Eva Lau’s Two Small Fish Ventures is moving upstream with the launch of a third fund.
The venture firm has secured $24 million CAD ($17.5 million USD) in an initial close as it targets an overall fund size of $40 million CAD.
With 40 investments under its belt, including notable bets and exits, Two Small Fish has the confidence and the capital returns to build a much larger fund than it had in years past.
“What that means is they have seen our success, they know what our secret sauce is, [and] they know our winning recipe.”
– Eva Lau, Two Small Fish
Founded in 2014 as an angel investment group, Two Small Fish comes to its third fund with five exits overall, including SkipTheDishes, which exited to the tune of $110 million CAD. Two Small Fish has also invested in Sheertex, unicorn startup Ada, and TealBook.
Founder and general partner (GP) Eva Lau explained that while Fund III remains focused on early-stage investment, the larger fund allows Two Small Fish to be a lead investor for the first time in its history.
Two Small Fish was created by Eva and her husband, Wattpad co-founder Allen Lau, with the goal of bringing operational experience to early-stage investing in Canada.
The Toronto-based firm raised its second fund in early 2019, securing $9 million CAD in an initial close. Two Small Fish had hoped to reach $15 million CAD with the fund, though Eva noted that the COVID-19 pandemic put a halt to that.
After securing an additional $3 million CAD before the onset of the pandemic, the second fund closed with a total of $12 million CAD. Eva explained that not raising additional capital after that was deliberate: the firm could have raised more financing, but chose to focus on investing rather than fundraising as the pandemic led to an influx of new startups and competition for capital. Beyond follow-on capital, Two Small Fish has fully deployed its second fund.
For its third fund, Two Small Fish has continued to raise capital from limited partners (LPs) that are a mix of high-net-worth individuals, family offices, and institutional investors. The firm declined to disclose the majority of the investors, though noted that all anchor investors for Fund II returned for its latest fund, including CIBC and Canso Investment Counsel. LPs from Fund II also included Wealthsimple’s Michael Katchen, Red Hat’s Bob Young, as well as Globalive and Wind Mobile founder Anthony Lacavera.
New investors also joined Two Small Fish for its latest fund but the firm declined to name the new additions. Eva noted, however, that Wattpad’s exit to Naver helped attract interest from international family offices.
“What that means is they have seen our success, they know what our secret sauce is, [and] they know our winning recipe,” said Eva.
That winning recipe is something Eva has been working on since she started making angel investments through Two Small Fish around 2014. She recalled launching Fund II around 2018, which marked her first venture fund.
“Allen raised a lot of money from Silicon Valley in terms of an [entrepreneur], but raising a fund is very different. So, at the time, as a first-time GP, certainly a lot of people looked at me and said, ‘what’s your history? How should we trust you in picking the winners?’”
Eva claimed to have seen a three-times multiple on invested capital from her angel investment fund at the time, a number that has since grown to 15-times. It’s that data that she said gives investors confidence in Two Small Fish.
Beyond SkipTheDishes, the firm’s exits to date include Helpful, Gallop Labs, CalendarHero (formerly Zoom.ai), and Anthony Lacavera’s Globalive Technology. A spokesperson for Two Small Fish also told BetaKit that the firm has had “a number of partial exits,” but noted they were not able to disclose details.
Eva started cutting angel cheques after Wattpad raised $17.3 million in Series B financing in 2012. “[I was] just wanting to share my war scars and experience with the ecosystem because we didn’t have that many entrepreneur-turned investors back then,” Eva said.
Prior to launching Two Small Fish, Eva was a founding team member of Wattpad and served as its head of community for a handful of years. She has also worked at companies like Symantec, ATI Technologies (acquired by AMD), and Brightspark, where she mentored various tech startups.
After more than 15 years at the helm of Wattpad, Allen recently started working more actively with Two Small Fish after stepping down as Wattpad’s CEO (where remains in an advisory role).
Two Small Fish partner Brandon Zhao also comes from Wattpad, where he worked as an early data scientist helping to build the company’s platform.
The Laus see their experience starting Wattpad and leading it to its $600 million USD exit, combined with decades of operational experience at other tech companies like Symantec and IBM, as a key differentiating factor of Two Small Fish.
The Laus are not unique in being operators-turned-investors, as many exited entrepreneurs look to invest in up-and-comers. What makes Two Small Fish stand out, in part, is that most exited entrepreneurs don’t raise a $40 million venture fund to invest in the next generation of companies.
“We can more effectively jump in and share our experience because our experience, partially because of the Wattpad exit, is actually more complete now,” Allen said. “So we can tell the founders, ‘hey, while you have these five issues at hand, we have dealt with that ten times already.’”
Adding that closing a fund now is a great opportunity, Allen noted that Two Small Fish feels well-positioned to both find and mentor companies through the current macroeconomic environment given the Lau’s collective experience.
While the dollar amounts are larger, Fund III continues to build on the same thesis Two Small Fish has held since the start: sector-agnostic investing in early-stage tech companies.
The firm is planning to make 20 investments out of its third fund with cheque sizes ranging between $250,00 to $2 million. That high-end range is where Two Small Fish is hoping to lead on deals rather than just co-invest.
Two Small Fish hopes that by leading more rounds it will be able to work more closely with companies to share its team’s operational expertise.
“[Two Small Fish wants] to just look for the next generations of tech giants while they are still early and cradle them to the full journey based on our operating and product-oriented mindset,” said Eva. “[And] help them to ride this journey together.”
Feature image courtesy Two Small Fish.