Canada has gained another artificial intelligence (AI) investor in Developer Capital (DevCap), but this one looks a bit different from your standard venture capital (VC) firm.
Born out of Montréal-based full-stack software development consultancy Monadical, DevCap is structured as an investment corporation with no management fees and the capacity to move quickly, which enabled it to close $2.5 million CAD in funding and begin investing in pre-seed and seed-stage startups in only three months.
“We think the next mega tech companies are going to be born in 2024 and beyond, and we don’t want to miss the start,” Jordan Steiner, DevCap’s CEO, told BetaKit in an exclusive interview.
“Now is a really good time to be investing in early-stage companies.”
Max McCrea, DevCap
DevCap is led by Steiner and Monadical co-founder Max McCrea as chair and CTO. Steiner is an experienced investor and longtime public markets portfolio manager, while McCrea has a deep technical background and experience in AI. “Our skills combined made for a really good partnership,” McCrea told BetaKit.
Following recent AI advances, the two longtime friends decided to team up in 2023, when Steiner left his job at LionGuard Capital Management to become Monadical’s chief strategy officer. The pair launched DevCap late last year.
Most VCs offer founders cash and access to their networks. According to Steiner, DevCap provides both, but also gives startups access to Monadical’s team of 31 developers for advice and guidance. Monadical builds software, catering to clients ranging from small startups to large, established companies across a variety of industries. Per Steiner, Monadical has built seven different AI products over the past nine months.
DevCap plans to lean on Monadical’s in-house expertise to help source, vet, and support pre-seed and seed-stage AI startups. Steiner and McCrea are betting this approach will give DevCap a leg up compared to the average VC on both the pre and post-investment side.
Through DevCap, McCrea and Steiner plan to back 15 to 20 early-stage startups in North America and Europe, with initial cheque sizes of between $100,000 and $400,000 and the flexibility to double down on early winners. DevCap intends to invest in companies that are implementing AI or are built upon AI, and solving a problem in a way that was not possible before large language models, fusion models, or machine learning “really took off.”
To date, DevCap has closed $2.5 million to fuel its efforts, a total that includes $500,000 from Steiner, McCrea, and the firm’s other director and advisors, and $500,000 from “cornerstone investor” Urbana Corporation. The remainder came from a group that includes undisclosed family offices, friends and family, and some of Steiner’s former clients, colleagues, and peers from the investment industry. Steiner expects DevCap to surpass $3 million by the end of this month and noted that the firm plans to raise additional capital in about a year.
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Urbana is a Toronto investment company chaired by Bay Street veteran Thomas Caldwell. The firm knew Steiner from his time covering Urbana during his public market investing days and was attracted to the concept and the folks behind DevCap.
“We learned more about them as people, liked the fact that [Steiner] had the traditional background in finance and could speak our language, and liked that [McCrea] was a young entrepreneur coming from the tech side,” Urbana portfolio manager Tom Simopoulos told BetaKit. “We thought the two complemented each other well and decided to make the investment.”
Urbana also believed the risk-to-reward balance was good given the market timing and potential of AI to disrupt the status quo. “Something special is brewing in the Canadian tech scene and we wanted to have boots on the ground,” he added, noting that DevCap also offers a pathway for Urbana to provide follow-on capital to successful firms as they mature.
For McCrea and Steiner, it was clear early on that AI was going to have a massive impact on the world. “Some jobs will probably disappear, but I think it’s much more that jobs will change fundamentally,” said McCrea, who expects information access “to change dramatically” as well. “I think that every business is going to be touched by this,” he added.
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Before launching DevCap, Steiner and McCrea consulted a variety of founders and investors last summer. “Venture capitalists told me it’s an awful time to try to do something like we’re doing because nobody’s deploying, you’ll never get limited partners (LPs),” said Steiner, who noted that many of those same VCs were struggling to secure fresh capital amid the downturn and sitting on their hands even though valuations were low and exciting new AI startups were being formed.
At the same time, they found that DevCap’s value proposition resonated with Canadian founders, many of whom were doing interesting AI work but struggling to fundraise. Sensing the timing was right, DevCap decided to proceed anyway and take the investment corp. route.
DevCap does not charge management fees or have a general partner and LP structure. According to Steiner, DevCap has founder shares, but the firm’s leadership has retained control with Class A shares that have 50-1 voting power.
Steiner believes this approach offers some advantages, including less pressure to deploy quickly like VC funds, no set wind-up date, alignment with investors, and the ability to move fast. “The only driver for us is a higher share price, not raising more assets … We think AI is just now moving from the tinkering into production phase and we wanted to be ready to go.”
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“Now is a really good time to be investing in early-stage companies,” added McCrea.
Steiner noted that Canada’s VC community has been open with the firm so far on the deal flow-sharing front. He expected this to be harder given that DevCap is a relative newcomer. “I think one of the reasons is with [McCrea] and the [Monadical] team’s technical backgrounds, other VCs know that we have that ability to go deep on technical diligence,” he said.
“We think AI is just now moving from the tinkering into production phase and we wanted to be ready to go.”
Jordan Steiner, DevCap
McCrea noted that VCs have hired Monadical to help on this front before. Now, DevCap can put those skills to work for its own investing purposes.
DevCap has already backed Toronto-based software startup Unified.to, which has built an application programming interface development platform that leverages AI, and is waiting to wire money to Montréal’s Rithmik Solutions, which offers an AI-powered analytics system for mobile mining equipment.
“We really liked DevCap’s experience with both AI and software development,” Unified.to co-founder and CEO Roy Pereira told BetaKit. “We were also impressed by their ideas for future growth and their due diligence process.”
For Rithmik co-founder and CEO Amanda Truscott, the story was similar. “We were super excited to bring DevCap on as an investor because of their deep expertise and strategic focus on AI technologies,” she told BetaKit. “That expertise not only allows them to profoundly ‘get’ us and what we do at Rithmik; it also positions them to help us in unique ways. We’re really looking forward to being able to bounce ideas off their team.”
Feature image courtesy Developer Capital.