It’s been almost a year since 500 Canada announced to its portfolio via email the decision to terminate the fund’s investment period.
Following shortly in the wake of allegations of 500 Startups founder Dave McClure’s sexual misconduct and resignation, 500 Canada’s dreams of closing a $30 million fund were dashed when target LPs informed the fund in July 2017 they would not make an investment if McClure continued to exercise any form of control or receive economic benefit from 500’s Canada Fund.
In addition to winding down Canada Fund follow-on investments, Khera has joined 500 Startups as a partner and will lead activity in Canada.
500 Canada has remained out of the spotlight since then, but that doesn’t mean it stopped. In fact, speaking with Neha Khera, a partner at 500 Canada, the fund has been quite active.
While the halt on net-new investments remains intact, Khera said the fund has made three follow-on commitments to its portfolio companies since October, and hopes to support about 20 percent of the 500 Canada portfolio (36 companies in all). “A large part of my job now is deploying that follow-on money,” she said.
At the time of 500 Canada’s announcement last July, the managing partners had indicated that the fund would make no follow-on investing, but Khera told BetaKit that “we didn’t quite know where the budgets all stood, so we didn’t want to make any rash announcements about being able to follow-on.”
Since then, 500 Canada’s investment committee has done the work to figure out how much it could allocate to support, and has been actively working to connect its portfolio with new investors. While Khera indicated that about 50 percent of 500 Canada’s investments have raised follow-on funding, she explained that the next 12-18 months are a “critical phase” to support a young portfolio. “We all thought it was important someone stay on more than part-time,” she said.
Although that investment committee talks “almost every day,” the reality is that rest of the Canada Fund team has moved on, many to Panache Ventures. A new $25 million fund launched in March of this year, Panache in many ways looks to replicate the 500 Canada model, including providing deal flow and co-investing with 500 Startups. “It’s basically the same agreement on that part of the seed program that we had with 500 Canada,” Panache partner (and former 500 Canada partner) David Dufresne told BetaKit.
For her part, Khera has also made a change. In addition to winding down the Canada Fund follow-on investments, she has joined 500 Startups as a partner, and will act as 500 US’ lead investor in Canada. For now, that means sourcing potential deals and companies to send to 500 Startups’ Seed Program.
“Although it had problems with one guy, [500 Startups] was living and breathing diversity.”
Khera explained that the decision to join 500 Startups “means more than supporting the Canadian portfolio, which was a very large factor in my decision-making.” 500 US had invested in approximately 70 Canadian startups prior to the launch of the 500 Canada, and Khera said that Canada Fund’s quick rise to becoming one of the country’s most active investors was evidence of the number of Canadian companies looking for early-stage institutional funding.
“It just made sense to say we need to continue supporting this ecosystem and all the great talent Canada still has to offer,” she said.
That also meant joining an organization at the forefront of tech’s #metoo reckoning. On this point, Khera was clear in her motivation.
“After the summer, it was an intense four to six months for [500 US] to reorganize,” she said. “[500 US] took it as an opportunity to hit reset and say, ‘okay, who are we going to be going forward’ and commit to that. When I made the decision to join it was a time of flux, but I think the company has come out way stronger than it was before.”
While McClure’s removal helped (per a spokesperson, McClure “no longer has any control or governance over 500’s management or operations,” but continues to hold a minority stake in 500), Khera indicated that visits to 500 US while considering a role as a 500 Canada partner convinced her of the “emphasis it put on diversity within its own boundaries.”
“Being a woman in tech I never felt uncomfortable, even after the company came in the spotlight,” Khera continued, noting that conversations with 500 Startups co-founder and now CEO, Christine Tsai, cemented the decision. “Although it had problems with one guy, the organization was living and breathing diversity.”
In terms of leading direct investments and rebuilding a national team on the ground in Canada, Khera remained mum on specifics, stating that “it’s too early to say.” Some notable pieces of information that will allow you to draw your own conclusions: Khera is expecting her second child and will be soon going on maternity leave, putting plans on hold (in the short term); 500 Startups recently announced a strategic investment from Abu Dhabi Financial Group (ADFG), which it says will ‘“accelerate the growth of our key initiatives, expand into new markets, and anchor future 500 funds”; it’s been about two years since 500 Startups closed its 4th fund; the gap between Fund III and Fund IV was about a year.
Hmm. Maybe it’s a good sign for Canadian tech that 500 Startups is starting to cut larger follow-on cheques.
Regardless of the means, “500 Startups still believes in Canada and this is how we’re going to continue to support it,” Khera said.
