Vanedge leverages strong returns in $104 mln first close of Fund II


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Vanedge Capital has held an initial close of its second information technology fund on the strength of several big portfolio wins, including last year’s sales of MediaCore, Metafor and Recon.

Vanedge II raised $104 million in committed capital in January, Vanedge Managing Partner Moe Kermani told PE Hub Canada. That puts the fund over half way to meeting its $200 million target. Kermani expects a final close will occur within the next 12 months.

Some 30 LPs committed to Fund II, Kermani said. They were led by Kensington Venture Fund, a Canadian fund of funds that recently wrapped up its own fundraising.

Kensington was joined by other institutional LPs, including BDC Capital and Export Development Canada, as well as high net worth individuals, most of them entrepreneurs who share a history with Vanedge’s investment team, Kermani said. Most LPs invested in Vanedge I, which raised $134 million in 2010.

Moe Kermani
Moe Kermani, Managing Partner, Vanedge Capital

Vanedge, a Vancouver-based investor in North American cloud infrastructure, digital media, security and software-as-a-service (SaaS) companies, had impetus going into fundraising. The firm recently completed sales of five portfolio companies, all of them to high-profile strategic buyers.

Last September, MediaCore, an educational video platform, was acquired by Workday. Earlier in 2015, Metafor, an anomaly detection software provider, was bought by Splunk, and Recon, a maker of smart sports eyewear, was bought by Intel.

These Vanedge exits were preceded in 2014 by the acquisition of game analytics company Playnomics by Unity, and the acquisition of cybersecurity specialist Wurldtech by General Electric.

Kermani believes liquidity events attest to Vanedge’s success as “a thematic, disciplined investor” that brings understanding to its deals and approaches opportunities in a selective manner.

“We come from an operating background, which helps us to invest with insight as opposed to a fear of missing out on a trend,” he said. “We are interested in differentiated companies, companies that are the best in the world at what they’re trying to do.”

Vanedge’s five exits contributed to “exceptional performance,” Kermani said. Vanedge I is currently showing a gross internal rate of return of over 30 percent and a net return of 19 percent, he said.

More importantly, Kermani noted, Vanedge’s performance reflects “real money going back to limited partners.” He pointed to Fund I’s distributed to paid-in capital (DPI), which stands at 61 percent.

Vanedge II will show continuity with the investment strategy of its predecessor. It will continue the hunt for differentiated opportunities in sectors of interest, such as SaaS companies addressing verticals and under-served markets. Its “sweet spot” will be investments of $2 million to $5 million in Series A rounds and beyond, Kermani said.

With a larger capital pool, Vanedge will be able to write big cheques and take meaningful investment stakes, Kermani said. He believes greater resources are needed to do this because of the rising cost of company-building and the influence of a weaker loonie.

Vanedge’s recent deals include its investment last December in the US$5 million Series B financing of New York-based geospatial software provider Boundless Spatial. Earlier in 2015, the firm co-led the $1.5 million seed funding of Control Mobile, a Vancouver-based payment management platform.

In the months ahead, Vanedge will focus on completing fundraising, Kermani said. It will target a range of LPs, including family offices and high-net-worth individuals that can supply not just capital but “insight, information and diligence.” It will also make more investments, including the debut deal of Vanedge II.

Vanedge was founded in 2008 by Managing Partner V. Paul Lee, formerly the president of interactive software company Electronic Arts. He was joined in 2012 by Kermani, who previously led Bycast, an enterprise data storage provider bought by NetApp in 2010.

Other members of the firm’s team include CFO Howard Donaldson and Principals Amy Rae and Todd Tessier.

This story first appeared in affiliate magazine Venture Capital Journal, which is published by Buyouts Insider. Subscribers can read the full story and by clicking here. To subscribe to VCJ, click here for the Marketplace.

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Photo of Moe Kermani courtesy of Vanedge Capital