Toronto-based MM Venture Partners has raised $100-million from its U.S. partner
to form GATX/MM Venture Finance Partnership II. This is the firm's second investment
vehicle geared to the technology sector since it set up shop in Canada two years
ago.
In 1998, MM Venture Partners rolled out a $50-million fund to target public and
private technology and biotech firms.
The company is backed by GATX Capital Corp. of San Francisco, which has more than
$10-billion (US) in assets and has a vast network of contacts in Silicon Valley.
Over the past 10 years and through its investments, GATX has helped raise the
profile of several firms in the U.S., including WebTV, Ascend Communications Inc.,
a direct rival of Nortel's recently acquired Bay Networks Corp., and Exodus Communications
Inc.
Several firms have recently appealed to the early-stage sector by offering Internet
funds or flagging themselves as "Web incubators."
Financing deals of more than $30-million have flowed into many Canadian high-tech
startups and analysts believe the trend will continue. The latest is Wysdom Inc.,
a wireless Internet company in Toronto that is about to secure $50-million (US)
in financing, said sources close to the firm. The deal is said to involve CIBC
World Markets Inc., Sprott Securities Ltd., Griffiths McBurney & Partners Inc.
and VenGrowth Capital Management Inc.
Ted Anderson, a partner with Ventures West Management Inc., said many traditional
venture capitalists have been operating in this sphere for many years. "This is
not a new concept that is particularly innovative."
Ventures West, which has made 130 technology investments, including Ballard Power
Sysytems Inc., has $300-million under management. The company also runs two $25-million
funds that are focused on the biotech, software, e-commerce and telecom sectors.
MM Venture Partners said it maintains a competitive advantage through its offering
of venture debt financing, a form of investment that incorporates debt with warrants.
"It's a less dilutive, less intrusive and a less controlling form of financing,"
said Minhas Mohamed, the firm's managing partner.
For example, if an entrepreneur is looking for $3-million in financing, MM Venture
would issue $3-million worth of debt instead of equity. Plus the company may issue
warrants to MM Venture at an exercise price based on the latest round of financing.
When the company goes public, MM Venture said it would exercise those warrants
and not exceed 3% of a company's total capitalization.
Other venture capitalists typically provide financing to early stage companies
in exchange for 20% to 40% equity stake -- a significant share to give up, and
as a result the decision is often one of the toughest an entrepreneur has to make.
MM Venture has made investments in about eight companies, including TrueSpectra
Inc., a network software provider in the process of closing a financing deal with
a venture capital firm in Silicon Valley.
Flexion Systems Inc. of San Francisco, which offers a suite of voice data integration
products, is about to complete a $15-million (US) round of financing in Silicon
Valley.
Montreal-based Logibro Inc., a business-to-business e-commerce firm geared to
the travel industry, has just secured an undisclosed but "significant" investment
from Sabre, a reservation system used by travel agents.