Though Canada’s innovation economy is bracing for a prolonged rout, Montreal-based venture firm Inovia Capital has raised US$325 million for its fifth fund in what partner Karamdeep Nijjar said was record time. 

“I don’t want to downplay how hard it is to raise money in this environment, and I think every situation is a little bit different,” said Nijjar. “For us, this was the fastest fundraise we’ve ever had.” 

Investors in the fund include existing backers the Caisse de dépôt et placement du Québec (CDPQ), ​​BDC Capital, HarbourVest, Northleaf Capital and AVAC, among others. The fund also brought in two new institutional investors, British Columbia Investment Management Corporation and Trans-Canada Capital.

With interest rates and inflation rising amid Russia’s invasion of Ukraine and the fallout of the COVID-19 pandemic, Canada’s investors and founders are expecting deal making to slow down and capital to dry up. But Nijjar said Inovia locked in nearly all its commitments for the fund within three weeks in February, and wrapped up due diligence over the next two months. 

He attributes the quick raise to the work the firm did setting the stage for the round. Inovia began letting limited partners (LPs) know in early 2021 that it would be raising the fund, which helped the firm gauge interest and give investors the chance to bank the cash to participate. And Inovia’s strong couple of years leading up to 2022 gave Nijjar and his partners confidence that their LPs had the money for another round, he said. 

“We’ve returned, I think about half a billion Canadian [dollars] over the last 12 to 16 months to our LPs,” he said. “They physically have the money. If you give someone $2 and ask for $1 back, it’s a lot easier to just go to them and say, ‘hey, can I have $1?’”

“[Inovia has] a proven track record to generate good returns over the long term and they have a stable and competent leadership team, which can explain how they have been successful at raising funding despite challenging market circumstances,” said Kate Monfette, a senior media relations advisor at CDPQ, a longtime Inovia LP. 

”We are very pleased to continue our investment in Inovia funds,” AVAC president Warren Bergen wrote in an email to The Logic. “We remain impressed as the entire team and processes continue to evolve and improve. The discipline of the Inovia team and the resulting returns are matched by very few.”

The timing of the raise, in early 2022, likely also positioned Inovia just ahead of the panic that has engulfed the venture industry in recent weeks. While the public markets had begun to decline by then, private investments remained relatively insulated from the macroeconomic shocks. “When the stock market falls dramatically and interest rates climb rapidly … private market investment values will not reflect the changing environment for several months because their very nature requires a manual valuation and reporting process,” Hilary Wiek, lead analyst and fund strategist at PitchBook, wrote in a report last week. 

The fund is Inovia’s third since the start of 2021. It brings the firm’s total capital under management to over US$2.2 billion.

Nijjar said Inovia initially planned to raise about US$250 million, but upped the target given the deluge of interest. “We could have raised US$400 or US$500 million, but for us, it’s not about raising the most amount of capital possible,” he said. “We actually want to invest this capital profitably and get some returns back in the hands of our LPs and hopefully a portion of that back to the firm.” 

Inovia launched its first fund in 2007 and has since backed a host of Canadian tech darlings, including Lightspeed, Hopper and Symend. The firm said it doesn’t disclose its average internal rate of return, but spokesperson Isabelle Audette said it has been in the top quartile for the industry across the last three funds. 

With its latest fund, the firm plans to back companies in digital health, retail technology, manufacturing and logistics, and fintech, and will prioritize Canadian firms and companies in which the fund has not previously invested, said Nijjar. Inovia’s recent investments in health AI startup Signal 1 and cybersecurity firm Flare were made through fund V. 

The pace at which Inovia is deploying the fund also belies expectations that deal making is slowing as investors become more risk averse. “We have learned a very hard and expensive lesson around not trying to time the market,” said Nijjar, referring to Inovia’s 2011 vintage, when the firm invested in a handful of companies that didn’t fit its thesis and whose fundamentals weren’t “quite up to par” simply because it had money to deploy. 

“We’re pretty religious about investing at a relatively constant pace,” he said. “That means sometimes in a really hot market, we’re not investing as much as some other folks might be. And in other cases, when the markets are a little bit depressed, we’re still investing at a pace that’s ahead of some of our peers.”