As an asset class, early stage technology investing is generally in the higher risk category and the Canadian VC industry has produced inconsistent results over the past 20 years. It is one of the reasons we decided to take a very different approach to investing which we think better aligns our investors, our team and the entrepreneurs that we invest in.
We do not manage a committed fund of capital. The ECP partners generally make up 20-25% of the capital that goes into a new deal so we have to be convinced ourselves before we bring anyone else in. We raise the additional capital on a deal-by-deal basis from a small group of high networth investors. Many of our investors are operators (current or retired) and entrepreneurs themselves. They don’t have the time to vet or manage a portfolio of tech companies so they trust us to. They have great insight into building and managing companies and are patient about how long it takes to get it right. Many of our investors have been investing with us for close to 10 years.
We know the industries we invest in very well. Our ability to perform intensive due diligence separates us from the rest of the pack in Canada. We have worked inside all of our portfolio companies and know the challenges of executing good strategies. This hands on experience helps us to better evaluate new opportunities and gives us a broader set of metrics and evaluation criteria. We believe our track record demonstrates our due diligence capabilities.
We have no incentive to place money unless we think it can make money in the mid to long term. As a result we make very few investments and then we get very involved to ensure the appropriate outcome. This is evidenced by our small portfolio of companies at any given time and our track record of consistent growth and performance across ALL of them. We have had some early wins but most importantly we have delivered consistent performance across the entire portfolio.
Our investors get to choose which deals they will invest in and if they want to participate in subsequent rounds. We believe it is important that each investor has the ability to determine for themselves if a deal fits their characteristics as well as their current financial situations. It puts more pressure on us to analyze and bring the right information forward on each deal as we don’t have a small investment committee to convince – we have to convince ourselves and the entire group before we invest. We think it creates more investment discipline.
We don’t charge our investors a management fee on the capital that gets invested. Simply put, we don’t start making money by simply making an investment. We charge industry comparable success fees which means we only make money on a deal when our investors do. We think this creates perfect alignment and our investors seem to agree.
We believe that the value we add to a company through our experience and our deep involvement benefits all shareholders. If an investee needs our assistance for an extended period the company pays for it, not our investors.