BC Advantage Funds VCC - The BC Tech Fund- Venture Capital
CEO 2002 to 2004, BC Tech Fund manager 2003 to 2006
A year or so after the tech crash in 2000 I was getting several calls per week from entrepreneurs who had promising startups but couldn't find any capital. Some of these opportunities were pretty exciting and the valuations were very attractive, but I could not find one angel investor who wanted to co-invest with me in a tech startup. I decided to start a fund to take advantage of these opportunities and to provide some much needed early-stage tech capital in BC.
My first thought was to start a traditional institutionally backed limited partnership - the standard VC model. It was familiar to me because FTI was a limited partnership. I spoke with my friends at Yaletown Ventures who, at that time, had been working for a couple of years to raise the money for their new fund. They let me know that it definitely wasn't a good time to be raising a new fund from the Canadian institutions who invest in VC funds. To their credit, the Yaletown founders were determined and eventually succeeded; but their expereince led me to decide to start a retail, or public, venture capital fund. Over half of all venture capital in Canada comes from retail VC funds.
In 2001 and 2002 the Premier of BC, Gordon Campbell, was interested in helping create new early stage funds in BC. He asked for input on how to improve the VCC - Venture Capital Corporation legislation in BC. Many of us contributed our ideas, and Premier Campbell incorporated most of our suggestions into updated leglisation that was passed in 2003.
I wanted to find some partners who would help offset some of the legal and startup costs. I'd heard a lot about David Raffa and Jim Heppel at Catalyst Corporate Finance Lawyers. They had been sending me angel investment ideas by email for a couple of years but we had never actually met. I cold-called them and we hit it off. They agreed to do the legal work on the new fund in exchange for equity. Soon after, we were joined by Dr. Don Rix and Frank Holler. Thane Stenner joined as a partner in the fund management company a little while later.
My personal goal for BC Advantage Funds was to raise a small, early-stage tech fund. Our first Offering Memorandum was for $2 million. But when we applied to Victoria for tax credits we were delighted to receive $15 million of tax credits that first year. The opportunity to raise that much capital caused us to change our strategy. We put everything we had into raising capital. We tried a number of tactics that didn't work, but eventually found ways to use the new legislation to raise money much more effectively.
Harry Jaako at Discovery Capital, the first VCC fund in BC, was extremely helpful in our early days. He shared much of what he and his partners had learned over the years. It took us two years to complete the legal work required to really get BC Advantage Funds going. All of the founders agreed that if we had known at the beginning how much work it would be, none of us would have done it.
We finally got BC Advantage Funds listed on Fundserv, the equivalent of the stock exchange for funds. On our first day on Fundserv, we did $2 million of subscriptions. The people at Fundserv told us we had the best first day of any new fund in Canada's history.
I was the CEO of BC Advantage Funds for the first two years. It was hard work, and we were succeeding, but I was not having fun. I started BC Advantage Funds to invest in early stage tech companies. I was spending 80% of my time on fund raising, compliance, regulatory matters and government relations. Fortunately, Frank Holler was interested in succeeding me as CEO. That let me do what I had always wanted to do, invest in early-stage tech companies. From 2004, I focussed on being the fund manager for BC Advantage's technology fund, the BC Tech Fund.
In the three years that I managed the BC Tech Fund it made 16 investments in 9 companies. The BC Tech Fund was lead investor for 4 of the 9 companies. About three years after the first investment, three of the nine had a liquidity event - one went public and two were acquired.
Based on available information, the Tech Fund was the best performing technology retail venture fund of its vintage in Canada. Overall, it was second only to Advantage's Life Science Venture Fund in performance among retail VCC funds.
The model we built to raise funds from retail investors continued to perform very well. Every year BC Advantage Funds sold out and often sold some of the extra tax credit allocations the other VCC funds couldn't sell. As the family of funds grew, the sheer amount of capital we were managing made it harder and harder to invest in early-stage companies and startups.
The optimum strategy for investing in early-stage companies is to fund incrementally. For example, by investing $50,000, followed by $100,000, followed by $250,000. As BC Advantage Funds grew through $40 million in size, this strategy became less and less workable.
One of the lessons I learned at BC Advantage Funds is the there is a very strong tendancy for Venture Capital Firms to be too big, as I describe in this post on my blog.
My partners in BC Advantage Funds wanted to build a $100 million fund. Of necessity, that would mean later and later stage investing. I have always been an early-stage investor. At the end of 2006 I happily sold my partners my shares of the fund management company so I could get back to my passion - investing in startups and early stage companies - in Fundamental Technologies II.