“When you get that kind of volatility … that’s when you get the best opportunities.”
GreenSky Ventures has announced its fifth fund with a $17 million CAD first close as the firm gears up to back more early-stage Canadian deep tech and enterprise software startups.
The Toronto-based VC firm, which plans to continue fundraising until the end of March, is targeting a total size between $20 million and $25 million for Fund V. GreenSky’s first close of its latest fund, from limited partners (LPs) that include undisclosed family offices and high-net-worth individuals, nearly totals the size of GreenSky Fund IV, which was $17.2 million.
GreenSky has kept its investment approach consistent for some time. “Some of it is informed by if it ain’t broke, don’t fix it.”
With Fund V and a newly expanded team—including a new managing partner in Marian Hoffmann—GreenSky sees an “exciting opportunity” to invest in Canadian companies over the next 18 months amid what has become more of a buyer’s market for investors. As economic conditions have worsened, tech valuations have fallen, and as BetaKit has reported, some VCs and their LPs have pulled back.
“We’re hearing about LPs that are pulling out, not making their investments, pulling back on the size of the funds, and then even entrepreneurs not wanting to come forward worried about the valuations, what is that going to mean for next round,” Hoffmann told BetaKit in an exclusive interview. “There’s so much of that in the air, and when you get that kind of volatility, that kind of dislocation, that kind of uncertainty, that’s when you get the best opportunities.”
Through Fund V, GreenSky plans to keep its approach largely the same. But armed with fresh capital and a larger team, the VC firm sees room to expand its funnel and examine more investment opportunities than it possessed the bandwidth for previously, at a time when capital has become harder to obtain and tech valuations have become more reasonable.
“It’s a lot harder to do that when everything’s booming and money’s really easy and interest rates are low, and everyone thinks the future is going to be golden,” said Hoffmann.
GreenSky Ventures, which has rebranded from GreenSky Capital, invests in Canadian tech companies at the seed and Series A stages. GreenSky tends to raise smaller funds more often, quickly deploying capital and raising successive funds every two years, often fundraising while it finishes deploying its previous fund.
RELATED: Investor liquidity issues are put squeeze on Canadian startups
GreenSky originated as a firm that primarily invested its own capital and money drawn from its immediate network, taking equity from companies in exchange for advisory services, including assistance in raising capital. In 2015, GreenSky transitioned away from this advisory model with the launch of its first fund. “We haven’t looked back since,” GreenSky managing partner Michael List told BetaKit.
Including this initial $17 million for its fifth fund, the firm has now raised a total of nearly $51 million CAD, including Fund I ($3.1 million), Fund II ($5.1 million), Fund III ($8.4 million), and Fund IV ($17.2 million). GreenSky has used this capital to invest in 23 Canadian tech startups, including ProNavigator, Cyclica, Funnelytics, Direct-C, PhenoTips, and Symboticware.
Through its first three funds, GreenSky claims that it has already returned 167 percent of paid-in capital to LPs, after seeing three exits worth a total of $28.3 million—including Akira Health, Rank Software, and Mirexus Biotechnologies—and only one company failure.
The launch of GreenSky’s fifth fund comes as the market downturn has made it tougher for tech companies and investment firms alike to raise money. This environment has led to LP liquidity issues, which have put the squeeze on some Canadian VCs and led some startups that thought they had closed rounds to never see the funds materialize or be clawed back.
RELATED: GreenSky Capital secures $15 million in first close of Fund IV
Given current conditions, GreenSky’s fundraising process for Fund V also looked a bit different relative to the firm’s past funds. List described it as both “good and bad,” noting that “things went a little more slowly than they might have otherwise had we not hit the macro speedbump.”
“It was very easy to raise money from people to whom you’ve just given a whole bunch of money back,” said List. “We had the great fortune of having a very good run during COVID of seeing a couple [of] exits that allowed us to return capital, and it’s often easiest to ask people to re-up in your fund when you’ve just given them money back.”
