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Kensington Capital Partners closes $150-million venture fund backed by Scotiabank and BMO

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Kensington Capital Partners has closed a new $150-million venture fund in which Scotiabank and BMO are investing, the latest sign of big Canadian banks’ growing interest in the tech sector. 

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Talking Point

Both Scotiabank and BMO, which are backing Kensington’s $150-million venture fund, have increased their presences in the tech space in recent months. For Kensington, this raise is part of a bigger strategy in which its increasing its exposure in the tech space.

Toronto-based Kensington has already invested about $75 million of the fund into two firms and seven new venture capital funds. The fund is part of a $700-million tech portfolio deploying about three-quarters of its funds into VC firms, and the other quarter directly into companies.

“It’s great to have the close done. It’s part of a bigger picture,” said Rick Nathan, managing partner at Kensington Capital. “As of today, we have about $1.5 billion in assets under management, and we’ve grown significantly in recent years.” 

Both Scotiabank and BMO have increased their presences in the tech space in recent months. In October, The Logic reported Scotiabank was pushing into the tech-financing market in Toronto, Vancouver and Montreal. In April, BMO launched a lending group for tech firms. Investing in Kensington’s fund gives the two firms exposure to deals smaller than they typically would invest in directly. 

Also backing the new fund is the North American subsidiary of Japanese cybersecurity firm Trend Micro, as well as Kensington’s private equity fund, a number of family offices and the Business Development Bank of Canada (BDC). BDC is providing financing via the federal government’s $400-million Venture Capital Catalyst Initiative (VCCI), a 2017 budget commitment designed to increase the amount of late-stage venture capital available for Canadian firms. Kensington Capital announced an initial close of $85 million for the fund in December 2018. This $150-million close is the final one. 

Canadian VC investment is currently at a six-year high, with $2.4 billion invested in the third quarter of 2019. Deal size is up 215 per cent compared to the average over the last five years. 

Despite that, Nathan thinks it’s time for the government to launch another VCCI to boost the domestic venture capital sector. 

“They get a return on the money, so it’s not a bad use of taxpayer funding,” Nathan said. “I don’t expect it anytime soon.” 

Kensington has currently dedicated $700 million of its $1.5 billion in assets under management to the tech space. It’s backed a number of prominent firms, such as Pandora and TouchBistro. 

The firm has about 25 staff in Toronto, four in Vancouver and one in Calgary. Its Calgary strategy has shifted away from venture capital-based tech investments, on which it had planned to focus when it first opened an office in the city in 2015. 

“When we launched that office, there was some venture there, as well. But there really wasn’t enough to do there,” said Nathan. Kensington recently invested in White Swan Environmental, an Alberta-based oilsands waste-disposal firm via its Calgary office, and is looking at other firms working in the oilsands.

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In October, Nathan went to Israel to look at some deals; Kensington is now in the process of closing its first direct investment in the country. 

“We’re about to close our first direct company investment in Israel. We’re looking at some funds there, and we’re looking at some other deals,” said Nathan.