In June 2015, Yuri Navarro travelled to São Paulo, Brazil to deliver a keynote address at the Congresso de Investimento Anjo, an event for Brazil’s angel investors. Trips to international tech ecosystems like São Paulo were routine for Navarro, who was then CEO of Canada’s National Angel Capital Organization (NACO).
As part of the event, Navarro engaged with a number of Brazilian startups who were vying for a $1 million seed-stage investment from local and international investors. In a short time, something took Navarro aback about these Brazilian startups: despite their relatively young age, many were already profitable.
To Navarro, this was a clear diversion from the North American “growth at all costs” mindset that sees many startups prioritize rapid growth over building a sustainable business. What’s more, this wasn’t limited to Brazil. It was an observation that played out in the other global tech ecosystems Navarro visited, including Italy, Estonia, and Finland.
“We want to make this essentially the best and most founder-friendly pathway for a company that wants to come to Canada.”
“I remember thinking about how different those ecosystems were than ours, but also how competitive those companies would be in a North American context if they had access to this market,” he added.
Navarro said that event in Brazil was his “ah-ha moment” — a seed that would eventually grow into Kanata Ventures, which is now launching out of stealth.
Toronto-based Kanata Ventures wants to help global B2B startups accelerate their growth by providing a soft landing in the Canadian market. While it will invest through a standard 10-year limited partnership, Kanata Ventures is not purely a venture firm.
By forging corporate partnerships and taking a service-oriented approach to its portfolio, Kanata Ventures hopes to meld the models of Canada’s preeminent startup support programs and, with a global lens, help a new generation of tech companies thrive in Canada.
“We want to make this essentially the best and most founder-friendly pathway for a company that wants to come to Canada,” Navarro said.
Kanata Ventures was founded in 2020 by Navarro, who serves as managing partner; managing director Chris Kay; and partner Sean Kondra. While at NACO, Navarro worked on a number of angel investment and entrepreneurship initiatives, including Canada’s Startup Visa Program. After leaving NACO in 2018, he went on to work with several notable ecosystem organizations, including Panache Ventures and ventureLAB.
Kay is the CEO and founder of Multiplicity, a corporate innovation lab that has delivered innovation programming and consulting services to government and the automotive, real estate and financial services industries. Kondra has worked as a partner at Multiplicity since November 2018.
The three founders, who are personal friends, have all travelled to emerging startup markets and independently discovered a need for more support for companies looking to set up shop in Canada. The trio decided to combine their experience to construct Kanata Ventures’ business model.
De-risking expansion to Canada
Kanata Ventures’ approach to supporting international startups pivots on three core pillars: immigration, corporate partnerships, and capital investment.
The firm starts by partnering with stakeholders in emerging markets, including investors, to source qualified deal flow. While the firm is industry agnostic, Kanata is specifically looking for companies that have a product in market and are gaining some traction in their local ecosystem.
Once Kanata has selected a company, it plans to work with various programs, such as the Startup Visa Program, and with firms like BDO and Fasken, to assist companies through the legal and jurisdictional requirements for establishing commercial operations in Canada.
The second component of Kanata’s model is to be an advisor to its portfolio companies: helping them refine their sales process, establish a North American team, and connect them with target customers.
“What we’ve put together isn’t entirely groundbreaking. The ingredients that we use in our recipe exist already in other companies. It’s the way that we‘ve combined them that’s unique.”
As part of this undertaking, Kanata plans to set up pilot projects between portfolio companies and commercial partners (leveraging Kay and Kondra’s experience in corporate innovation), while helping companies get through the legal and risk-related activities associated with international expansion.
The venture firm also plans to work with Canadian accelerators and incubators that can provide startups with office space, mentorship and other forms of growth support to portfolio companies. Kanata Ventures’ role is to put these startups on the road to generating initial sales and validating them in the North American market.
“We see it as de-risking the process of expansion,” added Navarro. “Part of that is getting here in the first place and getting everything set up properly. The second most important part is validating that you can sell in this market, because most investors won’t take you seriously until you can.”
