A spinoff of European venture firm Telegraph Hill Capital has set up a new early-stage fund in Québec to back local AI startups.
Telegraph Ventures announced its fund launch alongside nearly $35 million in a first close of financing from the Québec government through Investissement Québec, Teralys Capital, Inovia Capital, and more than 40 entrepreneurs and family offices. The fund plans to reach $40 million before the end of the year.
“We need more optionality for founders. We need more competition between VCs.”
Etienne Mérineau
Telegraph Ventures
General partner Étienne Mérineau will manage the fund from Québec, with support from Telegraph Hill’s partners Luis Gutierrez Roy and Varun Dalal in Barcelona. The partners plan to build on previous successes in the region: investments in Montréal-based startups Chronogolf and Quotemachine ended in acquisitions by local point-of-service and e-commerce firm Lightspeed. Though Telegraph Ventures is an independent entity, the European firm will share in the returns.
Gutierrez Roy attributed the success Telegraph Hill has felt in Québec to “the quality and global ambitions of entrepreneurs and the collaborative nature of the VC community.”
With the backing from Québec’s public sector, Telegraph Ventures is also hoping to fill a gap in pre-seed and seed funding for tech startups. Nationally, the landscape for early-stage capital has been bleak: a recent report from the Canadian Venture Capital and Private Equity Association (CVCA) found a 16-percent drop in dollars invested and a 28-percent drop in deals at these stages compared to the year before.
Mérineau said he experienced difficulties raising funds in Québec firsthand, even before the VC market slowed down after 2022. He founded conversational AI startup Heyday, which was later acquired by social media tech company Hootsuite in 2021 for $60 million.
“We need more optionality for founders,” Mérineau said. “We need more competition between VCs.”
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The generalist fund is targeting startups building “useful” AI tools for businesses. Despite AI startups receiving a greater share of VC investments in Canada, experts have warned of a growing bubble and research showing AI pilot projects yielding poor productivity results
Mérineau said he’s interested in companies that don’t see AI as a “shiny object.” Rather, he’s looking for startups focused on a specific vertical, whose product improves over time as it collects more client data.
“That’s where I think these companies can become more defensible, because go-to-market [strategy] and distribution will become the moat,” Mérineau said.
Given Telegraph Ventures’ limited partner (LP) base, most of the capital will be earmarked for Québec companies, though Mérineau said he’s open to backing Québec founders who move elsewhere. “Telegraph will help Québec founders scale faster and smarter with a global mindset,” said Teralys Capital principal Beatrice Couture. Teralys invests in funds as an LP with support from the federal government through the Venture Capital Catalyst Initiative, Québec pension fund La Caisse, and other institutional investors.
Mérineau said Telegraph plans to invest in roughly 30 companies at pre-seed and seed stages, with cheque sizes of half a million up to $750,000, and reserves for follow-on rounds. He intends for Telegraph to lead and price rounds—something that Mérineau and other VCs agree is missing in the ecosystem.
Telegraph Ventures fundraised over the past year and a half, a particularly tough time for Canadian emerging managers as LPs dealt with lower liquidity and invested infrequently in funds with less experience. Inovia Capital invested through its Discovery Fund, which targets first-time fund managers.
“Discovery has sought out funds we felt could catalyze Quebec’s pre-seed market,” said Marianne Dubois, manager of Inovia’s Discovery Fund. “We believe that the combination of Luis’s experience with Etienne’s on-the-ground operator network…will do just that.”
Feature image courtesy Telegraph Ventures.