chances of succeeding.
Likewise, entrepreneurs should expect more from themselves, their teams and their investors. Entrepreneurs need to understand what is expected from the capital they raise and they can do this by selecting the right potential investors and doing due-diligence on them, by understanding the ecosystem they are operating in and making sure they surround themselves with people who are stronger than themselves, and generate stronger returns by setting themselves up for success.
High but achievable expectations create and define leaders!
Entrepreneurs are natural leaders, because they are able to execute on ideas, they transform opportunities into tangibles such as jobs, products and profits. So by having more entrepreneurs funding other entrepreneurs, we have more chances of building a sustainable ecosystem. It takes time to build a viable company, and by understanding the type of returns that are expected from the different source of funding, entrepreneurs and fund managers alike will be able to create a model that works.
The venture capital model is broken only to those who don’t understand it
those who aren’t willing or interested in investing the energy to adapt it to their reality. Like other industries, the venture capital industry will continue to evolve over time.
I’m looking forward to seeing the level of returns over the next five to 10 years as the Canadian venture capital industry begins this evolution – where entrepreneurs are funding entrepreneurs
Now, some questions for you:
- What do limited partners think of the emerging number of entrepreneurial driven Venture capital Funds?
- What do entrepreneurs think of the new breed of entrepreneurial VC’s?
- Is the Canadian market mature enough to trigger the level of collaboration required to build a strong ecosystem around Canadian technology companies?
- What is expected by the entrepreneur of the early stage VC’s (other than the obvious $)?
- How will you be part of the “make it Happen” generation?
For those interested in participating, take a look at the following few links to recent articles and you’ll get a feel for the energy and around the subject:
The Mark: The Future of Venture Capital in Canada
La Presse: Jacques Bernier, de Tralys: le goût du risque
Tech vibes: Venture Capital Funding Outlook In Canada
Financial Post: Venture capital finally gets a break
TechCrunch: Strength In Numbers: Canadian Entrepreneurs Flock To The C100
CVCA: Canadian Venture Capital Investments in 2009 – Lowest recorded in 13 Years
StartupNorth: What is being a startup really about?
Bootup Labs: Startup Visa Canada