Brightspark Ventures is generating market buzz with a sophisticated and fast-growing funding model that taps into the wealth of a once overlooked capital source.
Brightspark, a nearly 20-year investor in North American early-stage tech companies, since 2014 has capitalized its deals by drawing on the resources of a network of Canadian accredited investors and family offices.
The firm’s strategy, adopted as an alternative to raising a third institutional fund, is dubbed “democratic” because it relies on a large population of small investors. Most of them are new to the venture market, Managing Partner Sophie Forest told PE Hub Canada.
In the beginning, the new model’s progress was slow-going, with Forest and Managing Partner Mark Skapinker reaching out to investors and building syndicates deal by deal.
However, Forest and Skapinker utilized their tech smarts to come up with a different approach. They built a software platform that automates the process, enabling investors to go online and select opportunities with “very little human intervention,” Forest said.
The result was a bigger network and more potent funding tool.
Brightspark found it was able to accelerate deal-making. Last year was especially active, with $8 million invested in a range of Canadian and U.S. companies, such as eye-tracking system AdHawk, edtech provider Classcraft, team-performance startup Nudge Rewards and cognitive care solution Wysdom.AI.
But recent investing may only hint at the model’s true potential.
Thanks to the online platform, the number of investors in Brightspark’s network continues to expand, mostly by word of mouth, Forest said. In January, the network consisted of 3,000 investors, up 50 percent from late 2017.
Skapinker recently told the Globe and Mail that Brightspark may eventually get 10,000 investors committing to its deals. Forest sees the estimate as “not unrealistic,” especially if current discussions with wealth managers like Richardson GMP bring in fresh recruits.
Increased use of the platform by more investors has meant that Brightspark’s deals are “sometimes fully committed in a day,” Forest said. She expects Brightspark to be soon investing at a pace equivalent to a $120 million fund, with deployments of $20 million to $30 million per year.
Net new money
Brightspark’s strategy is introducing “net new money into the market,” Forest said.
“Individual investors are hungry for private technology deals, but previously they couldn’t get access to the venture market,” she said. “Our democratic model gives them an option.”
Unlike some similar funding vehicles in Silicon Valley and other VC hubs, Brightspark’s depends on the skills of the firm’s general partners, Forest said. “Investors are committing to our track record and ability to pick the right companies and drive deals.”
A key selling point is the firm’s internal rate of return of 66 percent achieved over the past decade. Much of this performance owes to Brightspark Ventures II (2006), which is so far generating 3x to 4x invested capital. Fund II’s realizations include the 2011 sale of Radian6 to Salesforce for US$326 million, a deal Forest led.
Brightspark’s online software platform has value beyond its role in deal capitalization. The platform is also a distinct type of proprietary financial technology that is rapidly gaining users and profile. That makes it an attractive commercial asset.
This fact was recognized in December’s $6 million investment in Brightspark, led by longtime partner Kensington Capital Partners, to scale the funding model.
Forest says the money will enhance the model’s potential, in part by bringing it to other accredited investors in Canada and perhaps eventually overseas. Brightspark is already fielding inquiries from interested parties in the United States and Europe, she added. The firm will also focus on growing the investment team.
Last October, Forest won the National Angel Capital Association’s 2017 Angel of the Year award, which acknowledged her contribution to the angel market’s evolution in Canada.
Since joining Brightspark in 2003 and earlier serving with Caisse de dépôt et placement du Québec’s VC arm, Forest has led and managed more than 50 investments in tech companies. She expressed gratitude for the NACO award, noting it showed “the blurring lines between angel and venture investing.”
Brightspark Ventures was founded in 1999 by Skapinker and Tony Davis, now CEO of Jewlr, a portfolio company. It has offices in Toronto and Montréal.
Photos of Sophie Forest and Mark Skapinker courtesy of Brightspark Ventures