If anyone understands the concept of first-mover advantage, it’s venture capitalists.
With this week’s announcement that it’s setting up an office in Waterloo Region, iNovia Capital hopes to take full advantage of being the first mover among VC firms in our large-and-growing startup community.
Given the competitive nature of investment, it’s unlikely iNovia will be alone for long – but for now, they’re it. The Montreal-based firm has leased space in Vidyard’s downtown Kitchener offices, where iNovia partner Karamdeep Nijjar – a local boy who had been based in Toronto – will lead a small staff.
Hot on the heels of the announcement, Nijjar and iNovia managing partner Chris Arsenault arrived at the Communitech Hub for Techtoberfest today.
I sat down with Arsenault to dig a bit deeper on iNovia’s plans.
Q - Why is iNovia opening an office in Waterloo Region?
A – Because of the quality of the talent and the startup pool.
Basically, it’s a question of timing, too. Why wasn’t it two years ago, five years ago, 10 years ago?
Due to the fact that we’ve done half a dozen investments from here, that critical mass basically forces your attention here more.
Right now, talent is coming back, talent is being attracted, and talent coming out of the university of [Waterloo] is not going away anymore.
I think Waterloo was considered an amazing talent pool for the last 20-some years, for people to come and pick up talent and bring them to Seattle or New York or Boston or California. And now, that talent actually has the drive to build companies on their own, or join startups.
So, it is a timing thing. I don’t think it would have made that much sense five years ago.
Q - What kinds of companies will you be looking to invest in here, and at what dollar amounts?
A – We’re not changing our thesis, and our thesis is basically that we’re investing in enterprise SaaS, consumer Internet and the connectivity in between.
It can go into hardware, it can go into infrastructure. We’ve been doing more and more retail infrastructure, as an example; less e-commerce and more retail infrastructure, simply because we’re leveraging the knowledge and the networks, and our existing portfolio companies.
We think there’s a huge pool of talent here that’s already working on the hardware side, the robotics side, as much as on the pure software side.
Mobile is not a category anymore, like e-commerce is not a category. Mobile is part of any business today; how you build product, how you go to market, how you serve your clients.
And I think the DNA and the mentality here is definitely up to par.
In terms of size of investments, we do early-stage deals of under a half-million dollars, but our sweet spot is that one or two initial million dollars, where we can follow on up to $7 to $10 million.
Q - Startups used to feel a lot of pressure to move close to where their VCs are. With this move, you’re doing the opposite – moving to where the startups are. What does this say about how the startup-VC relationship is changing?
A – It’s changing, but not that much.
We’re a distributed team, so Montreal, Waterloo, San Francisco – that corridor is extremely important, but we also have a partner in New York and in Calgary. That’s how we work; that’s how we’ve been created; that’s how we’ve built our active portfolio of 42 companies right now.
I think the critical mass here was definitely a trigger, but Karam is also from here, from the community. And at the end of the day, we’re backing entrepreneurs, we’re backing big ideas in big spaces, yes, but we’re backing people – and with those people, you need to build trust, build relationships and attract relationships.
So, as much as it feels like we’re going into a new area, it’s more that the critical mass right now is important enough to invest more energy, more resources and more time, and we also already have the relationship through Karam and through the other deals that we’ve done.
If I look at the last two years, I’d say 90 per cent of our deals that we’ve done were referred to us through our existing CEOs or co-investors, so that says a lot.
It’s all about building those relationships.
Q - What makes Waterloo Region’s startup community distinct from others, from your perspective as an investor?
A – I think there’s an entrepreneurial DNA here.
Montreal has a great startup community; Toronto is building up; Calgary is still in its infancy but building up; Vancouver, the same thing.
We have ad-hoc top-tier companies in every region of Canada.
The difference is that Waterloo has the entrepreneurial DNA from the roots up. So, when you think of the university and how they’re managing IP; when you think of how the university actually has a garage – how many universities in Canada actually have a garage, not to help students finish what they’re studying, but to give them a second full-time job? Because you’re starting your company full-time, and you’re at school full-time.
That DNA crosses over between the entrepreneurs, the employees, the city, the university and everybody around it. That’s pretty unique, and that’s probably the closest thing you’ll have to the Silicon Valley-based type of DNA.
The next Silicon Valley is Silicon Valley, but the next Waterloo is way bigger, stronger, better than what the current Waterloo is, which is already awesome.
I think Waterloo is building its own Valley; its own culture. It’s building on its own culture.
Q - How do you think your decision to open an office here will play in the broader VC community?
A – We’re expecting that more VCs are going to be opening up offices here, simply because there’s more and more activity, and there is momentum that’s being built.
You start with one success story that basically inspires other entrepreneurs to build their own companies, and they become another success story.
And then you have an investor with a great investment, and that investor had co-investors who also want to do more deals.
This is momentum-building, and with momentum, you have to not take control, but build with the momentum if you want to make something huge out of it.
If you just let it on its own, I don’t think it’s going to go anywhere, and it’s eventually going to flatten out.
But right now, the entrepreneurs, the community and the VCs are just building on it, so we’re expecting that American VCs or other Canadian VCs are going to have more of a permanent presence here.
