United States-based venture firm 2048 Ventures has secured $67 million USD for its second fund, to continue pursuing investments outside of Silicon Valley.
The pre-seed-stage firm was created by US investors Alex Iskold and Paul Sethi (who is no longer with 2048) in 2019 with the goal of finding companies in emerging markets like Atlanta, Austin, Toronto, and Nashville. In late 2020, 2048 Ventures brought on Neha Khera as a Toronto-based partner.
“Not a lot of investors south of the border are thinking about the unlocking of Calgary and Edmonton.”
The venture firm has been actively investing in Canadian companies over the past couple of years, with nine (18 percent) of its 50 investments from Fund I in Canadian startups.
2048 Ventures is set to continue with its emerging markets thesis and make even more bets on Canadian founders through Fund II. Khera, who has been promoted to a general partner, told BetaKit 2048 Ventures is keeping its eye on even more Canadian cities with the fast growth of tech hubs like Calgary and Edmonton.
“Not a lot of investors south of the border are thinking about the unlocking of Calgary and Edmonton,” Khera said. “Alberta, it’s kind of one of those things that unless you’re close … you don’t really hear about it or think about it … so we think that these are some of the unique advantages that we’ll have being focused on these markets and having me here in Toronto.”
2048 Ventures also expects to find deals in other major Canadian hubs like Montréal, Kitchener-Waterloo, and Vancouver.
The limited partners for Fund II include venture firms, family offices, and a large number of founders and executives from major firms like Shopify, Wattpad, Tiger Global, Andreessen Horowitz (a16z), Amazon, Bumble, Google, GitHub, Morgan Stanley, Oracle, Stripe, Techstars, and Uber, among many more.
2048 Ventures refused to disclose if any of the above-mentioned firms invested directly in the fund, noting only that “the firms … are represented by either individuals at the firms, or the firms themselves.”
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2048 Ventures brands itself as a geo-agnostic firm that aims to be a lead institutional investor in pre-seed venture capital rounds. The firm focuses on API, infrastructure, marketplaces, and SaaS technologies. For Fund II, 2048 Ventures plans to make 60 investments over the next three years, with cheque sizes of $500,000 to $1.5 million.
The firm claims its portfolio companies have raised a combined $257 million with an overall value of $1 billion. Its Canadian investments include Nomic Bio, PainWorth, and Eli Health.
With Fund II, 2048 Ventures is specifically focused on taking advantage of areas where Canada has expertise, such as artificial intelligence and biotech. The firm recently brought on a senior associate to help run its biotech, digital health, and deep tech practices and plans to hire a biotech lead later this year.
“When you think of biotech hubs, Boston naturally comes to mind but Toronto and Montréal are so close behind and are huge hubs,” said Khera. “So the [biotech lead] is going to be also screening a lot of companies in both of those regions because we are really bullish.”
Speaking with Khera in 2020 when she joined 2048 Ventures, the investor pointed to a gap in the Canadian market for early-stage investing. Canada’s VC market has matured in the last five to seven years, leading many early-stage funds to move upstream, she noted.
The gap in seed-stage investing has only widened in Canada since Khera joined 2048 Ventures.
As Canadian companies have matured, securing sizeable exits and deals, early-stage investment (Series A and B) has risen commensurate with late-stage capital. But, seed investment in Canada remains low.
Canadian Venture Capital and Private Equity Association’s (CVCA) data for the third quarter of 2021 found that just $487 million had been invested in 156 seed-stage deals compared to more than $3.6 billion in 223 early-stage deals.
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Sandi Gilbert, NACO board member and founder of early investment organizations InterGen and DealPoint, spoke to BetaKit last year about the importance of more growth-stage funds and investments in Canada, but emphasized the need to ensure companies at their earliest stages are still supported.
“When I look at regions like New York, or some other hubs, and you see the amount of pre-seed capital available and then you compare it to, let’s just say Toronto because it’s our largest market in Canada, that’s when you start to really notice the contrast,” Khera told BetaKit. “And, the quality of companies we’ve found is absolutely no different.”
“I’ve been saying this for years that we need pre-seed capital, and we’ve got some amazing players in the market but it’s not enough and I’m not sure it’ll ever be enough,” she added.
As someone who has been an early-stage investor for the last decade, Khera has seen startups turn to angels and accelerators for pre-seed investment and through 2048 Ventures wants to offer startups an institutional investor to turn to.
She noted that 2048 Ventures plans to stay hyper-focused on pre-seed as it grows and launches new funds.
Khera joined 2048 Ventures from 500 Startups, where she led investments in Canada for the seed fund and startup accelerator. Sexual misconduct allegations against 500 Startups founder Dave McClure killed the Canadian group. Khera stayed on as the firm’s Canada-focused partner, managing 500 Canada’s follow-on investments.
Prior to 500 Startups, Khera was an investor with MaRS IAF, which also invested in seed-stage companies.
Khera emphasized that, for 2048 Ventures, Canada remains “a very large area of focus,” adding “It’s funny, Canada just gets lumped into this one big entity, but in reality, there are these unique markets … so the plan is to fund it as much as possible.”
Photo by Sebastiaan Stam on Unsplash