White Star Capital wants to lead Canadian seed rounds with new $50-million USD fund

White Star Capital has launched a new seed fund to fill what it sees as a key gap in Canada’s venture capital (VC) market.

The global, multi-stage VC firm has secured a first close of $25 million USD for its North American Seed Fund, with a $50 million USD target. With this, it aims to lead pre-seed and seed financings for tech startups across Canada and the United States (US).

“We’ve been really happy with our track record overall in Canada.”
Sanjay Zimmermann, White Star Capital

Recent data from the Canadian Venture Capital And Private Equity Association indicates that there has been a steep decline in pre-seed and seed investment activity in Canada. While the latest results from Québec are slightly stronger in this respect, some industry leaders have been sounding the alarm in light of poor fundraising figures for startups and VCs, declining entrepreneurship, and performance anxiety.

In an interview with BetaKit, White Star general partner (GP) Sanjay Zimmermann said he is “definitely concerned” about the state of early-stage Canadian VC. White Star’s diagnosis is that “the missing piece” is often a lack of lead investors at the seed stage who are capable of cutting cheques for more than $1 million. This was a problem that CMD Capital also set out to tackle, but fell short after failing to secure anchor investors.

White Star hopes its seed fund will turn things around, and the firm has secured backing from a slew of big Canadian institutions to do just that. Fonds de solidarité FTQ is anchoring the fund. Other limited partners include Capital régional et coopératif Desjardins, the La Caisse-funded Fonds québécois d’amorçage Teralys, and Toronto-Dominion Bank’s TD Innovation Partners (TDIP).

“By investing in White Star Capital’s new fund, [TDIP] aims to help fill this critical early-stage funding gap in the Canadian innovation ecosystem, helping to give founders the backing they need to launch, grow, and scale their ventures,” TDIP director of capital solutions Michelle Sabourin told BetaKit.

Zimmermann, a Toronto-based VC that has been working with White Star for nearly nine years and was recently promoted to GP, is co-leading the fund alongside fellow GP Catherine Ouellet-Dupuis. She is located in Montréal and served as chief legal officer and chief strategy and corporate development officer at local human resources tech company Workleap, helping it scale to more than $100 million in annual recurring revenue.

Zimmermann said the pair brings “complementary” skillsets across operations and VC investing. With its final close, White Star intends to round out the fund’s leadership team by announcing a third GP based out of New York, where the firm already has a presence.

White Star intends to focus its investments on these three markets and work closely with founders based in or near each city. “We truly believe that there is a golden triangle of Montréal, Toronto, [and] New York,” Ouellet-Dupuis said.

Zimmermann said the fund’s goal is to exclusively lead and co-lead rounds while building a portfolio of 30 companies, likely deploying more funding in Canada than the US. It will write initial cheques of $500,000 to $2 million USD, with follow-on capital reserved to support breakout companies through Series A and beyond. The firm is currently finalizing its first two investments.

White Star intends to back a mix of software startups through the fund. Zimmermann said investments will reach both business-to-business and direct-to-consumer companies, but not biotech, deep tech, and particularly capital-intensive businesses. Themes of interest include automation, cybersecurity, healthtech, and the sustainable economy.

White Star was founded in 2014 by managing partners Eric Martineau-Fortin and Jean-Francois Marcoux—who are both Canadian—as well as former co-leader Christian Hernandez Gallardo. It is headquartered in the United Kingdom (UK) and New York, with a strong presence in Canada. Since its founding, White Star claims it has backed more than 100 companies across the globe, growing to 50 employees (including seven in Canada) and $1 billion USD in total assets under management. Today, the firm has operations across North America, Europe, and Asia.

White Star began as a generalist, “early growth” tech fund focused on leading Series A and B financings. The firm has closed three funds to date that fit this bill, and is working on its fourth. In 2020, White Star expanded beyond those roots by creating a dedicated digital asset fund for investing in cryptocurrency networks and blockchain-enabled companies. It has since followed up with a second fund.

White Star has established its Canadian presence through offices in Toronto and Montréal, as well as a Canadian portfolio that includes startups like Borrowell, Carbon6, and Dialogue. Zimmermann claimed that the VC firm has made 14 Canadian investments to date and successfully exited six of them. He would not share more detailed returns. “We’ve been really happy with our track record overall in Canada,” he said.

Zimmermann said White Star has also made exceptions to its thesis over the past 11 years with select investments in North American tech startups at the pre-seed and seed stages, including in Canadian companies like Drop, Flare, Ledn, Novisto, Uvaro, Vention, and Wrk. He said the performance of this portion of the firm’s portfolio is part of what convinced the firm to take the leap and launch a dedicated seed fund.

Zimmermann said White Star now believes that it has the right market coverage, team, and platform in place to support a more comprehensive seed investment strategy.

According to Zimmermann, Canada has lots of funds that can write $250,000 or $500,000 pre-seed and seed cheques, but aren’t taking action. He claims White Star has heard from many Canadian tech founders frustrated that they had interested investors, but no lead backers.

Zimmermann claims White Star knows firsthand how tough the fundraising market is. Getting to this first close “has been long and challenging,” he said.

Despite the firm’s lengthy track record, established platform, and strong returns, Zimmermann said it took White Star a full year to get to this point. He expressed gratitude to the new and repeat investors who helped the firm secure this close, and noted that White Star hopes to hit its $50-million USD target a year from now.

“We really feel that what we’re doing is important, and that’s what we really need in the ecosystem right now, and we don’t take no for an answer,” Ouellet-Dupuis said. “We’re big hustlers.”

Despite some big challenges in the VC market at the moment, Zimmermann argued that it is an exciting time for seed-stage investing, given that founders today can stretch a small round farther through artificial intelligence (AI) tooling.

In a world where AI has also made it easier to build products quickly, Ouellet-Dupuis believes that quality go-to-market strategies will become paramount.

“How to reach your customers will be even more critical than it was before, because there’s going to be so much noise in the market,” Ouellet-Dupuis said.

Ouellet-Dupuis contended that White Star’s global network of experts can assist portfolio startups with this. She and Zimmermann expect the firm’s worldwide presence to also prove beneficial for companies it backs, given the ongoing US trad e war and geopolitical uncertainty.

For entrepreneurs thinking of scaling a business over the coming years, optionality is a good thing, Zimmermann argued. While the obvious choice for Canadian startups historically has been selling to the US, the GP says diversifying into Europe or Asia might be a smart idea. This is something White Star companies like Novisto and Vention have done, and he thinks White Star can help more Canadian portfolio startups take this route.

“More needs to be done to fully develop the potential of our innovative entrepreneurs, particularly in terms of international growth,” Fonds de solidarité FTQ vice-president of private equity and impact investing (fund management) Philippe Huneault told BetaKit. “This is why the Fonds partners with Québec technology funds like White Star and their global networks.”

Feature image courtesy White Star Capital.