Golden opportunities seen in Canadian tech startups

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It's been a busy few months for the Canadian venture finance scene, as money earmarked by Ottawa to boost the technology sector trickles down to fund managers looking to back early-stage entrepreneurs.

Last month, Montreal's Real Ventures announced its Fund III had raised $75-million to invest in Internet-focused startups, and Vancouver-based startup investing whiz Boris Wertz's Version One Ventures closed a $35-million fund that will invest in mobile, software-as-a-service and Internet early-stage companies. Mr. Wertz's lead backer is the Northleaf Venture Catalyst Fund, one of the "fund of funds" formed to invest money from Ottawa. Other investors include tech company Open Text Corp, several of Canada's biggest financial services giants and the Canada Pension Plan Investment Board.

Now comes word that Northleaf is backing another fund, this one launched by Matt Golden's Golden Venture Partners, a Toronto-based "micro-VC" that focuses on very-early stage companies in the mobile space. The new fund, called Golden Ventures Partners II, recently closed after raising $40-million from Northleaf, the Business Development Bank of Canada and several wealthy Canadian individuals and families.

Mr. Golden, a veteran Canadian venture capitalist and entrepreneur, has had little trouble finding good investment opportunities. His previous fund, launched in 2011, raised $17-million, which he has mostly invested in 18 deals, half in Canada and half in the U.S. The recipients include several promising startups that have gone on to raise bigger sums from top-tier U.S. venture capitalists, including Toronto's Wattpad Inc., Boston-based YesWare Inc. and Montreal's OMSignal Inc.

Mr. Golden said his second fund came together in fewer than three months and was oversubscribed. "I think we could have easily raised significantly more," he said. Mr. Golden is focused on investing between $250,000 and $1-million for each startup, both in the initial seed-financing rounds of young companies as well as in what he calls the "seed-plus" stage. That's where companies are just starting to earn revenues and prove their concepts have traction, but are not quite seasoned enough to merit the bigger dollars that come in so-called Series A financings. Mr. Golden says Series A financings have increased in size to between $5-million and $10-million from the $2-million to $4-million range. Many promising companies are not yet at that stage, leaving a gap where he hopes to put his "seed-plus" investing plans into play.

The Toronto VC said he expects to close his latest fund's first investment in an early-stage company next week, and sees plenty of promise in his own backyard. He says there are many promising companies in the Toronto-to-Waterloo corridor that are "potential unicorns" – startups that reach the $1-billion valuation, a group that includes household names such as Dropbox and Spotify. That's in addition to a class of emerging Canadian ventures, including Shopify, Kik Interactive and Hootsuite, that have already attracted big dollars from U.S. venture capitalists.

Canadian startups that are further along than the ones Mr. Golden's new fund is targeting are making inspiring progress. In the past week alone, Waterloo instant-messaging firm Kik Interactive raised $38.3-million from several prominent U.S. VCs, while Blockstream, a Montreal-based bitcoin-focused company, raised $21-million from 40 investors, including LinkedIn founder Reid Hoffman, U.S. VC Khosla Ventures and Canada's Real Ventures.

It's feeding what many hope is a continued upswing for the Canadian tech scene, which was a preoccupation of the late Jim Flaherty when he was finance minister. Under his watch, the federal government launched its $400-million Venture Capital Action Plan, which has given rise this year to three Canadian "fund of funds" – Northleaf, Kensington Ventures Fund and Teralys Capital Innovation Fund. These funds have raised a combined $570-million from banks, pension funds and federal government financing vehicles to support the growth of startup ventures in Canada, a historically underfunded, underperforming sector.

"The world is taking notice of this ecosystem," Mr. Golden says.