Vancouver-based Pender Ventures has poached former Real Ventures partner Isaac Souweine to increase the firm’s reach in Ontario, Quebec and the Maritimes. The regional expansion coincides with Pender’s ambitions to raise $100 million for its second fund, even as the bear market casts a chill on venture capital. 

In an interview with The Logic, Souweine, who will continue to be based in Montreal, said the expansion establishes Pender as a player in Canada’s most active venture capital markets. “Could you deploy $100 million in Series A on the West Coast? Probably,” he said. “It’s just a much bigger catchment to be able to do deals in Ontario and Quebec and the Maritimes.”

About 73 per cent of all venture capital dollars went to companies in Ontario and Quebec last year, according to the Canadian Venture Capital and Private Equity Association. 

Pender invests primarily in healthtech and information technology software around the Series A stages. Its portfolio includes Vancouver-based AI firm Copperleaf, which listed on the Toronto Stock Exchange last year, and North Vancouver’s Jane Software. Export Development Canada and Vancity Credit Union backed Pender’s first fund. Maria Pacella, managing partner at Pender, wouldn’t confirm whether those LPs will back fund two. “We do think we’ll have a good set of supportive existing LPs returning,” she said. “What we didn’t have with fund one, that will help with fund two.” 

Pacella said the firm’s eastern expansion is a natural next step in its growth. “The idea was always to continue to expand across the country,” she said. Pender’s first fund made four investments outside B.C., including one in Ontario, said Pacella, and she expects the share of firms outside Western Canada to be greater in fund two. 

Souweine’s experience as a startup mentor and product manager at Real and before joining the firm made him an attractive hire for Pender, said Pacella. “Given our focus area, which is product-market fit, in terms of stage of company [in which Pender invests], the product side is so important,” she said. “He really knows how to work with entrepreneurs early on and develop them,” she added. “So it’s a natural next extension for him to be doing [that with] later stage companies.” 

The firm is exploring a larger pool of potential companies just as rising inflation and interest rates, as well as a bearish public market, drive investors to become choosier about where they put their money. 

“We expect it to be difficult,” Pacella told The Logic. “I survived raising fund one, which I think was the hardest. Even though the times arguably were better, we were not as well known in the private market, and being based in the West, there’s not as much capital for this asset class.” 

Pender is targeting a substantially larger second fund than its first, which closed at $25 million in November 2020. 

Having deployed most of the fund, Pacella went back to the market for another raise around May. The team started reaching out to its existing limited partners recently, she said at the time. She acknowledged her team has to expand their investor base “to scale up the dollars” and was starting to hold discussions with new possible investors.

Pender hasn’t reduced its fund size or extended its timeline, despite setting those targets before the market downturn. With “good returns of fund one, it’s looking pretty good,” she said in May. She declined to disclose fund one’s returns but said they are “in the top quartile” for last year’s benchmarks for early-stage, North American venture capital. “But we’re obviously also cognizant of the volatility in the world today in the public markets, which of course will trickle down to the private markets. And, hopefully not so much fundraising, but it could impact that as well.”

Pacella wasn’t surprised by the downturn, noting there are ups and downs to a cyclical market and that the industry was “getting quite heated” in terms of valuations and the number of transactions. A healthier return to fundamentals could benefit Pender Ventures, she reasoned, which has always tried to conduct investments that way.

Souweine agreed that the timing to raise isn’t ideal, but argued the stages in which Pender invests are insulated from the worst effects of the bear market. “For sure, it’s not the perfect time,” he said. “On the other hand, early-stage venture capital is a little bit less cyclical than the rest of it. You’re basically asking people to take a 10-to-12-year journey with you on disruptive tech for the future. It’s not as hard a sell as, ‘I have a late stage company that I’m trying to take public next year.’ Then they’re really impacted by the market conditions.”

Pacella was ready for investors to be more cautious during this raise. “I think we need to be prepared for that,” she said. She knew she might have to take more time to explain the team’s plans for the fund, show more data on how great tech firms were built after the tech bubble and financial crisis, and be more patient. “That’s all we can do.”

While it may be harder to raise at the moment, Pacella saw a silver lining: “It should be [a] good time to actually be deploying that capital.” If the economy enters a recession, much of the tech industry’s dry powder will be burned through and less funds will be raised, she said, but there will still be great companies to invest in although valuations would likely be lower. “With that, we have access to better deal flow and then better deals, better potential investments and therefore better returns.”

Pender is expecting to close the first half of its fund—targeting $50 million—in the fall. Pacella said in May the fund’s final close would be early next year.