Canadian high-tech startups may soon have access to another source of venture capital funding, thanks to an investor group that includes some new players on the startup scene.
Pycap Venture Partners is slated to inject more than $800,000 into Canadian startups in the ICT and enterprise space within the next eight years. Each year, the $10-million micro-venture capital and angel investment fund will support around four startups with roughly $200,000 each, spending almost $7 million in total.
While Pycap is still in its early stages, it has lined up about $1 million in soft commitments so far, as well as a slew of investors through independent wealth managers.
What sets Pycap apart is that its investors tend to be people who would scarcely have had the chance to invest in startups before, says Stuart Browne, Pycap’s founder and CEO. Pycap’s investors are accredited, but on the lower end of the funding spectrum – people like doctors, lawyers, and dentists who have the funds but not the knowledge to invest in the right companies.
“Like any entrepreneur, I saw a need in the market. There’s growing excitement around the startup tech sector. But [many smaller investors] don’t actually have the capital requirements to gain the interest of some of the regular type of VCs,” says Browne, who was a strategic advisor to the National Angel Capital Organization for three years.
“I saw a huge gap in the market between people who want to invest in startup companies and the startup companies that really need the capital,” he adds.
“Startup tech is a very unique kind of animal that plays by its own rules, and you have to really be on the inside to know what’s going on and which companies are good to invest in.”
Many less experienced investors have a limited amount of funds, so they can only afford to invest in one or two startups. And while many of them turn to independent wealth managers to direct their funding, these managers often don’t have enough technical knowledge to pick tech startups likely to score a big return.
Pycap bridges that gap through providing technical expertise, Browne says. While some team members have experience in venture capital and angel investing, one member has also worked for IT startups, while another has a background in software engineering.
“[We] can talk to entrepreneurs and decipher right away if their technology is viable, if it has a future, if it is up to speed with trends of the way technology is moving,” Browne says.
“What we like to see is a company that is in a niche industry that’s solving a niche problem, and that the team comprises of at least one guy who’s an industry expert, along with a software engineer. It’s a winning combination.”
Having so many startups on offer for funding is particularly attractive to first-time investors, he adds. Investors feel safer when they feel they are diversifying their portfolios and not putting all their money with just one or two startups.
Canada is also a good place for VCs because it is not as renowned as well-established tech hubs like Silicon Valley, Browne says. While Pycap wants to support Canadian business, startups here are also a good choice because there is less hype around them and therefore are not overvalued. That makes them a strong contender from an investment standpoint.
On the other side, entrepreneurs benefit from the promise of follow-on funding. As Pycap is a structured venture capital fund, it is mandated to put at least $800,000 into Canadian companies every year. That means startups supported by Pycap would be more likely to get access to another round of funding if needed, Browne says. The venture capital fund also plans to provide mentorship and technical advice to startups if they need it.
Right now, Pycap is eyeing five startups as potential recipients of its first round of funding. It aims to turn its soft commitments into hard commitments by the end of the month and to close the fund in September.