The New Brunswick Innovation Foundation is changing its investment philosophy to place a greater emphasis on growth-stage companies.
The province’s innovation agency hosted a seminar at the Venn Centre in Moncton on Tuesday at which it unveiled the new thinking on funding. The foundation’s mandate for making venture capital investments is largely staying the same – it will continue to make about 10 early-stage investments each year. But it wants to take a more proactive role in working with companies that are seeking multi-million-dollar financing rounds.
NBIF Investment Analyst Raymond Fitzpatrick said the group up to now has had a “soft ceiling” of $1 million in investing in any one company. It would also participate in follow-on rounds as long as the company found an independent investor to lead the round.
Though it still wants other funds to be the main investor in a large round, the foundation is now more interested in initiating such rounds, possibly writing the term sheet to draw interest from other investors. In certain cases, when a startup has hit or exceeded all its milestones, NBIF may exceed its $1 million ceiling as long as there are other funds making large investments.
“We’re not happy with companies just getting going – we really want those companies to scale up,” said Fitzpatrick. “We’re going to take our best-performing companies and we’re going to step up first. One million [dollars in total investment] is good. Three million is better. Five million – now you’re talking.”
He said NBIF intends to invest $4.8 million in each of the next two fiscal years. The fund invested $4.2 million in 2014-15, the most recent data available.
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As well as a more assertive investment policy, NBIF is also going to work with its 40 to 50 portfolio companies and other New Brunswick startups to encourage them to focus on all aspects of scaling.
Naturally, that includes financing. A panel of entrepreneurs speaking at Venn event said founders looking for follow-on funding have to present a clear vision of how they will create value and show they can execute on their growth plans.
“We had people coming to us because there was a sense that we had a vision and there was a sense that we were creating value,” said David Baxter, President of Fiddlehead Technology, which recently raised $1.8 million.
The other areas that NBIF wants to focus on are sales and human resources (including establishing a board of directors).
Fitzpatrick said the NBIF will probably focus more on sales development at the bootcamp for its Breakthru startup competition, which will begin later this year.
“A lot of companies think you can build a company without a sales team,” said Yves Boudreau, the CEO of Qimple. “The reality is you have to build a sales team so … be prepared to hire some people.”
Fitzpatrick said NBIF has been getting some pushback from startups when it encourages them to set up boards of directors. But Daniella DeGrace, CEO of Gemba Software Solutions urged entrepreneurs to think of a board as source of expertise and connections.
“Think about it as a great situation that you cannot do without,” she said.
Disclaimer: NBIF is a client of Entrevestor.
