MONTREAL – Teralys Capital, the government-backed investment fund announced Wednesday the creation of two new venture capital funds that will invest in early stage companies.
Together, the two firms will invest $205 million into promising companies in Quebec in the next few years.
“It’s important to have an ecosystem where there’s money available at every stage of a company’s maturity,” said Jacques Bernier, the managing partner of Teralys Capital. “This will fill an important gap.”
Teralys – which is backed by $700 million from Caisse de dépôt et placement du Québec, the Solidarity Fund QFL and Investissement Québec – will invest $50 million in Rho Canada II and $25 million in Celtic House Venture Partners IV. That will be part of $100 million raised by Rho Canada II and $105 million by Celtic House.
And the investors are wasting no time in making their first deals. Jeff Grammer, a partner at Rho Canada II, said his fund is actively looking at three companies, with an announcement coming in the next few months. He said over the five-year investing cycle, between 25 and 30 companies will get funding.
The first Rho Canada fund has already completed its investment round, and is now in the growth stage. It boasts an impressive portfolio of companies that includes the fast growing designer shopping club Beyond the Rack, and the technology company Accedian Networks.
Habib Kairouz, the managing partner of the parent Rho Capital Partners based in New York, said Montreal is only now starting to see companies growing to the scale needed to make it worth the initial investment.
“In the first wave of development of this industry in Canada, there were a lot of first-time entrepreneurs who didn’t see that Canada had enough capital to carry their company all the way through,” Kairouz said. “So we had a lot of small investors investing small amounts of capital, and entrepreneurs who were very happy with a $20 million exit. Unfortunately that doesn’t work. If you want to cover ideas that don’t make it, you need a $100 million or a $200 million exit (for the successful companies).”
Bernier said his goal is to continue to fill in what he calls the holes in the ecosystem to allow companies to grow to a healthy size. He said despite all the investment, Montreal will probably never rival California’s Silicon Valley as a place to start a tech company, as a result, companies will continue to move south to attract investors and customers.
“We’ll never be able to (stop) this, but as the ecosystem gets built, this will happen less and less,” he said. “And it’s already starting to happen the other way. Some companies from California are coming here to grow their businesses.”