The Canadian angel investment landscape is a changin’, as the success of Brightspark’s new investment model goes to show.
After 18 years in the industry, Brightspark made the decision to spin traditional VC on its head. The firm created an investment model that enables any Canadian accredited investor and family office to easily participate in venture capital investments. Unlike traditional VCs, Brightspark doesn’t manage a large institutional fund. Instead, the firm creates a fund unique to each new investment, and gives members of the Brightspark network the opportunity to participate.
Since revamping its investment model in 2014, Brightspark has gained meaningful traction and is now investing in Canadian early-stage companies at the same pace as a traditional $100 million VC fund. Brightspark’s network of accredited investors has already grown to more than 2,000 individual members, and the VC will invest more than $7 million in five companies by the time 2017 is over.
Portfolio companies that have received investments from Brightspark under the firm’s new funding model include Hubba, Nudge Rewards, CrowdCare, Classcraft, gShift, nGUVU, AdHawk, and NanoMagnetics.
“We decided to change the model [in 2014] for two reasons,” Sophie Forest, Partner at Brightspark, NACO Investor of the Year, and one of our WMNinTECH told MTLinTECH.
— Brightspark Ventures (@BrightsparkVC) December 5, 2016
“First, we decided to switch the model because we were trying to solve our own problem. We’v always been very entrepreneurial and not that patient, and in most of the world other than maybe Silicon Valley, finalizing anything takes a long time. Like two years or more. You have to talk to a lot of large institutions and they all have their own process for decision making. We really liked what we were doing, investing in startups in Canada, and we were having quite a lot of success doing it. So we started thinking, how can we solve the piece of the equation in our model that we don’t like? That’s how we came up with our new model, which was partly inspired by similar models that we’ve adapted, from California and elsewhere in the world.”
“A lot of wealthy individuals want to get access to great returns, their interests are totally aligned with us because they want to make money, so maybe we should find a process where we can offer it to them. Keep being a VC, but raise money on a continual basis, and offer it to individuals. That was the first step of our thought process.”
Brightspark began testing out the new model and it started getting a lot of momentum. People were intrigued and interested because normally individual investors don’t get access to the kinds of deals Brightspark participates in.
“Then we realized what had started as trying to solve one problem had the potential to become this huge opportunity that could change the startup investing landscape. Because if you think of angel investing, which is the traditional way people have been doing it, it’s really small. There’s between 2,000 and 3,000 angel investors in Canada who are registered.”
With Brightspark’s model, everything is done by the Brightspark team. They choose the best deals, negotiate a term sheet, work with management, do due diligence, document everything, negotiate the legal paperwork once the deal is done, sit on the board of directors, help management, help out if there’s an exit, and so on. Investing as part of Brightspark’s network requires a lot less time, expertise, and involvement for the individual investor.”
“We do all the work, and the investor just invests in a fund and becomes a shareholder in the company. So for them it’s more about financial diversification. They want to get access to the tech boom, the startup ecosystem, but they don’t have the expertise, the time, or the energy to do it. It’s completely different.”
“An angel investor wants to get involved, usually has some time to do it and some expertise, and they need to do the work. In our case, we’re the VC and we do the work. A typical angel investment would not get access to our deals. Our deals are more mature, and they’re usually done by VC, and we co-invest with other VCs.”
With this new financing, Brightspark is expected to double its team across Canada. The firm also anticipates that it will accelerate its investment pace from the equivalent of a $100 million fund to that of a $120 million fund, with an estimated $20 to $30 million invested annually.
“We have been closely tracking Brightspark’s progress since the firm implemented its new model, and we are pleased with the continued growth and momentum we’ve seen to date,” said Rick Nathan, Managing Director at Kensington Capital. “Through this direct investment in Brightspark itself, we are providing the capital needed to expand the reach of this model to the growing number of accredited investors throughout Canada that would like an opportunity to invest in the country’s next generation of innovators.”
And that investment network that’s already on par with the total number of registered angel investors in Canada?
“We think we can grow our investor networks to 10,000 quite quickly, so our plan is within the next 24 months. We’re at 2,005 now, and it’s growing very steadily. Most of the investors we get are actually by word of mouth. So there’s an exponential aspect, the more investors we get, the easier it is to grow because they tell their friends about our network,” said Forest.
“Brightspark was the first to establish a model that opens VC investment to individuals in Canada, allowing us to set the standard for a new approach to venture investing in this market,” said Mark Skapinker, Managing Partner at Brightspark. “With this injection of capital into our innovative model, we can focus on growing what is now one of the country’s largest and most diverse VC investment teams. We can also continue to find and invest in the best early-stage tech company opportunities for our investor network.”