A letter sent to portfolio founders details the cessation of the fund’s planned investment period, and states that 500 Canada was in the process of securing $25 million in “imminent commitments” from five Canadian institutional LPs. All five subsequently pulled out on the grounds that they would not make their investments “if Mr. McClure continued to exercise any form of control over the Canada fund or to receive any economic benefit from the operations of the Canada fund.
McClure came under fire in late June when several female entrepreneurs came forward to the New York Times claiming that McClure had made inappropriate advances and comments towards them. He resigned from 500 Startups a few days later.
McClure is still a member of both the investment committee, and the board of directors of the Canada fund. While in the process of removing McClure from these roles, the Canadian general partners undertook a renegotiation of the arrangements between 500 Startups and the Canada Fund. Because an agreement was not reached, and because the general partners were convinced the Canada Fund would not be able to achieve its investment objectives, the decision was made to terminate the investment period of the fund.
“So far it’s final. We tried really hard to negotiate an agreement that would work for us and 500 Startups in the States, and it seems like there’s no other solution than ending the investment period,” David Dufresne, Partner at 500 Startups Canada told MTLinTECH.
It was basically commissioned by our prospect investors, our own investors were very demanding, and we weren’t able to find any middle ground. So the best thing to do is to stop doing investments, stop calling for capital from our investors, and now in some way keep managing the portfolio. Keep helping our founders and our startups continue to grow and eventually get to liquidity for our investors.
“Even though it’s a much smaller fund than we had expected, it’s still to be determined how we’re going to handle that. And in parallel we’re trying to see from the investors and from the community in general if there’s any interest in us launching completely new. So that too is to be determined. We’re trying to get feedback from people, thinking about what our next move should be.”
The 38 portfolio companies the Canada Fund has already committed to investing in will still receive those investments, as well as continued support over the lifespan of the fund, expected to be ten years. However, they will not receive any follow-on financing or reinvestment.
“This week there’s a few deals where we had committed and gotten authorization from our investment committee, so we’re still funding those deals. But after those three deals we won’t be making new investments. And we won’t be making any reinvestments either.”
The ten Montreal companies that received investments from the Canada fund will still receive support as they continue to grow, but most likely from a reduced staff.
“The fund has a lifespan of ten years. The main difference is that there probably won’t be a whole team, it will probably be one person. One of us will probably keep custody of the fund more or less. But in theory we’ll be involved for as long as the fund exists.”
The Canada fund announced in January that they had hit the midway point in raising its inaugural Canadian fund, and were optimistic it would surpass its $30 million target. The seed-capital financier set up shop in Canada in April 2016 to finance early-stage ventures in this country’s teeming tech sector. The 500 Canada team has made co-investments in companies like AmpMe, Avidbots, Element.AI, Mejuri, Motorleaf, and Synervoz.
Photo credit – Eva Blue