Garage Technology Ventures Canada sets sights on seed and early-stage markets

Quebec is home to a new seed and early-stage technology venture fund with strong ties to Silicon Valley. Garage Technology Ventures Canada (GTVC) LP has completed its initial closing of $50 million and aims to raise $100 million through a second closing later this year, making it a major player in an area of technology funding that is currently under-served.

The Garage fund shares its name with the Palo Alta CA-based Garage Technology Ventures, which will make its networks and expertise available to its Canadian counterpart. Initial investors in GTVC include the general partners of the fund as well as Solidarity Fund QFL, Caisse de dépôt et placement du Québec and FIER Partners LP. The latter is one of three components of the Fonds d'intervention économique régional (FIER) created by the Quebec government with $180 million in capitalization from Investissement Quebec, $90 million from IQ FIER and three tax-advantaged funds (R$, September 28/04).

Founded in late 2004, GTVC is based in Montreal and managed by Louis Demarais (general partner and managing director), Tom Sweeney (general partner and managing director) and Geri-Lynn Kushneryk (principal). The team has extensive venture capital and technology experience in Canada and the US and plans to execute a business model that emphasizes partnering and global investment. The company's web site is still in development (www.garagecanada.com).

GTVC's capitalization is good news for the Quebec government, which launched a sweeping overhaul of the province's venture capital sector to decrease the public role and increase private sector investment. The Charest government initiated the changes following the release of the so-called Brunet report (R$, March 18/04) but has taken considerable flak for their implementation (R$, April 14/06).

"When the changes were made, it created a vacuum in the early-stage market in Quebec. We understood the implications of that change ... The market told us that our strategy would make us a huge differentiator," says Sweeney. "Even before being approached by Garage, we wanted a strong connection to Silicon Valley to build companies with a global perspective out of Canada."

Sweeney says that while GTVC is structured like a Silicon Valley venture firm, it is independent, 100% Canadian-owned and has an investment strategy that conforms to the realities of the Quebec and Canadian marketplace.

"The Quebec and Silicon Valley ecosystems are fundamentally different. In Quebec there are probably less than five early stage VC firms actively investing. In Silicon Valley there are at least 100," he says. "Silicon Valley firms can be more focused and concentrate on seed stage or early stage firms. In Quebec we will fund both. The market for this type of investment is woefully deficient right now so we need to fully fund companies to get to the level where they are financeable by well established VC funds on both sides of the border."

GTVC will be seeking investment opportunities in the areas of information sciences, telecommunications, material sciences, energy technology, health care and firms in "newly emerging sectors". Given the high-risk nature of seed and early-stage investing, GTVC will give preference to companies that are demonstrably capital efficient and possess strong intellectual property with the potential to disrupt or shape markets globally.

GTVC will invest $1-3 million in first round financing and hold back funds for subsequent rounds. Sweeney says he's planning on 10-12 companies with current financing and up to 15 once the fund reaches $100 million. Since it began seeking investment opportunities three months ago, it has received more than 200 requests for capital.

"The is a profound problem in the early-stage ecosystem in Canada. The old government did nothing about it," says Sweeney. "There's a real challenge of fund raising for a new, private, independent fund. The historic returns on early stage VC have not been particularly strong compared to the dense technology clusters in the US."

GTVC will focus largely on the Montreal-Ottawa corridor but expects to extend further west into the Ontario market as a co-investor.

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