Toronto startup launches a venture capital fund for the littler guys
Pycap Venture Partners
www.pycap.ca, firstname.lastname@example.org, 416-315-7892
Venture capital, financing
1 full-time, 4 investment committee members
$10 million venture capital fund aimed at technology startups
Accredited retail investors
Stuart Browne isn’t naïve. He realizes what he’s trying to do is risky and somewhat unconventional.
“I want to make it possible for a dentist in Saskatoon to comfortably invest in the world of startup tech and be a part of the excitement without the stress of having to do all the research himself like an angel investor,” says the CEO and founder of Toronto-based Pycap Venture Partners, a new venture capital fund geared towards startup technology. “We’re looking for very niche investors.”
But really, he’s after the mavericks — the doctors, lawyers and high-income earners with an appetite for risk but no real interest in the world of independent angel investing. The kind whose heartbeats race at the thought of Jetson-esque futurism, who can’t wait to tell their friends and family about the cutting edge development they’re backing over cocktails and hors d’oeuvres. Big data analysis. Wearable tech. Virtual reality, even.
Those investors are going to be the backbone of his planned $10 million pooled investment fund. And he knows they’re out there — he just needs to find them.
“The timing is perfect for Pycap,” says Browne. “The junior mining sector has taken such a huge hit that investors who are more accustomed to doing private placements within that industry are looking elsewhere to make their risky, high-return profile investments.”
He grins and adds, “They’re starting to take a look at startup tech.”
The question is whether Browne can convince investors to trudge into the vast frontiers of startup tech with him leading the expedition. He admits evidence is currently wanting.
“Pycap is a new fund with no track record, so predicting our future earnings potential based on past performance is not possible,” says Browne.
Figuring out how to seduce investor trust is a challenge that has beset the venture capitalist since he first started daydreaming about the fund two years ago. At the time he was working as a strategic advisor to the National Angel Capital Organization — an umbrella organization for angel investor groups in Canada.
“While I was at NACO there was a lot of talk about starting up an angel fund dedicated to startup tech,” says Browne.
But there were holes in the approach.
For starters, in Browne’s experience, entrepreneurs have a tendency to choose venture capitalists over angel investor groups because it means more money and a more guaranteed investment from institutionalized lenders versus the softer commitments from angel investors.
“VCs have the money and they have to invest it, that’s their job,” says Browne.
And from an angel investor perspective, it can be daunting to look at all these budding tech entrepreneurs and decide which one’s worthy of their $25,000.
So in July, Browne started rolling out what he thinks is the best of both worlds. A pooled investment fund that solicits bids from accredited brokers and investment advisors and through them their high income clients. It’s a way of tapping into the sort of investors that VCs usually eschew in favour of institutionalized lenders. It gives individual investors a structured, diversified way to put their money in a sector normally dominated by institutional investors, he argues.
“The biggest challenge we have to address is communicating to the masses that we’re making startup tech an investable asset class for anyone” who is an accredited investor, says Browne.
So far the fund has raised $100,000, most of which has come from the six-person team, who have all put in their own cash on equal footing with investors. Thus far, brokers for interested investors only appear once every few weeks.
“I have about a million in soft commitments,” he says adding that ideally, he’d like to have the $10 million in the bank by the end of March. “We haven’t really blasted the word out about the fund yet, we’re working on that.”
Once Pycap has raised the funds, it plans to spread them over 30 to 40 companies — some of which have already been scouted out by Browne and co.
But Steven Gedeon, an angel investor, venture capitalist and professor of entrepreneurship and strategy at Ryerson University’s Ted Rogers School of Management, says despite the fact Pycap is targeting an unconventional investor crowd, there are still a myriad of competitors operating in the sphere.
“He has to deal with the same things every other entrepreneur has to deal with. It’s a competitive environment out there and he has show Pycap has a sustainable competitive differentiation,” says Gedeon.
That extends beyond just being able to raise the capital. What early stage companies — like the ones Browne is hoping to inject capital into — need most is executive excellence.
“They need help with their boards of directors, recruiting top quality talent, getting connected with customers and they need help with finding positive liquidity events,” says Gedeon. “I think the bigger issue is going to be convincing (potential investors) that he’s the guy that is going to make that happen.”
Browne has already made moves to establish Pycap’s position of expertise in startup tech amongst investors. In September, they organized an information session called “The Brave New World of Startup Tech Investing.”
“We had 120 people turn out and it was fully booked,” says Browne. “Ninety per cent of the people there were individuals or brokers curious about the world of startup tech but didn’t know anything about it.”
In addition to the info session, Browne says he is also hoping to quell any misgivings held by potential investors by co-investing with other major VCs.
“They can find comfort in the fact that all of our investments are co-investments with the biggest VC funds,” says Browne, adding that he’s worked tirelessly establishing relationships with the massive players for several years now.
The challenges are daunting and building trust once he finds his investors might take some time, but Browne has confidence that Pycap can raise its funds by the end of March.