Real Ventures is gearing up for the next phase of its development as it approaches the first close of its third, $100 million partnership, Real Ventures III, peHUB Canada has exclusively learned.
The fund’s launch will cap what has been an exceptionally active period for the Montréal-based Real Ventures, which in just six years has grown to become one of Canada’s foremost early-stage IT and Internet-focused investment specialists.
According to Thomson Reuters’ data, Real Ventures ranked at the top of private VC investors in Canadian seed-stage and startup financings in 2013. The firm was behind 16 investments in total last year, not including deals done in partnership with accelerator FounderFuel. It also exited two portfolio companies – one of which was video streaming platform 5by, which was acquired in September by StumbleUpon.
Real Ventures was also one of four “high performing” Canadian VC firms awarded $50 million by Ottawa’s newly-minted Venture Capital Action Plan (VCAP) in late 2013. The firm received a $10 million VCAP commitment, which is part of Fund III’s imminent first closing, said John Stokes, Real Ventures’ co-founder and partner in an interview with peHUB Canada.
Stokes and fellow partners Jean-Sebastian Cournoyer and Alan MacIntosh in December posted a blog on the firm’s website announcing the “next phase” of Real Ventures’ journey, which will take its model of “pro-entrepreneur investing and collaborative startup ecosystem building” beyond its traditional turf on the Island of Montréal and in Québec.
Real Ventures’ journey began with the 2008 inception of its first seed investment fund, Montréal Start Up. Stokes described the original fund as “a test” aimed at finding out if there was sufficient depth of knowledge and experience in Montréal’s IT clusters to effectively build high-growth companies.
The test yielded positive results.
“The timing of Montréal Start Up was perfect,” said Stokes. “Silicon Valley’s Y Combinator was just getting underway, and Real Ventures perceived that opportunities were also possible for new Canadian web enterprises to get up-and-running at a faster pace and at less cost.”
Montréal Start Up operated by identifying local talent and helping founders develop scalable market strategies, validate their business models and prepare for their Series A. The fund gave timely support to local entrepreneurs seeking to harness the innovation trends that were then emerging across North America.
“A wave was happening, and Montréal and other major Canadian tech centres were a part of that wave,” said Stokes.
Montréal Start Up made 15 investments in total. Its seventh investment helped give life to online shopping club Beyond the Rack, which has gone on to raise just north of $65 million in venture capital. That includes Beyond The Rack’s $25 million financing round from Nov. 2013, led by Investissement Québec, Iris Capital and Tandem Expansion Fund with the participation of existing investors Highland Capital Partners, Panorama Capital, BDC Venture Capital IT Fund and iNovia Capital.
Stokes said he is “really excited” about what’s happening at Beyond The Rack, which clearly illustrates the direction that promising Canadian startups can and should take.
Montréal Start Up’s experience convinced Stokes and his partners of the need for additional market infrastructure. This led to the 2010 formations of the $50 million Real Ventures fund (Real Ventures II) and FounderFuel. The firm also partnered in the 2011 launch of innovation hub Notman House at 51 Sherbrooke St. West, which aims to facilitate collaboration and generate synergies in the local ecosystem.
Real Ventures also stressed the importance of establishing networking ties with Silicon Valley players, such as 500 Startups, by becoming a charter sponsor of expat organization, the C100.
Real Ventures II has over the past three years invested in 55 startups and well over 100 founders, as well as supplying follow-on capital of up to $3 million to those that graduate to their Series A. Stokes speaks enthusiastically about portfolio companies, all of which are focused on “shaping the Internet experience of the future, or using the Internet to disrupt existing industries.”
He highlighted several companies featured in Real Ventures’ 2013 deal-making that he thinks are making a distinctive mark in the IT world.
For example, on-demand space provider Breather is “anticipating the future demands of creative individuals seeking to collaborate rather than operate from within corporations,” said Stokes. Real Ventures led the $1.5 million seed financing of Breather in June. He also noted the “high quality” of Lagoa’s cloud-based platform for photo-real 3D visualization and rendering, which Real Ventures backed in a US$5 million Series A round last December. The firm also invested in a pair of ed-tech graduates of FounderFuel, including Oohlala, a mobile app that allows students improve their college experience.
Stokes is also bullish about a late 2012 deal – the $5 million financing of Frank & Oak by Lightbank, Real Ventures, Rho Ventures Canada and BDMI. In the e-commerce mould of Beyond the Rack, Frank & Oak is “a very strong and well-differentiated online brand of premium menswear,” he said.
A larger Real Ventures III, which is targeted at double the size of Real Ventures II, will focus on similar enterprises. Stokes is not expecting any fundamental changes to the firm’s strategy. Rather, it will attempt to replicate its approach in other innovation hubs across Canada. A more sizeable partnership will also allow Real Ventures to “stick longer” with its companies, and guide later-stage scale-ups.
While acknowledging challenges, Stokes is happy with how things are going with fund-raising. Marketing efforts are getting a leg-up from the portfolio’s track record. Fund I has so far generated (unrealized) a 3.2x MOC (multiple on invested capital) and gross IRR of 34 percent, while Fund II has generated a 1.4x MOC and gross IRR of 42 percent. Real Ventures’ exits also give evidence of realized gains – Fund II’s exits, for example, have to date shown a 3.4x MOC.
The U.K.-born Stokes came to Canada in 2007 after spending many years as a business operator and investor on three continents. Courteous, thoughtful and unassuming in private conversation, Stokes has a reputation as a powerhouse in his work at Real Ventures and FounderFuel – a reputation he earned through experience on both sides of the VC investment relationship.
Stokes’ market background contributed to the “contrarian thinking” that he believes went into the conception of Real Ventures. Once he had set up house in Montréal, Stokes started a blog, MontrealStartup.com, to make connections with other entrepreneurial minds interested in “starting something from scratch.” Not long afterwards, he met firm co-founders Cournoyer, MacIntosh, Daniel Drouet and Austin Hill.
The story, as they say, continues.
Photo of idea balloon courtesy of Shutterstock.
Photo of John Stokes courtesy of Real Ventures.
Photo of FounderFuel demo day courtesy of FounderFuel/Eva Blue.