The Conexus Venture Capital Fund, launched earlier this year by the Regina-based Conexus Credit Union, has reached its $30 million fund target, as the firm looks to bolster early-stage investment in Saskatchewan startups.
“I think the idea of us being a province that’s often forgotten, especially in the startup world, is one that resonated.”
– Sean O’Connor, Conexus
Led by fund manager Sean O’Connor, Conexus’s fund originally raised $22.5 million when it first launched in July. The fund is supported by $15 million from Conexus Credit Union, its largest investor, as well as five other credit unions, and around a dozen local business leaders that contributed a collective $7.5 million. The final $7.5 million, which brought the venture fund to its target, comes from SaskWorks Venture Fund, a Saskatchewan-based retail mutual fund that typically invests in local small-and-medium-sized businesses ($6.5 million), and a few undisclosed individuals and credit unions ($1 million).
Conexus Venture Capital Fund’s decision to work directly with local investors, instead of acting as a conduit for investors from outside the province, was a conscious one. O’Connor told BetaKit that sourcing investment and LPs locally was a key part of their strategy, and the fund saw investment from a number of individuals from agriculture, gas, and construction industries, for example, who would not typically invest in tech companies.
O’Connor also noted that there was an excess of interest from local investors, with the fund having to turn away $7.5 million in additional capital. O’Connor hinted that the fund may grow to more than $30 million as he speaks with existing investors about accepting additional capital into the fund, though nothing was finalized at time of publication.
Another reason the Conexus fund stayed local was because of the Saskatchewan Technology Startup Incentive (STSI), a provincial government tax credit meant to encourage investment in early-stage technology startups within Saskatchewan. Through the tax credit, which is running on a two and a half year pilot, investors are eligible to receive a 45 percent tax credit when they invest in eligible startups. O’Connor told BetaKit that about half of the investors in Conexus’ fund are likely to benefit from the tax credit.
“If you look at what the province of Saskatchewan does here, it’s exceptional to see how much momentum they’ve created through their tax credits, through their incubator, and things like that,” O’Connor said, explaining that Connexus saw an opportunity to further that momentum by injecting its own capital and resources into the ecosystem. Earlier this year, Conexus also launched a business incubator for startups.
“This is really a flyover province when it comes to capital being deployed here.”
The Conexus fund is looking to fill a specific gap in the province. O’Connor told BetaKit that the fund plans to make investments in early-stage companies, an area in the province long-felt to have been underserved by both the federal government and out-of-province investors.
“When we launched the fund its was under the thesis that we’ve got exceptional entrepreneurs here in Saskatchewan, but this is really a flyover province when it comes to capital being deployed here,” O’Connor said. “I think that the idea of us being a province that’s often forgotten, especially in the startup world, is one that resonated with the whole business community.”
The sentiment coming from Saskatchewan’s business leaders and investors is not an isolated incident. A broader sense of Western alienation coming from Saskatchewan and Alberta has been at the forefront of the national political discourse since the Liberal Party lost all its ridings in the two provinces, leaving it with no representation in the region.
The sense of having to ‘go it alone’ is something that has plagued the Saskatchewan tech ecosystem for years. Saskatoon-based Coconut Software, which has been seen as a rising star in the ecosystem, was originally turned down by Toronto-based venture capitalists in 2016, who called the nine-year-old company, at the time, “too early for us.” Coconut later raised a $4.7 million Series A in 2017, led by those same investors.
There’s data to support the sense of alienation, with the Canadian Venture Capital Private Equity Association’s 2018 market overview showing that Saskatchewan companies accounted for just $16 million in venture capital investment out of $3.7 billion raised in Canada overall.
“Our view is that the biggest gaps in the province are from your seed stage to your Series A stage,” O’Connor explained. “So we’re really going to be able to have an advantage over other funds because we’ll have worked at seeing the entrepreneurs and how they navigate their company, because we’re meeting with almost every entrepreneur once a month.”
“[Local investors] live, breathe, and see the value that Saskchetwan entrepreneurs [have], and they understand what it’s like to be a forgotten province when it comes to finances,” he added.
“The tech ecosystem here is just taking off in such a profound way.”
Despite the feeling of being forgotten, Prairie tech companies have seen growing interest from investors from tech markets like Toronto and Vancouver who are looking to collaborate on investments within Saskatchewan, something O’Connor said is “quite new.”
O’Connor noted that Conexus Venture Capital Fund has already seen interest from out-of-province investors that are hoping to use the local fund’s expertise to co-invest or source potential investments. The fund hopes to lead a number of rounds, bringing on outside investors to bolster the provincial ecosystem.
Examples of that growing interest include, Saskatoon-based Vendasta, for example, closing a $40 million in private equity growth in July. Vendasta’s raise marked the largest-ever investment in a Prairies information and communitarian technology (ICT) company. Coconut and 7shifts have also been Saskatchewan tech companies seen as “key torch bearer[s]” for the province, as companies like SkipTheDishes found large-scale success. Earlier this year, the federal government through its regional development agency Western Economic Diversification Canada invested a collective $21 million in 17 Saskatchewan projects, including 7shifts and Coconut.
O’Connor noted that because of that hands-on work, he and one analyst were able to source a number of investments shortly after launching the fund. Conexus Venture Capital Fund has already deployed $5.1 million, investing in five companies, including 7shifts and SalonScale. The fund plans to close make between 15 to 20 investments overall, cutting cheques for seed to Series A rounds, of $300,000 to $3 million in size.
“The tech ecosystem here is just taking off in such a profound way,” O’Connor said. “I think the momentum of the tech ecosystem in Saskatchewan right now is so incredibly strong, and we just can’t be ignored.”
Image source Wikimedia Commons