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The Internet frenzy that caught up U.S. venture capitalists in the late 1990s never reached the same pitch in Canada. And the subsequent lows are not as deep.

That might help explain how Toronto-based MM Venture Partners was able to close on a new C$100 million ($63.4 million), bringing the firm's total committed capital to about C$250 million.

The new fund, GATX/MM Venture Finance Partnership III, will provide debt and equity financing to Canadian high-tech startups in the enterprise software, network management, telecom, semiconductor and biotech sectors.

"We have always been focused on Canada," said Minhas Mohammed, the founder and president of MM Venture Partners. "We are all Canadian and all of our relationships and networks are Canadian. Plus we believe there are some solid tech companies with very attractive valuations here."

The fund raising comes as C$2.1 billion was committed to Canadian venture funds in the first half, a small drop from the C$4.7 billion raised in all of 2001. MM Venture Partners has carved a niche of sorts in Canada by providing not just equity but debt financing.

"There are many situations where startups want to access low-cost capital to build and position themselves for the future without such extreme dilution of an entrepreneur's and venture investor's equity stakes," Mohammed said. Most startups that receive debt financing don't yet have revenue or a product, so there are no covenants or guarantees as collateral. MM Venture takes warrants as part of the deal which act as an equity kicker.

MM Venture's most recent deal, for example, was a C$7.8 million debt financing for Montreal-based wireless systems provider NSI Global Inc. in July. For MM Venture's C$3.83 million participation, it received warrants with a term of five years to buy as much as 2.3 million of NSI's common shares for of between C27 cents and C35 cents..

Mohammed said that San Francisco-based GATX Capital Corp., the finance unit of the Chicago-based financial company GATX Corp., provided most of the capital for the fund, with other undisclosed U.S. investors participating. GATX Capital has invested in MM Venture's two previous funds, which have backed 32 companies.

The fund will look at all stages of investments, but given the financial environment, is leaning toward later-stage companies. The preferred deal size is between C$3 million and C$4 million. The firm is particularly keen on enterprise software company investments and select telecom investments in the so-called metro, or local, area network sector rather than long-haul networks, whose recovery is still much further away, Mohammed said.

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