Nex Gen VC Partners (NGVC), a new Calgary-based investment firm, has secured an initial close of over $8 million CAD for its first venture capital (VC) opportunities fund.
Led by father-son duo Ken and Scott McKay, co-founders of Calgary family office KJSM Ventures, NGVC marks both a continuation and an expansion of KJSM’s VC investment strategy. NGVC is currently fundraising and aims to raise up to $20 million for the fund.
KJSM’s venture investing track record led the McKays to double down on their existing strategy and bring in outside capital.
In an exclusive interview with BetaKit, the pair of entrepreneurs-turned-investors and NGVC managing partners outlined their plans for the sector-agnostic fund. NGVC will target early-stage tech firms nearing profitability across North America and “special opportunities” with “shorter hold durations” than traditional VC. They hope to prepare these companies for later-stage investment.
NGVC’s limited partners (LPs) include undisclosed venture partners, family offices, private-equity fund-management teams, and high-net-worth individuals. KJSM is NGVC’s largest investor.
“This is the vehicle that we are using, going forward, in venture,” said Ken McKay, emphasizing that KJSM is “fully committed” to this strategy and so wants to own a significant piece of this fund.
Ken McKay formerly worked in energy and Scott McKay in real estate. Through KJSM, they have invested in a variety of asset classes, from public equities to VC and real estate.
Ken McKay built two private and two Toronto Stock Exchange-listed junior oil and gas companies between 1995 and 2012. Following his fourth, after noticing a shift in Canada’s energy sector, Ken McKay decided to focus his money and his efforts on investing and launched KJSM in 2012 alongside Scott, who had worked in property evaluation and founded and run a commercial real estate group.
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“It was a different time compared to the booming days prior, and we thought to ourselves, maybe we should consider looking at different alternative investing,” Scott McKay said.
When they began exploring the idea of early-stage venture investing, the McKays quickly noticed a gap in the Alberta and Western Canadian markets. “All of a sudden you put your name out there as providing some capital to earlier stage companies, [and] you had a plethora of deal flow occurring,” Scott McKay added. “That was a lightbulb for us.”
Since then, KJSM has invested in 20 firms across a variety of sectors and seen seven realizations. The firm’s portfolio includes Canadian tech startups like Toronto-based mobile wine-recommendation app Somm and digital real-estate investment platform Share.
Over time, Ken McKay said that the venture deal flow that KJSM was seeing eventually became more than what his family office could handle. KJSM’s track record encouraged the McKays to double down on their existing strategy and “align with outside capital” in the form of LPs with the same philosophy. The pair founded NGVC last year.
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As Scott McKay noted, NGVC’s strategy will involve investing in companies that are close to profitability but require some additional capital to “bridge” them there.
“We consider ourselves a hybrid in the sense that we want to invest in companies approaching what we call ‘near-term profitability’ and have the products and contracts in place to have significant catalyst for value creation,” said Ken McKay, who noted that NGVC also sees room to help “groom” these companies for later-stage, larger investment firms and funds, including, potentially, some connected to its LP base.
While NGVC is “well-positioned” for deals in Alberta and Saskatchewan, given its headquarters and LP base, the McKays plan to invest across Canada and the United States. NGVC has already begun pursuing investment opportunities and expects to back one or two companies in the fall.
“All of a sudden you put your name out there as providing some capital to earlier stage companies [and] you had a plethora of deal flow occurring.”
Speaking to the timing of NGVC’s launch—which comes amid tough economic conditions and a broader tech market downturn—Ken McKay said he believes the need and opportunity for a fund of its ilk has only increased.
“That is why we chose what most people would consider a difficult time to try to raise a new fund, but why we think it’s the optimum time to do it,” he said.
For his part, Scott McKay emphasized that NGVC is not deploying a “spray-and-pray” model by making tons of bets in the hopes that a few pan out. “We’re looking at each company as a pillar in this fund,” he said, adding that NGVC wants to ensure it is closely aligned with founders and management teams.
As companies navigate this challenging environment, which has seen some investors pull back and hang startups out to dry, NGVC sees room to be “the first call” for portfolio firms.
“We want our portfolio companies to talk to us about what’s going right and what’s not going right because we can support, we can help,” Ken McKay said.
Feature image courtesy Nex Gen VC Partners.