MMVF Twitter
Financing Solutions that Fit
Already a common form of financing in the US, VC firms like MM Venture Partners are introducing debt financing to the Canadian investment landscape. Though hardly glamorous, debt financing is an alternative to equity financing for fast-growth companies to raise capital and the method does have some advantages.

"The cost of capital in a high-growth company is usually the highest cost (dilution). Debt financing complements other forms of venture capital or financing," explains Minhas Mohamed, founder and Managing Partner. "It is a very novel way of financing technology companies that has not been done in a dedicated way in Canada. We're the first dedicated fund that uses debt with warrants to finance growth."

Although the stakes may seem high to companies taking the risk, debt financing can be cheaper than traditional venture capital, especially for companies that have already completed one or more rounds of VC investment. If a company experiences high ROI, it repays the loan without having to further dilute ownership in the company. The downside is that if the venture fails, the loan still needs to be repaid.

Debt financing is not a first choice for most start-ups, especially since capital infusions from traditional VCs are on the rise. However, debt can help a company's capital equation. And in what is still a very long fundraising cycle in Canada, it can complement traditional venture capital and give a company more firepower. It is also less intrusive.

Unlike traditional VC investments, MM Venture Partners play a hands-off role in its investee companies. In the 3-4 million dollar range, its loans are substantial as far as Canadian investments go. The upside is that the value-add of traditional VCs is still there. Investee companies can access Mohamed and his partners' North American network of contacts. Mohamed, a VC veteran, was formerly a senior partner with Quorum Funding Corporation and Schroders PLC during the years when Newbridge emerged.

MM Venture Partners generally looks for companies that have already secured initial rounds of funding. Its debt financing is intended as strategic capital to take an emerging company to the next level. The VC is currently on the lookout for emerging companies in the areas of e-commerce, Internet infrastructure, and network management solutions.

Mohamed, like all Canadian VCs, believes there is a need for more pre-seed funding to get many of Canada's great technology ideas off the ground. He also believes that in the near future, that void will likely be filled by US capital. MM Venture Partners' fund is indicative of a growing acceptance of alternative financing options, however, the local VC community still has a long way to go.

"I think there needs to be more support from larger Canadian institutions. The second generation of VC companies is doing some interesting things backed by US partners, but our Canadian capital pool needs to also have an alternative investment strategy. In the US, a lot of the large US pension funds have a dedicated alternative investment strategy which they stick with for a long time frame, and they allocate as much as 7 percent of their total funds for alternate investments."

MMV :: 370 King Street West, Suite 442 Toronto ON M5V 1J9 Canada