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.