BOSTON – Venture Investment Management Company’s (VIMAC) first major institutional fund received a $3 million investment from Montreal-based venture capital corporation Innovatech Grand Montreal at the end of May. A final close for the $150 million to $200 million-targeted VIMAC Early Stage Fund is slated to occur by September 1, said Neal Hill, a managing director at VIMAC. The firm expects the new fund, which has held three closes and raised $64 million to date, to hold another interim close on an additional $40 million by the end of July. VIMAC kicked off fund-raising efforts for the vehicle in September 2000.
VIMAC, which invests in early-stage information technology companies has been actively investing in Ontario and Alberta for almost three years. The firm approached Innovatech about starting a relationship because it had been frustrated by its inability to establish a presence in Quebec, explained Hill. “The more we talked, the more we decided the best way to cement a relationship between the two firms was for Innovatech to make a small, but significant investment in our new fund,” Hill said. In return for the $3 million investment, VIMAC has committed, roughly, to doing at least $3 million worth of deals in Montreal, said Hubert Manseau, president and chief executive officer of Innovatech, a backer of early-stage IT, biotech and advanced technology companies.
The investment made sense for Innovatech for a number of reasons, said Manseau. “VIMAC has an impressive network of contacts who can help our portfolio companies network when they want to move to the U.S. We also like VIMAC’s strategy – we specialize in start-ups and one-third of our activity is in IT, so we understand their focus,” he explained. “We are also trying to attract U.S. investors to invest in high-tech companies in Montreal.” Innovatech’s sole shareholder is the government of Quebec.
VIMAC is raising the new vehicle because it is more efficient than its current method of investing, Hill said. “Also, as our angel network matured we are seeing more great deals and we felt we could invest more capital at a regular pace,” Hill said, noting “two years ago, we didn’t necessarily think we could invest $30 million to $40 million in a year, but now we definitely can.” Previously the firm had primarily been raising funds on a deal-by-deal basis from angel investors, as well as having raised one small fund backed by a single corporate limited partner and a few small, pooled vehicles from individual investors.
The new fund does not signal that the firm is abandoning its stable of angel investors, Hill said. The firm’s core group of active investors will still be invited to participate in deals backed by the new vehicle, Hill said. “That vehicle’ will co-invest with the fund, but not more than 25% of what VIMAC is putting into a particular deal,” he added.
Sticking to Their Knitting
The Early Stage Fund will continue with the same strategy that VIMAC’s has employed in its prior investment activities. “We look specifically for companies that can be big wins for small bucks,” Hill noted. “This means that the total capital requirement through proof of business concept is $30 million or less.” The firm targets these companies because this segment of the marketplace is under served by VCs in general, which means VIMAC is able to generate quality deal flow as being one of the few players in this space.
The new vehicle should back between 25 and 30 companies in communications applications, Internet Infrastructure and software applications/services, with an average deal size of $6 million to $7 million, Hill said. To date, the fund has 15 investments in its portfolio, although about seven of them are pre-existing VIMAC deals that the fund has assumed, which means the vehicle is about one-third of the way toward its ultimate portfolio, Hill said. The fund will be invested in the Northeastern U.S., Eastern Canada and Alberta.
The firm is targeting the traditional mix of corporate and state pension funds, endowments, foundations and high-net-worth individuals as investors, Hill said. “There seems to be a bit less paranoia in the investor community now, as compared to when we started. It has taken some time, but we have picked up speed,” he added, noting that firm will not be disappointed if the fund ends up somewhere between $100 million and $150 million in size. Forrester Research Inc. is the fund’s de facto lead investor having made a substantial investment in the new vehicle, Hill said. The firm will make use of Forrester’s worldwide group of analysts for due diligence and management strategy consulting, he added.
The new vehicle possesses a plain vanilla management fee and carried interest structure, Hill said. VIMAC put up $15 million of the fund’s total capital, he added. The firm expects to add an associate and an analyst to its current investment team of eight professionals in the next four to five months, Hill said.