Inovia Capital has raised $450 million USD for its second growth stage fund as the Montréal-based venture firm aims to build on its success with Lightspeed and create more Canadian unicorns.
The new fund exceeds Inovia’s target raise of $400 million and brings the firm’s total capital under management to more than $1.5 billion USD.
Growth Fund II comes a short two-years after Inovia raised its first growth fund of $400 million USD. That fund made significant investments in a number of companies, including Montréal-based Lightspeed.
“The growth fund benefits 100 percent from what we’ve built over the last decades.”
– Chris Arsenault, co-founder, Inovia
Around 80 percent of the capital for Fund II came from recurring Inovia investors; limited partners that participated in Fund I or other Inovia funds. LPs for Fund II included the Bank of Montreal (BMO), Caisse de dépôt et placement du Québec (CDPQ), Northleaf Capital, Investissement Québec, Alberta Enterprise Corp. (which invested $15 million USD), Fonds de solidarité FTQ (which invested $26.25 million USD), and Kensington Capital Partners. Inovia does not traditionally name investors in its funds and didn’t disclose all LPs that invested in Fund II.
The fund will operate on the same thesis as Fund I and will continue to be run by general partners Chris Arsenault, Dennis Kavelman, and Patrick Pichette, the latter of whom was also named chairman of Twitter last year.
Inovia is one of Canada’s most active venture capital investors. With five active funds, Inovia makes investments from early-stage to late, growth stage – a strategy that was borne out with Lightspeed.
Inovia invested in Lightspeed through multiple funds, dating back to an early-stage investment in 2014. Lightspeed is now valued at more than $10 billion. The firm most recently invested in Lightspeed through Growth Fund I, supporting the company with its Lightspeed’s public offerings on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE).
Noting the liquidity that investment in Lightspeed brought Inovia (the firm remains an investor in the company), Arsenault said the idea behind the second growth fund is to use the same strategy with other companies.
“At the same time, we’re able to generate great returns for investors across the growth fund and also the early-stage fund, [and] that helps because it basically takes a business case, a model, and says, ‘okay, so how many times can we do that.’ Well, we can actually do it many times because the market is now ripe for this type of transaction,” said Arsenault.
Early-stage investing will continue to be an important component of the firm’s thesis, with Arsenault telling BetaKit Inovia plans to raise another early-stage fund next year.
“The growth fund benefits 100 percent from what we’ve built over the last decades, from the venture deals,” said Arsenault. “We’re one of the few full-stack funds that can actually put in a pre-seed cheque of a few $100,000, or early-stage cheque of a few million dollars, or a growth stage check of $25 or $33 million and still have two times more capital for follow on.”
“That model right now is quite highly beneficial to us, so we expect to continue to build on that,” he added.
Inovia’s portfolio consists of a number of companies that have seen success as of late, including Top Hat, Clearbanc, Vidyard, and Sonder. Recent liquidity events for the company include Rubikloud, which was acquired by Ottawa-based Kinaxis, as well as North, which was acquired by Google last year after struggles with its smart glasses products.
Inovia has been active amid COVID-19, making new investments as well as doubling down in its existing portfolio, such as Symend and Snapcommerce. Last year, Inovia Growth Fund I led rounds for AlayaCare and WorkJam and co-led Sonder’s $170 million USD Series E. Notably, Inovia decided to invest in only 10 companies compared to 12 for Fund I, leaving additional capital for secondary and doubling down.
Much of this activity stemmed from the venture firm making a point to sit down with its portfolio companies when the pandemic hit to talk about how to not only ride it out but succeed. Arsenault said this led to around 80 percent of Inovia’s portfolio seeing positive outcomes over the past year, with many raising capital.
“When the stars align to actually build a massive company in our own backyard, we as Canadians should be doubling and tripling and quadrupling up on it.”
“Now that you revised your roadmap and everything, it is a great opportunity to basically acquire your competitors and or products that you could get at a cheaper valuation than you could just three months ago,” said Arsenault on what Inovia preached to its companies. “So, our companies became aggressive in the market.”
The general partner also claimed all Inovia companies that did raise capital did so at an increased valuation.
With more than 20 years of investing in the Canadian tech ecosystem, Inovia has witnessed a slow but steady increase in investment in the sector overall.
“Over the last five years, it’s kind of like everybody’s building conviction because everybody is starting to feel or live through success patterns,” said Arsenault.
“So, I think that has changed a lot over the last five years. Of course, the secondary component is a critical key success factor here on all levels … and believing in your ability to help build a company,” he added, noting that much of Inovia’s investment thesis includes an emphasis on secondary capital.
While Arsenault did not provide the breakdown of secondary capital allotted for Fund II, Arsenault noted it is similar in size to Fund I. The second growth fund will make between 10 and 12 investments, cutting cheques around $25 million to $30 million in size.
Being an international firm, Inovia is not solely focused on Canadian companies. Notably, its first investment for Growth Fund II was Zwift, a United States-based online fitness platform that hosts virtual cycling races. While Inovia does not have plans to dedicate a certain portion of Growth Fund II to Canadian companies, Arsenault espouses strong opinions about building and investing in the Canadian ecosystem.
“When the stars align to actually build a massive company in our own backyard, we as Canadians should be doubling and tripling and quadrupling up on it,” said Arsenault.
Lamenting the amount of foreign compared to national capital that is invested in Canadian companies, Arsenault noted one way Inovia tries to build up the local ecosystem is to “privilege” Canadian LPs in its funds. Inovia also offered a co-investment vehicle as part of its Fund I, allowing LPs to invest in companies alongside Inovia’s deals. Arsenault claimed the vehicle contributed to more than $100 million a year in additional capital beyond its fund.
“We need to showcase and show patterns of success to these investors if you want to see these investors investing in multiple funds,” he said. “Not just ours, but in the industry.”
Image courtesy Inovia.