McRock Capital, the Toronto-based venture capital firm, announced today it has surpassed $120 million CAD ($88 million USD) in total commitments in the final close of its third industrial tech-focused fund.
McRock co-founder and managing partner Scott MacDonald told BetaKit in an exclusive interview that he is pleased McRock has closed a third fund of this magnitude and achieved this level of scale as an emerging manager in Canadian VC, despite “a really tough fundraising environment.”
Since launching this fund with an initial $111-million CAD close in mid-2024, McRock has brought on two more strategic American limited partners (LPs) from the construction space in longtime investor Caterpillar and first-time LP Autodesk.
With $300 million in AUM, Scott MacDonald says the VC firm is where he thought it would be.
This pair joins a group of Fund III LPs that already includes existing institutional backers EDC, BDC Capital, the Alberta Enterprise Corporation, Fonds de solidarité FTQ, and Aspen Technology (AspenTech), as well as newcomers like Bell Ventures, CIBC Innovation Banking, and Venture Ontario, and a slew of undisclosed high-net-worth individuals.
While $120 million is a far cry from the $200 million McRock first set out to raise for this fund, it still makes Fund III its largest to date. With total assets under management (AUM) of $300 million now, MacDonald says the 13-year-old VC firm is right where he thought it would be back in 2012 when he launched McRock with fellow managing partner Whitney Rockley, who made news of her own when she was named to the Order of Canada last week.
“If it would have been lower [than $300 million in AUM], I would have felt like we disappointed ourselves … Had it been higher, it might have been a sign that things had really gone crazy well,” MacDonald said.
The fund closed in December. MacDonald said McRock was able to achieve this milestone thanks to the capital it has been able to return to LPs and its “concentration of effort,” which he noted is reflected in not only the size of its team and portfolio, but its focus on industrial tech.
When MacDonald and Rockley founded McRock, the bet was that industrial markets were about to be transformed by tech. MacDonald argued that this thesis has played out since then, and says that another wave of innovation is underway thanks to the emergence of AI.
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Over the years, McRock’s investment strategy has remained largely consistent, aside from a shift to investing exclusively on industrial software with Fund III after learning from some early hardware bets.
“What we found was [that] hardware was just a less easy way—not because the businesses weren’t amazing and the growth wasn’t there—it’s just they were [on] a different trajectory of speed than the software companies,” MacDonald said, noting the timeframe for investing in and exiting software startups fits more neatly within the 10-year VC fund life cycle.
MacDonald described McRock’s initial $200-million target for Fund III as an “aspirational number” predicated on the firm securing more support from some large institutional funds. But post-initial close, MacDonald said market conditions “really tightened up” and big prospective LPs hit “pause mode.”
That group included the Canada Pension Plan Investment Board (CPP Investments), which was an LP in McRock’s second fund but not its third. MacDonald claimed CPP Investments was “strongly committed” to becoming a “cornerstone” LP in Fund III before restructuring and scaling back its overall VC efforts amid uneven returns.
This time around, McRock also did not receive any support from the Government of Canada’s Venture Capital Catalyst Initiative, which was an LP in its first and second funds.
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MacDonald expressed pride that McRock was still able to raise its largest fund to date and secure buy-in from two large corporate VCs in Caterpillar and Autodesk despite this pullback.
McRock backs Series A and Series B-stage industrial software startups, cutting first cheques of $5 million and $7 million. MacDonald said the VC firm targets businesses with $5 million to $20 million in annual revenue and hopes to help them scale to $100 million and beyond.
McRock’s first fund, which launched in 2014, was $70 million. The VC firm landed $112 million for its 2019 successor. Across those two funds, McRock backed and exited six companies, including Kitchener-Waterloo’s Clearpath Robotics, Alberta-based AgTech startup Decisive Farming, Montréal IoT and AI firm Mnubo—acquired by McRock LP AspenTech—Québec City factory worker training platform Poka, and Houston legaltech ThoughtTrace.
MacDonald claimed that McRock is on pace to generate a 3x return on Fund I, which he said the firm has extended the lifespan of because it still holds stakes in some companies it remains bullish about and does not want to divest from amid a “crap market.” While it remains early to assess the performance of Fund II, he said McRock has already returned 40 percent of its committed capital to its LPs thanks to some of the acquisitions mentioned above.
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The VC firm’s active portfolio includes Montréal 3D scanning tech startup Prevu3D and Edmonton-based crisis detection and monitoring platform Samdesk. At the moment, MacDonald said it contains two companies that have exceeded $100 million in yearly sales: St-Laurent, Québec-based smart display startup E2ip Technologies, and Kitchener-Waterloo traffic management software company Miovision.
With its latest fund, McRock hopes to build on that track record. To date, McRock has announced two investments out of Fund III, Boston-based cellular network security firm OneLayer and California AI engineering startup Foundation EGI.
McRock intends to build an overall Fund III portfolio of about 10 companies. MacDonald expects the VC firm to deploy 60 percent of the fund in Canada and the majority of the remainder in the US with select investments across Europe and Israel.
To support those plans, McRock added a fourth partner to its ranks earlier this year when it promoted Udit Bhatnagar to the role. Bhatnagar joins MacDonald, Rockley, and existing partner Ha Nguyen among the eight-person firm’s leadership.
Feature image courtesy McRock Capital. Photo by Ara Coutts.