Globe and Mail
Canada has no shortage of Internet Venture Capital
(taken from The Globe and Mail, Feb 17, 2000)
By John A. McMahon
South of the border, young entrepreneurs are creating fabulous new wealth and jobs by providing seed capital to small Internet companies that grow into global giants.
A pioneer of this risky but rewarding business is Bill Gross. In March, 1996, he launched idealab to help young Internet businesses grow. Now he has 20 businesses in various stages of development and boasts such successes as GoTo.com, eToys, WeddingChannel.com, CarsDirect.com and Free-PC. It would be an understatement to say these investments have performed handsomely -- eToys has a market capitalization of $1.9-billion (U.S.) yet only has $30-million in sales.
CMGI, a publicly traded fund dedicated to investing in Internet companies, has also helped fund some of the world's most successful Internet companies. Lycos is one, and it now boasts a market capitalization of $7.2-billion. CMGI has definitely lived up to its mantra of "creating net value." CMGI now has 60 companies in its portfolio and a market capitalization of $28.7-billion. If you've ever questioned CMGI's ability to identify the most promising stars in the new economy, take note that Microsoft, Intel and Compaq have made minority investments in CMGI and rely on its magic to guide them to the greatest new technologies, products and minds.
There can be no doubt about it: Venture capital for Internet startups is undeniably available in the United States and has been for more than five years.
But what about Canada? This availability of capital for the most exciting, volatile and rewarding sector of any economy -- the "new economy" -- is finally alive and well in our country.
Venture or seed capital dedicated to Canadian Internet startups began to materialize last spring. EcomPark, of which I am chairman, was one of the first companies to address this void, and has seeded five companies to date: Petopia.com, Zconnexx, SamtheRecordMan.com, Mount Linux and WiredMerchant.com. In the process, we have acquired and amalgamated three of Canada's most prominent strategic Internet services companies and now employ more than 180 people in this wholly owned division. It is the backbone of our business.
Our success counters the myth that there's no present and no future in seeding Canada's Internet sector. This myth is in large measure attributable to Paul Alofs. In October, Mr. Alofs, formerly with MP3.com, returned from the U.S. West Coast to announce that he was planning to start his own and, he claimed incorrectly, Canada's first Internet incubator.
However, on Jan. 13, Mr. Alofs cancelled his plans, citing his view that the dot-com fever had subsided and that there was no longer an appetite among investors for risky Internet startups.
With due respect to Mr. Alofs, I beg to disagree. I believe that there is an unprecedented appetite for Internet investments, an overwhelming desire to support great Canadian entrepreneurs and there is absolutely no shortage of good Internet ideas.
To support this claim, we need only turn to EcomPark's five strategic investments. Since initial seed investments, collectively this group of companies has gone on to raise more than $210-million (Canadian) in Canada and the United States. Zconnexx has completed two successful rounds of financing from some of Canada's most respected financial institutions. We recently embarked to help raise $4-million for SamtheRecordMan.com, but shortly thereafter had to increase the size of the offering to $8-million in order to satisfy demand. The same happened to WiredMerchant.com, where a planned $3.2-million was increased to $7.5-million within hours. So to say the least, there is an overwhelming appetite for Internet investments in Canada.
And we are in good company. Over the past year, several other incubators have emerged to address the void in the Canadian marketplace. To name just a few: Brightspark, Mosaic Venture Partners, XDL Intervest Fund and Exclamation.
Brightspark was founded in November by Mark Skapinker, who co-founded fax software developer Delrina, Tony Davis, who developed WinFax software, and Richard Nathan. The three partners have invested $5-million in the incubator and are working toward raising an additional $60-million. Recently, they announced a partnership with RioCan Real Estate Investment Trust to transform its 130 shopping centres into so-called "bricks-and-clicks" malls.
Mosaic Venture Partners' first fund has been overwhelmingly successful, turning $22-million into $200-million with investments in technology companies CyberPlex, Zefer and Direct Hit. Mosaic recently launched a new fund, raising $110-million from financial institutions such as the Caisse de dépôt et placement du Québec and the Ontario Teachers Pension Plan Board.
On Jan. 19, a new $130-million fund was launched by Dennis Bennie, co-founder of Delrina, Michael Bregman, Second Cup chairman, and Tony van Marken, former chief executive officer of Architel Systems. The XDL Intervest Fund's lead investor is CIBC World Markets, which has put in $25-million. XDL recently announced that it is investing in its first three Internet startups and that Bob Young, chairman of Red Hat, will both advise and invest in the fund.
Although not Canada's first, Exclamation is a publicly traded incubator that develops its own Internet assets internally. Exclamation has raised $4-million and has launched four Internet businesses. One of the company's more mature assets, Bigtree.com, is a business-to-business company that sells office products over the Internet.