Two years after Graphite Ventures spinout, MaRS IAF is ready to invest again

Since its launch in 2008, the Toronto-based MaRS Investment Accelerator Fund (IAF) has grown into one of the country’s most active early-stage venture capital (VC) firms.

But after Graphite Ventures was spun out from IAF in late 2021 as a private sector fund, IAF lost nearly all of its employees. Emil Savov was hired and tasked with rebuilding the IAF team. His work is now getting closer to completion.

“If ever there was a time for us to make sure there is sufficient early-stage capital, now’s the time.”

Today, with a revamped six-person team, Savov believes that IAF has hit “critical mass.”

“We’re ramping up,” Savov, IAF’s managing director, told BetaKit in an exclusive interview. “The idea is to bring [IAF] to the strength that it was before the [Graphite] spinoff, and maybe even go beyond that.”

According to Savov, IAF is ready to become “an important player” in Ontario’s early-stage tech ecosystem once more, at a time when seed funding has become more difficult to obtain as market conditions have deteriorated.

“If you ask me what I’m concerned about, it’s that we’re heading into a completely different economic cycle now,” MaRS Discovery District CEO Yung Wu told BetaKit in an interview.

Wu, who is set to depart at the end of this year following a six-year term as MaRS CEO, noted that high inflation and interest rate hikes by central banks have caused capital to move away from “early-stage, long-hold, low-liquidity categories like VC” and into other asset classes. “If ever there was a time for us to make sure there is sufficient early-stage capital, now’s the time.”

“I think it’s great that IAF is in the market helping on the early-stage front—there isn’t enough money for early-stage [startups] at the moment,” CMD Capital general partner Matt Roberts told BetaKit. “Having them in the game is great and good for the ecosystem.”

StandUp Ventures managing director and IAF alum Michelle McBane agreed. “I continue to think it’s a worthwhile platform in Ontario—particularly in these times,” she told BetaKit.

Helmed now by Savov—a Fonds de solidarité FTQ alum and former federal innovation advisor—IAF is an evergreen VC fund controlled by Toronto innovation hub and fellow government-backed not-for-profit MaRS. Created 15 years ago to fill a funding gap in Ontario’s early-stage tech ecosystem, IAF is funded solely by the Government of Ontario.

To date, IAF has received approximately $43 million CAD from the province to invest in local pre-seed and seed-stage tech startups and deployed $93 million into over 180 tech companies across Ontario, an amount that does not count the $25 million it put into Graphite.

Wu claimed that every dollar that IAF has put into startups has resulted in $22 in private sector capital being invested, totalling over $2 billion to date. “That’s a really great ratio to think about because it’s intended to be an activation and a signal for the private sector to follow, which is exactly what it’s been doing,” he added.

IAF targets enterprise software, healthtech, cleantech, and deep-tech startups, such as artificial intelligence companies and hardware firms building semiconductor, photonics, advanced materials, and aerospace solutions. According to Savov, IAF usually deploys about $7 million across 10 to 20 transactions annually. It typically writes first cheques of around $500,000 into startups with no more than $500,000 in revenue.

While IAF can lead rounds, it typically follows and takes board observer seats, which Savov argued makes it easier for it to collaborate with other VC firms. IAF’s investment limit per company was raised from $750,000 to $1.5 million to account for the growth of typical pre-seed and seed funding round sizes, which have “increased significantly” since IAF was launched.

According to Savov, IAF’s “synergy” with MaRS enables it to provide more support to nascent tech startups than other small seed-stage VC funds. “[We] have the ability to act like a bigger fund than we actually are,” he argued.

IAF senior investment director Zeeshan Ali told BetaKit that IAF leans on its link to MaRS when it comes to both investing and portfolio management, noting that IAF has the capacity to tap into a broad network of founders, advisors, and corporate partners, accelerator programming, and marketing and communications teams to support both its own investments and help the firms it backs succeed. “We’re constantly engaged with our portfolio companies to make sure we’re adding value beyond the cheque, which is absolutely critical in the market that we are in today.”

Savov indicated that IAF’s mandate is to invest in sectors where it is more difficult to attract private sector capital because they take longer to generate returns or carry greater risk—a mission it aims to balance with remaining self-sustaining.

“I like to use the expression, ‘You need some Oscars and you need some blockbusters,’ meaning you do certain things because they’re good for everybody and for the ecosystem,” said Savov. “At the same time, you need investments that will produce investment returns sooner.”

IAF’s exits include Axonify, Ideal, Nudge, and Top Hat. Its current portfolio counts Bridgit, Cinchy, Dejero, E-Zinc, Maple, MindBridge, Nicoya Lifesciences, Odaia, Peak Power, Ranovus, Swift Medical, and TealBook among its members.

