Kensington Venture Fund closes above target

Toronto-based investment firm Kensington Capital Partners has exceeded the $300 million target it set for Kensington Venture Fund (KVF) in the fund of funds’ final close.

The fund, the second closed in partnership with Ottawa’s Venture Capital Action Plan (VCAP), raised $306 million in committed capital, Kensington announced today.

Roughly one-third of the money came from VCAP, a program established three years ago by the federal government to shore up venture capital supply in Canada.

The remaining two-thirds was provided by a “few dozen” LPs, Kensington Managing Director Rick Nathan told PE Hub Canada. Among them are several Bay Street luminaries, including BMO Financial, CIBC, Richardson GMP, Royal Bank of Canada, Scotiabank, TD Bank and TorStar, as well as Waterloo software company OpenText.

Most of the big names signed up for the fund’s initial close in late 2014. KVF got to the finish line chiefly by attracting multiple smaller investors, including family offices, individual investors, private foundations and wealth managers.

Small investors proved to be “a fertile market” for Kensington, with many committing “institutional size amounts” of $5 million or more, Nathan said. He attributes this to the financial sophistication of these investors, and their increasing appetite for technology and venture capital.

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Rick Nathan, managing director, Kensington Capital Partners

“Investors of all types and sizes see the tremendous growth cycle currently taking place in North America’s technology sector,” Nathan said. “But they also recognize it’s not easy to invest in, especially at the level of private technology companies, where most value creation occurs.”

LPs sought this exposure via KVF because of Kensington’s “credentials” in the space, he said.

Kensington has been an active VC investor since its founding in 1996. Today, over one-third of its private equity investments are venture or growth equity in nature. While a substantial portion of the firm’s market activity is driven by fund partnerships, its ability to place solid bets on direct deals has been a “big differentiator,” Nathan said.

Nathan, formerly a managing director of Brightspark Ventures, has supplied much of the leadership in this effort. This includes his key role in launching KVF two years ago and its subsequent investments in some 13 funds, including Georgian Partners Growth Fund II, iNovia Investment Fund 2015 and Whitecap III, as well as several startups, including Hubba and TouchBistro.

KVF has so far deployed just over half of its capital pool, Nathan said. He expects it to be fully invested by the end of 2017.

In January, KVF took a next step in this direction by anchoring the initial close of Vanedge II, the second information technology fund of Vancouver-based Vanedge Capital. Targeted to raise $200 million, Vanedge II’s recent fundraising has not yet been disclosed.

Vanedge did not respond to a request for comment.

Kensington’s partnership with Vanedge dates back to Vanedge I, which raised $138 million in 2010. The funds supports KVF’s focus on deal flow in Central and Western Canada, Nathan said.

“Vanedge has a strong team and has shown great performance in a relatively under-served market,” he said. “It’s a leading player in British Columbia, which is home to a large number of emerging technology startups and an experienced talent pool, and offers proximity to Silicon Valley and a gateway to Asian markets.”

Last year, Kensington opened an office in Calgary to better tap opportunities in Western Canada. It is headed by Michelle Scarborough, previously an angel investor and venture GP.

KVF’s close follows the wrapping up of Northleaf Venture Catalyst Fund (NVCF) last July. Managed by Northleaf Capital Partners, NVCF pulled in $300 million. Two other VCAP-backed funds of funds, HarbourVest Canada Growth Fund and Teralys Capital Innovation Fund, are expected to announce closings in the near future.

At last count, VCAP pools had a collective size of more than $1 billion.

VCAP funds have helped to stimulate growth in Canadian VC fundraising of late, benefiting “established players and some strong new teams,” Nathan said. The result will be sustained momentum in deal making in 2016 and 2017, he said.

Nathan believes it is imperative for the new government in Ottawa to build on this success through continued support of Canada’s new fund of funds community.

“Taxpayers have made a significant investment in the vital role that venture capital plays in Canada’s innovation system,” he said. “It’s important to reinforce gains made with a long-term commitment.”

Photo illustration of Canadian currency and flag courtesy of Shutterstock

Photo of Rick Nathan courtesy of Kensington Capital Partners