The first venture capital (VC) fund supported by a Canadian university endowment has secured an initial close of $10 million USD ($14 million CAD).
“If we’re serious about building a country, our endowments need to open up and take some risks and invest in Canadians.”
Jesse Rodgers
Builders Club
Velocity Fund II, spun out from the University of Waterloo’s Velocity incubator, announced today it has raised its first close of its planned $25 million USD, as it seeks to support high-growth, early-stage ventures in the Waterloo, Ont. region through one of the country’s top tech schools.
Other limited partners (LPs) include early-stage fund Graphite Ventures, AngelList Systematic Fund of Funds, and prominent Waterloo alumni, according to the fund’s general partner, Akash Vaswani.
The fund’s second iteration launched in 2023 and marked the first time a Canadian university invested a portion of its endowment fund into the venture asset class, the school says. Waterloo pledged $5 million CAD of its endowment fund at the time, and has delivered $2 million USD ($2.8 million CAD) for this close. According to Waterloo’s audited financial statement for fiscal year 2024, its endowment fund is worth $525 million.
Vaswani said the fund’s target and investment thesis have not changed. It is focused on providing much-needed pre-seed and seed capital to local startups both within and outside the Velocity incubator, writing cheques of between $25,000 USD and $1 million USD. Vaswani and general partner Ross Robinson manage the fund independently from the university and the incubator.
So far, Velocity Fund II has invested in five companies, including Voltra Energy, which is building an electric-vehicle charging platform, and men’s health startup Phoenix, which recently secured $50 million in equity and debt following a Series A.
“Velocity has done a really good job with its programming of helping these founders figure out how to cut the noise and how to move fast,” Vaswani said in an interview with BetaKit. “And that’s kind of what sets the founders apart over here.”
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Velocity Fund II has speed in its name, and closing deals quickly is one of its priorities, Vaswani said. The team commits to a two-to-three-week cycle between a first meeting with founders and a deal decision, he added.
“We wanted to create the fund that we wish had existed over here when we were founders,” Vaswani told BetaKit. “It means that we move fast, we give founders decisions in a reasonable time frame, and we give them real, meaningful feedback.”
The fund’s second interaction follows the original Velocity Fund, established in 2019, which replaced the grant system used to sponsor the awards for the incubator’s pitch competition at Waterloo. It had a similar thesis, but did not include the university as an LP. Vaswani claimed that the original fund performed in the top 25 percent among peers in its vintage for initial rate of return and distributions to paid-in capital.
The first fund invested in companies ranging from digital health company MedMe, a16z-backed ScribeNote, and AgTech startup Ceragen.
Waterloo remains the only university in Canada to act as an LP in a VC fund through its endowment. Some universities in the United States (US), including Yale University and MIT, have been actively investing in VC for decades, notching impressive gains at industry high points but recording weaker returns and write-downs when markets cooled.
Waterloo describes its endowment, which is made up of donor funds, as providing long-term stability for the university, as well as an “enduring source of revenue.” It is permitted to invest up to five percent in VC.
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Jesse Rodgers, investor and founder of Kitchener-Waterloo-based Builders Club, said he fully supports Waterloo’s VC investment move and hopes to see other Canadian universities follow suit.
“If we’re serious about building a country, our endowments need to open up and take some risks and invest in Canadians,” Rodgers said.
The close comes as Kitchener-Waterloo’s early-stage ecosystem sees a post-pandemic resurgence, according to ecosystem leaders.
Adrien Côté, who recently announced his departure as executive director of Velocity incubator, told BetaKit the incubator is experiencing the “most energy and most engagement” that it’s had in its 15-year history.
Broader regional data from an internal Communitech report shows that startup creation has declined from 2014 to 2022, which the report called an important metric for long-term ecosystem health. But Velocity’s 2024 Momentum report claimed that student builder teams—many of which become startups—grew from a dozen in 2019 to 157 in 2023. Côté said that number is closer to 200 now.
Graphite general partner Aaron Bast sees Velocity Fund II as a key capital lever in the Waterloo Region, particularly as founders who have exited look to reinvest into the community through funds like Velocity’s, creating a virtuous cycle.
“We have multiple funds at different stages now in the ecosystem, and I think this fills out a really important piece of that,” Bast said.
Feature image courtesy University of Waterloo.