Since 2018, IAF has not required any additional capital infusions from the Government of Ontario. “The returns have been good enough to fund our operations and provide us with capital for investments, which puts us in good shape,” he added.

According to Savov, IAF currently has over $125 million in assets under management, including existing investments and dry powder.

MaRS claims IAF ranks “in the top quartile of VC funds in North America.”

Last year, MaRS told The Logic that “IAF has been extremely successful in generating returns and driving follow-on investments in our startups,” noting that its fund has averaged a rate of return of above 20 percent overall, and 30 percent between 2017 and 2020.

Savov and MaRS declined to independently confirm the accuracy of these figures to BetaKit, stating only that IAF’s investment performance ranks “in the top quartile of VC funds in North America.”

MaRS and the Government of Ontario leveraged $25 million of those returns on prior IAF investments to sponsor the launch of Graphite and become a limited partner (LP). Graphite was officially spun out of MaRS as a private-sector VC fund run by the former IAF team in early 2022, and in August, Graphite closed its first standalone fund at $110 million CAD. LPs include MaRS, the Ontario Municipal Employees Retirement System, CIBC Innovation Banking, and the Alberta Enterprise Corporation.

Wu said part of the intention behind Graphite was to build pre-seed to Series A coverage for MaRS companies, through which IAF could provide capital at the pre-seed or seed level before handing startups off to Graphite. While Graphite was established to focus primarily on Ontario deals at the seed and Series A stages, it was also given a broader mandate to search for promising firms across Canada.

The launch of Graphite required IAF to rebuild its team. In the interim, Graphite has been contracted to manage IAF’s legacy portfolio, which currently includes 115 companies (with final approval from IAF required for any new or follow-on investments).

Savov—who has spent over 25 years working in the innovation sector, previously serving as vice president of investments at Fonds de solidarité FTQ and advisor to the federal government on ISED initiatives and NRC IRAP, among other roles—was hired first in May 2022. He was joined that September by Ali, the former head of business development at MaRS.

IAF brought on four more people in 2023. Earlier this year, it recruited Nomic Bio and Front Row Ventures alum Elisha Krauss as a senior investment associate, and ex-Scotiabank employee Sennah Mostovac as an operations associate. This fall, IAF hired Canada Pension Plan Investment Board (CPP Investments) alum Maher Akhtar as an investment associate and former Silicon Valley Bank (SVB) director of technology banking William Ma as director of investments.

Some sources from the Ontario tech ecosystem that BetaKit spoke with on condition of anonymity expressed surprise to learn that IAF was rebuilding post-Graphite. One described IAF’s return as positive news for the province but added that given the fund’s brand new and largely junior team in terms of VC experience, it remains to be seen whether IAF will continue to serve as the same market signal for other private capital to follow as it has in the past.

“Money’s money right now and everybody’s desperate for it, so they’re gonna have no problem finding themselves getting into deals, but the question mark is, are they a signal or not into the market?”

Another source noted that government funding for startups is designed primarily to fill gaps in the ecosystem, and argued that initiatives like IAF are needed especially amid “these challenging market times where there is less capital flowing.”

For his part, Wu believes that with its current team in place, IAF is in “a really good position.” According to Wu, these six hires put IAF halfway toward where it needs to be from a staffing standpoint. “Over time, we should see more and more and more independence as the [IAF] team continues to grow, and that’s a good thing,” he added.

“The idea is to bring [IAF] to the strength that it was before the [Graphite] spinoff, and maybe even go beyond that.”

After Graphite handled most of IAF’s investing operations in 2022, this January, IAF resumed making all of its new investments. This year, IAF has completed five new deals, including Hamilton’s Skygauge Robotics, Toronto-based Vivid Machines, and Ottawa’s Enurgen. Savov said that the fund will continue growing and hiring in the next year as it looks to round out its team and eventually resume managing its existing portfolio.

Going forward, IAF intends to continue to focus on the same sectors, including enterprise software, cleantech, and healthtech. Savov said that the fund will also likely broaden its scope to back more deep-tech startups, and may consider building a biotech investment program down the road, with its recent AdMare partnership as a potential “catalyst” for this.

With the addition of Ma, IAF joined the growing list of Canadian tech financiers to snap up talent from SVB, alongside players like RBC, CIBC, TD, Scotiabank, and National Bank (which purchased SVB Canada’s remaining commercial loan book this summer).

Ma described the opportunity to help an established brand like IAF with a strong team rebuild as an attractive proposition. “How do we get back to being the most active seed-stage investor in Canada?” he told BetaKit. “That’s what’s really exciting about this—the building.”

Feature image courtesy MaRS IAF.