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At a time when investments by venture capital firms in Canada and the United States are tumbling, MM Venture Partners has adopted an aggressive strategy by raising $100 million for a new fund.

The Toronto-based company said the money will be invested in Canadian high-tech companies in the enterprise software, network management, telecom, semiconductor and biotech sectors. All of the funds came from U.S. investors, including a significant amount from San Francisco-based GATX Financial Corp.

"We have a track record with our partners, and our performance has been very good in these markets," said MM founder Minhas Mohamed, explaining how his firm established its third fund.

In wake of the venture capital industry's slowdown, the creation of new funds have been limited. One of the only other Canadian funds raised this year was Skypoint Capital Corp., which attracted US$35 million for a telecommunications fund in June.

New funds stand out because the amount of private equity invested has tumbled. In the second quarter, this type of investing fell 69% to $416 million from $1.3 billion a year earlier. It was the market's first major contraction since the venture capital market slowdown started 19 months ago.

Mr. Mohamed said his company is bullish about the high-tech sector because it has a long-term outlook at a time when many sectors, particularly telecom, are going through a painful restructuring.

"I think there is going to be a longer term positive aspect for technology," he said. "It is a good time to form new companies because you are looking at new value propositions and lower costs to capitalize management teams."

Unlike many venture capitalists that make pure equity investments, MM uses a venture debt model in which it typically loans $3 million to $5 million to companies looking to commercialize and sell their technology. MM also accepts warrants to reward it if an investment is successful.

This model, Mr. Mohamed said, gives MM a good return on its loan and the upside potential, while providing its investee companies with a way to quickly raise capital without heavy dilution. "It is much cheaper for them, it is a very flexible structure, and we have no covenants or guarantees," he said.

Some of MM's portfolio companies include Innovance Inc., Vixs Systems Inc and Tropic Networks Inc.

Mr. Mohamed said only one of the 32 companies in which MM has invested since 1998 have failed.

Financial Post

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