A Montreal-based venture capital firm is doubling down on its support for early-career fund managers with US$25 million in new capital. 

Inovia Capital’s Discovery Fund I is an outgrowth of the firm’s Discovery Program, through which it allotted a small portion of its funds to so-called emerging managers—newer investors typically operating small funds, many of whom have had careers in tech or business before getting into venture capital—for them to invest. 

Inovia is creating a dedicated pool of capital to invest in funds that are just beginning to establish themselves in a market that’s become particularly challenging for emerging VC managers. In the U.S., emerging managers are on pace for their slowest fundraising year since 2015, as limited partners—the investors who give VCs money to invest—navigate the down market by putting their money in funds that already have a track record. 

Inovia partner Karamdeep Nijjar said that approach is shortsighted. Since emerging managers typically fund the earliest-stage startups, neglecting them threatens the investment pipeline for later-stage investors. The discovery fund aims to address that, said Nijjar. “If those companies don’t get funding at those earliest stages here, they don’t exist for us in terms of follow-on investing.”

The cap table: Capital for the discovery fund came from a group of existing Inovia investors, as well as two notable first-time strategic investors: Deloitte Ventures and Canadian Tire’s venture capital division, Roller Labs Ventures. 

Nijjar said having the corporate VCs at the table gives the fund’s managers access to a trove of insights and customers in industries spanning retail, logistics, AI, fintech and cybersecurity. In turn, Deloitte and Canadian Tire can tap innovative technologies in the managers’ portfolios.  

The strategy: The fund will back about a dozen managers who are investing in pre-seed and seed-stage startups. Inovia is looking for funds to back within its own networks, as well as scouting VC firms it sees investing in interesting startups, said Nijjar. “Because we see all this really, really early-stage deal flow, we can see around the cap tables,” he said.

On top of investing directly in the emerging managers’ funds, in some cases Inovia may itself join those funds and invest directly in a deal. “Where we have a pre-existing relationship and there’s a strong overlap with our mandate, we might put in a small cheque alongside the managers,” said Nijjar. 

The philosophy: Nijjar said Discovery Fund I is, in a sense, a way to pay forward the support Inovia got from its own limited partners—such as BDC Capital, Teralys Capital and AVAC—when it was an emerging fund itself. 

“We owe such a debt of gratitude to them for having that long term faith in us and being with us when things were a bit bumpy,” said Nijjar, who’s been at Inovia since 2010. 

The road forward for today’s emerging managers is certainly more challenging than it has been in recent years. Investors in their funds tend to be family offices and high-net-worth individuals, many of whom have become averse to investing in risky, early-stage startups amid the correction in the public and private tech market.

Nijjar said emerging managers willing to stick it out in this market are worth supporting. “Those are the folks we want to work with,” he said, “that are not just there when times are good.”