At the same time, List acknowledged that beginning around summer 2022, when GreenSky initiated the process, prospective fund investors became more cautious as economic conditions deteriorated. “In the case of raising money from LPs, we’ve certainly seen firsthand people be a little bit more reluctant in some cases,” said List, who added that certain LPs put less money in this time around or invested for slightly different reasons.
List noted that Hoffmann brings a “deep amount of institutional experience with respect to fund management.”
GreenSky is not the only Canadian VC firm that has faced difficulty raising capital during the current market environment. Vancouver-based Pender Ventures’ first $50 million close of its second fund took a little longer than expected, while Toronto’s Framework Venture Partners told BetaKit that diligence from LPs increased “50x” compared to prior years while the firm was closing $100 million for its second fund. Montréal-based Real Ventures even paused fundraising for its latest fund altogether in 2022 as part of a managing partner swap.
GreenSky’s Fund V LPs include Hoffman and List, along with family offices and high-net-worth ex-entrepreneurs and individuals from the finance world. Three quarters of the fund’s LPs are Canadian, with the remainder from the United States. According to List, GreenSky saw 80 to 85 percent of the LPs from Fund IV re-invest in the firm’s latest fund. “We have a very strong LP base,” he added.
According to List, GreenSky was initially conceived with a focus on deep tech opportunities, after realizing that a lot of technically complex early-stage Canadian tech companies don’t get the support they need. The VC firm focuses primarily, though not exclusively, on firms with promising intellectual property. Today, GreenSky’s portfolio includes many companies that fit this bill, as well as some enterprise SaaS startups and other types of firms.
For its part, GreenSky has kept its investment approach consistent for some time. “Some of it is informed by if it ain’t broke, don’t fix it,” said List. “The numbers that we’ve been able to produce are pretty compelling.”
RELATED: Direct-C closes $3.9 million Series A from Henkel and GreenSky to scale oil leak detection tech
According to GreenSky, the VC firm’s largest exit to date was the sale of its stake in Toronto-based cybersecurity startup Rank Software to Arctic Wolf Networks in late 2020. Through this transaction, GreenSky received Arctic Wolf shares, which it held for about a year and then sold in a series of secondary transactions.
Hoffmann, who previously invested in some of GreenSky’s funds, joins the firm as managing partner from Toronto’s Sionna Investment Managers, where she spent 17 years serving in a variety of roles. She most recently worked as research director and lead portfolio manager on the firm’s Canadian equity strategies, investing on behalf of institutional clients and retail investors.
Speaking to the change of investment stage with GreenSky, Hoffmann noted, “There are certainly big differences between investing in public equities versus venture, but at the same time, at its core, it’s about finding good business models with competent leaders at reasonable valuations.”
List described Hoffmann as “a great addition” to GreenSky’s investment team, noting that she brings a “deep amount of institutional experience with respect to fund management.”
Rank Software founder and CEO Niranjan Mayya has also joined GreenSky as a principal alongside fellow new principal hire Nadine Rijkhoff, as the VC firm looks to beef up its team and broaden its reach. For her part, Rijkhoff has previously served as a strategy and operations director and regulatory transformation director at BMO, and done some work as a management consultant.
In addition to bringing on Mayya and Rijkhoff, GreenSky has promoted Neil Peet from principal to partner, noting that since joining GreenSky seven years ago as an analyst, Peet has played a key role at the firm.
Through Fund V, GreenSky plans to back a total of 12 to 15 companies over the next two years, and the firm has already made headway on this front with investments in a trio of Toronto-based startups, Wisedocs, Trolley, and MiCharity.
“We have some interesting years ahead of us,” said List. “I think that we’ve got a chance of building the preeminent early-stage venture fund here in Canada, and I think the additions of Marian and Nadine and Niranjan just make me believe even more so that we’re on our way.”
Feature image courtesy GreenSky Ventures.