Inovia Capital Secures $450 Million for Second Growth Fund

Montreal-based Inovia Capital has successfully completed fundraising for its Growth Fund II, amassing $450 million. This achievement occurred a little over two years following the announcement of its inaugural growth-stage fund in February 2019, which totaled $400 million.

Expanding Investment Scope

Inovia’s investment strategy now encompasses all phases of a company’s lifecycle. This includes continued support for portfolio companies that have achieved successful public market exits, such as Lightspeed, a point-of-sale and commerce provider that completed a public offering of approximately $400 million on both the NYSE and TSX exchanges last year.

Geographic Focus and Expertise

Similar to Growth Fund I, Growth Fund II will prioritize investments in companies, particularly those originating from Canadian startups. However, the fund will also consider opportunities in the U.S. and EU, regions where Inovia maintains existing offices.

The firm’s partners – including Chris Arsenault, Dennis Kavelman, and former Google CFO Patrick Pichette – have been dedicated to assembling a team of seasoned professionals. This team is designed to provide support to portfolio companies and address specific needs of startups operating outside of Silicon Valley, such as securing highly sought-after, experienced tech talent.

Validating the Growth Fund Model

Inovia’s initial Growth Fund was predicated on the belief that the firm’s network and expertise could provide value to portfolio companies throughout their entire growth trajectory, not just during the initial stages. Arsenault clarified in a recent interview that Fund I served as validation of this hypothesis, ultimately contributing to the successful fundraising for Fund II.

“We constructed the team around Dennis, Patrick, and myself,” he stated. “We diligently executed our core assumptions regarding the benefits of Inovia leveraging its platform to establish a growth-stage fund, benefiting from both portfolio insights and the relationships we’ve cultivated over the past decade.”

Competing with Established Growth Firms

Arsenault explained that demonstrating Inovia’s ability to compete with established growth-focused firms, which often provide follow-on funding for early-stage deals, was a key challenge. This was particularly significant given Inovia’s role in sourcing deals for prominent venture firms like Bessemer, KKR, TA Ventures, and Sequoia.

Building an Operational Support System

Inovia strategically hired operators with experience at rapidly expanding companies. The focus was on providing comprehensive support to investments, including establishing robust boards of directors and structuring cap tables to facilitate secondary sales and effective management.

With plans to invest in 10 to 12 companies using the $400 million from Fund I, Inovia initiated investments in Lightspeed, Forward (tech-enabled primary healthcare), Hopper, Snaptravel (two travel industry startups), and others.

Inovia Capital growth partners Chris Arsenault, Dennis Kavelman and Patrick Pichette (left to right)

Strong Performance and Accelerated Fundraising

The majority of companies selected for Fund I experienced substantial growth in 2020, notably including the travel-focused startups. Driven by this strong performance, Arsenault and his team accelerated their timeline for raising Fund II, encountering significant interest from limited partners (LPs).

The fund was ultimately capped at $450 million, despite potential demand for a larger allocation. Arsenault indicated that this size was deemed optimal for effectively managing investments and leveraging the operating team’s capabilities.

A Changing Canadian Investment Landscape

Arsenault noted that the majority of LPs contributing to Fund II also participated in the first fund, with some new investors joining as well. While Inovia’s focus isn’t exclusively Canadian, he emphasized that the firm’s success, coupled with the composition of its partners and portfolio – two-thirds of which are Canadian companies – reflects a shifting investment environment in Canada.

“A significant portion of our LPs are Canadian, and I believe it’s crucial to establish successful models that others can emulate or adapt,” Arsenault said. “We need more success stories to inspire others to pursue similar paths. The return of our LPs, alongside the progress of firms like Georgian Partners, Novacap, and OMERS Growth, demonstrates a significant evolution of the Canadian VC ecosystem.”

Emerging Support Networks

He highlighted examples of emerging support networks, such as the Backbone Angels collective led by former and current Shopify employees including Arati Sharma, Atless Clark, Lynsey Thornton and Alexandra Clark. Lightspeed’s initial public offering on the TSX before the NYSE was also cited as an indicator of growing maturity within the Canadian tech sector.

The Impact of Remote Work

Arsenault attributed an unexpected factor to Inovia’s success in launching the second fund and maintaining active involvement with its portfolio companies: the widespread adoption of remote work necessitated by the pandemic.

“It would have been impossible to achieve what we did with the portfolio, fundraising a new fund, and achieving our best year in terms of exits – including Lightspeed’s NYSE IPO and a dozen acquisitions by our portfolio companies – if we had been traveling and maintaining a normal work routine,” he concluded.

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