Finally, Kanata Ventures will invest in order to participate in the upside of its portfolio. The firm is currently establishing a legal LP entity and corralling investors for its first formal fund, for which it hopes to raise $10 million.
The fund will invest up to $125,000 in each company as they work to land in Canada and secure sales traction in North America. Kanata will earmark half of the fund’s value for follow-on investment once companies are ready for a post-seed or Series A round of funding, and is looking to build an equity position of between three and six percent over the lifetime of each company.
Navarro said the firm hopes to make between 15 and 20 investments per year. So far, Kanata Ventures is in talks with family offices as potential LPs and is targeting $5 million for a first close in Q2 of this year.
Same ingredients, different recipe
Navarro and Kay don’t believe they’ve reinvented the wheel. In fact, they were quick to point out how several elements of Kanata Ventures’ model mirror those of Canada’s leading venture studios.
Power Financial-backed venture studio Diagram Ventures, for example, also partners with founders and provides investment, hands-on support and partnership opportunities. Toronto-based Highline Beta is also distinguished by its work in scaling ventures through corporate innovation partnerships. Unlike Kanata Ventures, Diagram Ventures and Highline Beta mostly build their ventures in-house. However, Kanata Ventures’ model takes a similar approach to de-risking portfolio companies.
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“What we’ve put together isn’t entirely groundbreaking. The ingredients that we use in our recipe exist already in other companies. It’s the way that we‘ve combined them that’s unique,” Kay said, adding that Kanata Ventures is taking an intentionally and uniquely global approach to its de-risking model.
Though Kanata Ventures will not invest capital into Canadian companies, the firm may work with local startups through a cohort-style initiative it will launch in the coming months. Through these 16-week cohorts, Kanata will play matchmaker for vertical-specific startups and corporate partners for relevant pilot engagements. The firm is already in talks with roughly a dozen corporate partners for the first cohort, which will be focused on proptech.
Fuelling Canada’s pipeline of tech companies
From his years engaging with stakeholders in international tech markets, Navarro has witnessed Canada’s attractiveness to foreign founders. He said many companies want access to the North American market and noted that Canada offers a great landing point, with its welcoming attitude to immigrants, high standard of living, deep pool of capital support, and highly active tech sector.
Navarro and Kay realized these strengths independently during their many trips abroad. “We had noticed the level of sophistication of the Canadian startup ecosystem was considerably further ahead than a lot of places,” Kay said, adding that he was surprised by how far behind hubs like Hong Kong or London, England were compared to Canadian cities like Toronto.
“New companies that are coming [to North America] are thinking about Canada. We’re not having to convince them about anything,” Navarro added. “They already know that Canada is an interesting market and that this is a place that they want to consider launching their company from.”
In the last few years, tech startups from the United Kingdom, Sweden, New Zealand, and Nigeria, among many other countries, have chosen Canada as their North American anchorage. Now, cities like Toronto and Vancouver are among the fastest-growing tech hubs on the continent.
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As global founders are increasingly drawn to Canada as their North American landing point, these founders are playing an equally significant role in the growth of Canada’s tech ecosystem. According to a report from the Innovation Economy Council, first and second-generation entrepreneurs undertake nearly one-third of all early-stage entrepreneurship in Canada — significantly higher than most other comparable economies.
However, Navarro noted most Canadian funds and accelerator programs don’t look outside of Canada for deal flow, though some programs, such as Techstars Toronto, are signs the country is moving in that direction. “Canada is really well-positioned right now, more so than we’ve ever been, in terms of our capacity to work with global founders,” Navarro added.
Navarro hopes that Kanata Ventures will prompt more organizations to think globally when it comes to their investments, to not only support high potential companies, but also bring new ideas and talent to strengthen Canada’s tech ecosystem.
Feature image courtesy of Kanata Ventures. Photo by Cedric Swaneck.