The early months of 2017 have been eventful for Mistral Venture Partners. The seed investor held a first close for Fund II, made the fund’s debut investment, realized its first portfolio exit, and opened an office in Toronto.
In January, Mistral wrapped up initial fundraising for Mistral Venture Partners II, earmarked for financing early-stage information-technology companies. The close accounted for $26 million of a $35 million target, Managing Director Code Cubitt told PE Hub Canada. He expects the fund to reach its goal later this year.
Some 60 limited partners signed on to the initial close. Most were returning investors, including BDC Capital, which supplied the lead commitment.
The rest were high-net-worth investors, mostly CEOs and CTOs of tech companies in Canada, the United States and China. Along with providing money, many of these LPs contribute to deal sourcing, portfolio development and other investment priorities.
Mistral was founded by Cubitt, a London, Ontario-born entrepreneur and investor who cut his teeth in the U.S. venture industry. Trained as an engineer, Cubitt was recruited in 1997 by the VC arm of networking giant Ciena. He also later served in senior roles at Gabriel Venture Partners and Motorola Ventures.
In 2012, Cubitt was invited by former Invest Ottawa CEO Bruce Lazenby to return to Canada and apply his skills in the local tech ecosystem. After 15 years as an expat, Cubitt jumped at the opportunity: “The more time you spend away from your home country, the more patriotic you become.”
The result was Mistral. Cubitt designed it to be a first institutional investor in startups that sell to “smart enterprise” businesses leveraging artificial intelligence, cloud, mobile and other internet technologies. While investing primarily in eastern Canada, it scouts opportunities across North America.
Cubitt won over several wealthy investors. Other LPs followed, a process that led to the $25 million close of Mistral Venture Partners I in 2014.
A key aspect of Mistral’s strategy is its cross-border focus. Upon seeding a company, Mistral prepares for follow-on rounds with deep-pocketed U.S. partners. The approach is based on Cubitt’s calculation that “40 percent of returns in Canada come from the 10 percent of deals” that attract non-resident capital.
Mistral’s GP team is configured to meet this objective. In addition to Cubitt’s network, the firm taps connections of Managing Partner Bernie Zeisig, formerly of VIMAC, Venture Partner Mike Scanlin, formerly of Battery Ventures, and Venture Partner Gordon Smythe, previously a Silicon Valley angel investor.
Betting on Blue J Legal
Cubitt says Fund II found favour with new and existing LPs because of the “higher-than-expected batting average” of its predecessor. Fund I invested in 15 companies, including dashboard-software provider KlipFolio, smart-apparel platform OMsignal, and digital-receipt manager Sensibill.
In February, Mistral added to the portfolio with Fund II’s premiere deal. It invested an undisclosed sum in Blue J Legal, a Toronto startup that uses AI to help lawyers predict trial outcomes.
Founded in 2015 by CEO Benjamin Alarie, a University of Toronto law professor, Blue J develops AI software that scans legal documents and court decisions to gain a sense of how current disputes will unfold. The company recently began selling its first product, Tax Foresight.
Mistral bet on Blue J because of the potential suggested by its “disruptive technology in a massive market,” Cubitt said.
Shortly after the Blue J round, Mistral chalked up its first liquidity event. It cashed out of cloud-management platform CloudCheckr with the company’s US$50 million Series A financing, led by Level Equity.
Passionate about seed
Cubitt says Fund II will continue with Mistral’s original vision and his own passion for seed: “Seed rounds are where the action is. It’s where companies are created and where we believe we can add the most value.”
Fund II will double its initial seed investment level to $500,000, reflecting the firm’s confidence in picking winners early on, he said.
Additionally, Mistral aims to enhance its exposure to deal flow in the Toronto-Waterloo corridor. To do this, it opened an office in Toronto in January and hired Principal Sandy Scott, formerly a partner at Tandem Expansion Fund, to run it.
Mistral today has an operational presence in Ottawa, Toronto and Palo Alto, California.
Photo of gavel on laptop courtesy of Bet_Noire/iStock/Getty Images
Code Cubitt, managing director of Mistral Venture Partners. Photo courtesy of the firm.FUNDRAISERS: Don't miss PartnerConnect East 2018 on March 19-21 in Boston, with more than 150 speakers, 200 LPs and 300 fund managers, bankers and lenders. CLICK FOR DETAILS!