In June 2020, the University of Calgary launched a pre-seed startup investment fund to fill the funding gap between innovation and commercialization in the city’s technology ecosystem.
Three and a half years later, UCeed has expanded from two donor-supported funds housed within Innovate Calgary into a group of six that back early-stage tech startups developing innovative health, social impact, and energy-related solutions.
During this time, UCeed has become one of Canada’s most active pre-seed and seed-stage investors, per the Canadian Venture Capital and Private Equity Association, deploying $8 million CAD into 44 startups and amassing $22 million in assets under management (AUM).
“Donors are giving capital to UCeed and saying, ‘We believe this is an important activity for you to be embarking on.’”
In an interview with BetaKit, UCeed executive director Peter Santosham described UCeed as a “gap fund” aimed at helping startups in certain sectors bridge “the valley” between fundamental discovery, which is often financed via grants, and traditional venture capital (VC). According to Santosham, this gap between innovation and commercialization is well understood in the United States (US), where many different types of gap funds exist.
“When we were doing our research around our funds, I’m not sure we came across a set model in the US, other than a general recognition that, if you’re dealing in early-stage technology in a community that perhaps has not yet embraced that space or lacks understanding of the space to some extent, these gap funds can be really useful,” he said.
Other funds have emerged in recent years to help address the lack of institutional VC funding being invested in Canadian tech startups at the pre-seed stage, albeit with a less local focus than UCeed. BDC Capital re-entered the space last year, joining new entrants like Northside Ventures, Staircase Ventures, CMD Capital, Gambit Partners, and Storytime Capital, and established firms like Panache Ventures and Golden Ventures.
In regions that have more developed early-stage tech ecosystems, such as California and Boston, Santosham noted that gap funds still exist but may not be as beneficial, whereas in places with less developed ecosystems and angel communities—especially in certain verticals, such as healthtech in Calgary—gap funds can play an important role, he argued.
In some cases, university endowments roll out gap funds in the hopes of generating investment returns. In others, gap funds are financed entirely by donors. UCeed falls into the latter group, a structure that Santosham claims makes it relatively unique in Canada.
According to the University of Calgary, UCeed is the largest university-based investment fund of its kind in the country. Santosham described UCeed as an evergreen “venture philanthropy fund.” It does not derive its capital from traditional limited partners: rather, all of its funding is provided by donors and all of its returns are recycled back into the fund. UCeed’s financiers include University of Calgary alumni, as well as successful entrepreneurs or high-net-worth individuals from Alberta looking to give back.
UCeed’s focus is on moving new technologies forward. While the fund recognizes that not all of its companies will win, it is betting that the Calgary tech ecosystem’s overall knowledge will grow over time through this process, said Santosham.
Other gap funds exist in Canada, including the Government of Ontario-backed, Toronto-based MaRS Investment Accelerator Fund—which at one point was exploring a partnership with the University of Calgary through MaRS.
Other Canadian postsecondary education institutions with dedicated funds for seed-stage startups include the University of British Columbia, Kitchener-Waterloo’s Wilfrid Laurier University, and Hamilton, Ontario’s McMaster University. Meanwhile, the University of Waterloo recently shared plans to invest up to $5 million from its endowment into a VC fund launched by the team behind its startup incubator, Velocity.
Last year, the University of Alberta announced a similar gap fund to UCeed, launching with nearly $5 million and a goal to raise $50 million in five years from donors. Per Santosham, other Canadian universities are gearing up to roll out comparable gap funds.
Andrea Morris, associate vice president and chief development officer at the University of Calgary, told BetaKit that UCeed’s development came as part of a $1.4-billion fundraising drive aimed at helping the institution become “Canada’s most entrepreneurial university.”
Morris described innovation and entrepreneurial thinking as “central” to the University of Calgary’s broader strategic plan. “UCeed helps bridge the gap between promising research-based ideas into solutions for the real world,” she added. “When those ventures are successful, UCeed’s investment returns will support future startups—essentially creating a sustainable funding model for our entrepreneurial community.”
UCeed sets up a new fund when it has identified an anchor donor that believes in the fund’s focus, be it an individual or an institution. Its funds currently include: a Children’s Health and Wellness Fund (sponsored by the Alberta Children’s Hospital Foundation); a general Health Fund (supported by River Fund at the Calgary Foundation); a Social Impact Fund (backed by United Way of Calgary and Area and the Government of Alberta); an Energy Fund (financed by Don Archibald and the Tamaratt Fund at the Calgary Foundation); the Haskayne Student Fund (supported by a variety of donors); and a recently-launched Neuro Fund (sponsored by the T. Boone Pickens Foundation).
About 70 percent of UCeed’s portfolio is based in Alberta or has deep ties to the University of Calgary. Together, its funds have backed startups like Areto Labs, Fluid Biotech, Monark, Nimble Science, and Oncoustics.
UCeed prefers to invest “as early as possible.” It can lead or support rounds and sometimes serves as a startup’s first and only investor. UCeed typically backs firms at the pre-seed level. Its average cheque size is $125,000 and UCeed cannot invest more than $300,000 in a single portfolio company.
“We do outsized due diligence relative to our cheque size,” said Santosham. He noted that in some cases, UCeed may conduct the equivalent of $20,000 worth of due diligence on a $100,000 investment, leveraging its in-house expertise. UCeed then takes the memos it produces and shares them with the local investment community to help others understand the opportunity.
According to the University of Calgary, UCeed portfolio companies have collectively created 337 jobs, generated nearly $61 million in combined revenue, and raised more than $68 million in additional capital.
UCeed does “outsized due diligence” to help other investors understand the opportunities better.
Given the stage in which UCeed invests, Santosham said it remains too early to adequately evaluate its performance returns-wise. “Things look fine right now on paper,” he said. But since it plays at such an early stage and provides follow-on funding to winners, Santosham believes it is feasible for UCeed to recycle capital and continue as an evergreen group of funds.
Santosham indicated that there is some historical data to support this: 16 years ago, the University of Calgary had a much smaller, $1 million fund that invested in some successful Canadian tech startups as a proof-of-concept. While this fund was not structured in the same way as UCeed, it had many similarities.
“The key thing was that it demonstrated the potential for these types of funds as it was the first investor in Circle Cardiovascular and Parvus Therapeutics and a couple [of] other smaller deals,” said Santosham.
Santosham said there is “lots of appetite” to add at least a couple more funds to UCeed’s portfolio. He said he could see a future where UCeed adds another $10 million to $15 million of AUM in a few verticals.
“We’re proud of our progress to date, and we’re just getting started,” said Morris.
Feature image courtesy UCeed.