Foreign Capital Moves In; High leverages and valuations drove deals and news during the first half of last year. As the market morphs, the Financial Post will be there with a new private-equity column that will dissect deals and report news that slips...
The National Post
Mon 17 Mar 2008
Page: FP3
Section: Financial Post
Byline: Karen Mazurkewich
Source: Financial Post
CASE STUDY: THE MEMORY CONDENSER
Sidense Corporation, a hot new memory block technology, raised $6-million in its Series A financing round. This deal highlights a growing trend in Canada -- how foreign VCs are increasingly muscling in on Canadian turf. The syndicate includes two Canadian venture capital firms, one Israeli VCC and a Japanese investor. Sidense's sweet spot: The company is offering "memory that can be embedded cheaper, faster and is more reliable than what the competitors can offer," said Wlodek Kurjanowicz, founder and chief technology officer.
SIDENSE'S INVESTMENT THESIS
The semiconductor industry is driven by a need to reduce size and costs, and Sidense is developing technology to increase memory density at a low cost point, said Andrew Abouchar, partner at Waterloo, Ont.-based Tech Capital Partners. The upside of the syndication of this deal is the partners' expertise in overseas markets. The downside: Too many cooks can spoil the broth. There are a lot of investors who must all agree on the direction of the company.
THE PLAYERS
Xerxes Wania, Wlodek Kurjanowicz and Tomasz Wojcicki of Sidense put their own money into the company in 2004, until they found more angel investors. Mr. Kurjanowicz had previously headed the start-up ATMOS, which was purchased by California-based Mosys Inc. in 2002.
Andrew Abouchar and Tim Jackson of Waterloo-based Tech Capital Partners run about $95-million in venture. They were early investors in Sandvine Inc., which IPOed in 2006.
In January, Tech Capital also co-invested in Overlay.TV, an Internet video-advertising platform, with Ottawa-based Celtic House Venture Partners and Edgestone Capital Partners. One of the investors in Tech Capital -- Economic Development Canada--is also an investor in Vertex.
Vertex Venture Capital is an Israeli-based VC with an international investor base that includes Fonds de solidarite FTQ, Siemens and Fuji, to name a few. This is a company that's running more than $600-million in investments and has been on the go since 1997. One year ago, Sharon Lewis, who splits her time between Montreal and Israel, started looking at the Canadian market for both investors and investment opportunities.
The company has two active funds: Vertex 2 with $160-million and Vertex 3 with $174-million. - Dominic Talalla and Sunil Selby at Trellis Capital Corp., a Toronto-based firm playing small and mid-size markets and looking for synergistic plays in India. "There are a lot of companies in the Canadian market without the risk tolerance to expand in India," Mr. Talalla said. "We can provide growth capital as well as contacts to help expand," he said. Not only has Trellis invested in Sciemetric Instruments Inc., an Ottawa-based company that provides defect-detection tools to manufacturers, it is also helping the company grow its sales in South Asia.
TRENDS IN VENTURE CAPITAL
If you have liquidity, there is opportunity. With the labour-sponsored funds in decline, the traditional VC companies have had more choice and better valuations, according to Andrew Waitman, managing partner of Celtic House.
Despite the doom-and-gloom scenario, Celtic House has pumped about $75-million into eight new deals over the past two years, including Morega Systems Inc., dna13, and NOVX Systems.
The company is poised to make a new investment in a Waterloo-based company. Ditto for Ventures West. The company invested $70-million in nine new deals last year. "It was one of our busiest years," said Ted Anderson of Ventures West.
The reason: There is a relatively limited number of Canadian funds with capital for new investment, Mr. Anderson said.
That said, "it's becoming increasingly necessary to spread our net wider for syndication," he added.
WHAT'S NEW?
Some new seed capital is being planted -- at least in Quebec. The firm iNovia Capital, formerly known as MSBi Capital because of its affiliation with three Quebec-based universities -- McGill, Sherbrooke and Bishop's -- is expected to launch a third $100-million fund to provide seed funding and early financing for technologies coming out of university labs.
The original fund of $46-million launched in 2002, and a second fund, which is a university innovation gap fund, MSBiV, launched in 2004 with $9-million.
While the first two funds were limited to the three participating universities, the latest initiative is expected to be open to many more universities, according to Chris Arsenault of iNovia.
Mr. Arsenault's original claim to fame is as founder of SIT Inc., an international Internet integrator that was sold to Ubizen of Belgium in 1999 for Ð42-million.
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MontrealStartUp is an innovative seed fund targeting Web, wireless and new-media ventures. The idea came from John Stokes (founding chief operating officer of Livedoor Group Inc., Japan's first free ISP), who rounded up 20 angel investors.
Together they have kicked in $1-million. Investissement Quebec matched the initiative with another $2-million. "The opportunity in Canada remains at seed level," Mr. Arsenault said. Get in early and follow through.
"People say you will get washed out of deals at later rounds, but if you believe in a company, if you participate in the up-and-down rounds, then you'll do a good return."
This is good news because the peak for VC investment in Canada was in 2000, when $150-million worth of seed deals were reported, according to Thomson Financial.
After 2000, seeding companies went into decline. Since 2003, the money available for early-stage VC hovered at between $40 and $60 million a year.
In Quebec, although seed activity was healthy between 2004 and 2006, it dropped to a mere $10-million last year.
kmazurkewich@nationalpost.com
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