Temasek, Tencent among backers of Real Ventures IV’s $180 mln close

Real Ventures has raised $180 million for its fourth early-stage fund with the help of an expanded LP base, including two powerhouse Asian investors won over by the firm’s artificial-intelligence strategy.

The Montréal venture firm today announced the close of Real Ventures IV at its hard cap. It is the largest fund raised by the decade-old Real and is more than twice the size of Fund III, which secured $89 million in 2015.

As a result, the firm now manages more than $330 million of capital.

Real did this by increasing its LPs to more than 60. They include several new long-term capital sources that are able to lend the firm “exposure and introductions beyond Canadian borders,” Partner John Stokes told PE Hub Canada.

Among them are such starry names as Caisse de dépôt et placement du Québec, Boston-based HarbourVest, Singapore sovereign-wealth fund Temasek and Chinese tech giant Tencent. They join returning LPs Teralys Capital, BDC Capital and Investissement Québec.

The commitments by Temasek and Tencent, rare for a Canadian VC fund, point to growing global interest in the “tenacity, ambition and drive” of local entrepreneurs building local startups, Stokes said.

It also reflects an appetite for Real’s strategy of investing in a range of pan-Canadian early-stage opportunities embracing software, connectivity and — especially — AI.

John Stokes, Partner, Real Ventures
John Stokes, Partner, Real Ventures

Real is a key player in the fast-emerging AI and machine-learning space, which gained profile in Canada’s market in 2016 and has made an even bigger splash since January.

For Real, the phenomenon was long in the making, beginning with such portfolio companies as Planora, which used AI to optimize business processes. The experience convinced the firm of the need “to create something to accelerate the commercial potential of AI,” Stokes said.

That platform was launched last year. Planora alumni, including CEO Jean-François Gagné, joined Real Partner JS Cournoyer in founding Element AI, a developer of AI solutions in partnership with corporations and research bodies at home and abroad.

Element AI in June raised $137.5 million (US$102 million) in Series A financing, the largest recorded deal of its type. Along with round leader DCVC and Real, the company’s VC and strategic investors include Microsoft Ventures, Tencent and sovereign-wealth funds.

Stokes says the concentration of AI talent and innovation in Montréal, Toronto and other Canadian cities suggests to Real’s LPs that Element AI is the start of things to come.

“Our fund investors don’t see Element AI as a one-off, but as a showcase that is indicative of an environment,” he said.

JS Cournoyer, Partner, Real Ventures
JS Cournoyer, Partner, Real Ventures

Scaling Real Ventures

While many LPs are riveted by AI, they are also exploring other areas being developed by Real, such as blockchain and cryptotech, Stokes said.

To maximize opportunities, the firm will deploy Fund IV’s deeper capital pool to a multifaceted strategy that aims to match resources with a company’s growth life cycle.

Fund IV will give recently launched startups access to Real’s owned or affiliated accelerators, FounderFuel and Techstars Toronto. Pre-seed companies will be backed by the newly formed Orbit fund, which mingles small investing with stage-specific support in local ecosystems.

The Orbit initiative keeps faith with Real’s view that high-growth companies “need to get started in the right way,” Stokes said. A first vehicle, the Québecfocused OrbitMTL, was unveiled today with a $30 million commitment from Real, which is collaborating with the Caisse and other local investors.

Fund IV will also ensure that seed-stage companies are well-capitalized over longer horizons. This aspect of the plan responds to a market trend toward costlier ramp-ups, Stokes said.

“The bar has been raised since we began investing,” he said. “A seed fund needs to stay with founders longer to help companies take off. That means getting into more Series A and B rounds.”

Real will gird the strategy with additional value-adding personnel, capabilities and global networks, Stokes said. This month, the firm’s GP team was expanded with the promotions of Sam Haffar and Isaac Souweine.

Real is a prolific deal-maker, mostly leading financings of some 222 companies over time. Nearly 40 percent of investments were made via FounderFuel.

Along with Element AI, the firm’s 2017 deals include conversational marketing platform Automat, fintech startup Dream Payments, and AI enterprise software provider

Real Ventures was founded in 2007 as Montréal Start Up by Stokes, Cournoyer, Partner Alan MacIntosh and others. It is also led by Partners Janet Bannister and Mike Shaver, who run the firm’s Toronto office, and Partners Sylvain Carle and Mark McDowell.

(Correction: It was previously reported that Sam Haffar and Isaac Souweine are leading the Orbit fund. Souweine and Sylvain Carle are responsible for the fund, while Haffar will focus on Real’s pan-Canadian strategy.)

Photo of AI concept courtesy of PhonlamaiPhoto/iStock/Getty Images

Photo of John Stokes courtesy of Real Ventures

Photo of JS Cournoyer courtesy of Element AI