Welcome to Who Are These Investors, This episode features Matthew He of Brightspark Ventures one of the oldest VC in Canada. Listen to this rapid fire interview where you get to know just who are these investors.
Full transcript below
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Matthew He of Brightspark Ventures on Who Are These Investors Transcript (Automated)
The Startup Coach: Welcome to Who Are These Investors podcast shorts featuring interviews with investors in Canadian startups. Welcome to who are these investors? I am the startup coach. Founder of Toronto starts one of the largest startup communities in Canada. And with me today is Matthew. He of Brightspark ventures. Welcome Matt.
Matthew He of Brightspark Ventures: Thanks for having me, Craig pleasure to be here.
The Startup Coach: It’s great to have you. Can you start off by telling us about Brightspark ventures?
Matthew He of Brightspark Ventures: We were founded in 1999. We like to say we are one of Canada’s oldest VCs. If not the oldest, we manage $400 million, uh, assets under management. We variable team 12 people in total five investors.
We operate all across coast to coast. We invested pretty much in every region of. And we focus on seed and series a investments for us as a VC firm. What we like to say is we really have innovation at heart. We practice what we preach. And the 23 years that we’ve been running, we’ve done everything from being an early VC fund model to running incubators and founding companies, yourselves that we’ve all sold successfully.
And in the last 10 years, what we’ve really done is democratize access to VC assets. In addition to running our traditional fund model on the democratized access to VC assets is we are offering high net worth investors. Angel investors, the opportunity to invest alongside us in venture class deals.
So we would source an opportunity. We would structure a SPV around that opportunity, a deal by deal basis and open it up to our network of 5,000 plus individual investors to say, Hey, we’re investing in this great venture backable company and you can read them and we’ll check in this. And it allows you to gain exposure to an asset class that was previously closed off to a lot of people who weren’t LPs or in other institutional funds.
The Startup Coach: What do you look for when investing through an SPV?
Matthew He of Brightspark Ventures: When we first started the model, we really approached it as if you would, with a traditional fund, just a deal that we would do as a partnership, except we would open up the capital to be raised for individual investors on that deal alone. Today, that model has evolved a little bit where we also have a traditional institutional fund.
We would invest out of that fund as a lead check and then allocate an additional 25 to 33% on top of that for our individual investors and an SPV.
The Startup Coach: As a VC, what is the stage you invest and the average size of investment?
Matthew He of Brightspark Ventures: So we focus on seed and. We really like to say our sweet spot is the pre series a when a company has some traction, wants to get that money to get to that full large series a and grow even quicker.
And that means that for every first checks are averaged around 2.5 to 3.5 million. We can go higher on need. We can go lower. And these as well,
The Startup Coach: how many investments have you and your firm made over the years
Matthew He of Brightspark Ventures: out of the last 23 years, we’ve had three traditional venture funds. We’ve done 27 STV deal by deal syndicates. And we currently have 20 active portfolio companies in terms of how many we’ve made in the most recent years.
So 2021 for us was actually a record year. We did 12 investments in total across 900. I think that’s quite in pace with how the ecosystem overall is growing.
The Startup Coach: What is your preferred exit timeline?
Yeah, that’s a question. We get a lot from our founders or people asking us for investment as well. The truth of it is we don’t believe that value creation can be constrained to a timeline to say that because our fund has attended 12 year.
That we have to rush you to exit and 10 to 12 years in a company where maybe a lot of the value creations in the comp in two years after that, or even three, four or five years after that. And for us, I think hopper, which is one of our leading portfolio companies is a great example of this. We were their first check 14 years ago, and we’ve made a work on our end by extending funds by making new vehicles so that we can keep this position and keep generating value, rather than saying, we have forced an exit at this time.
What are some of the things that you and Brightspark ventures does to support companies you invest in.
Matthew He of Brightspark Ventures: So as lead investors in pre series a series, a rounds, we take board seats, we take governance and companies very seriously, and our partnership plays a very large role there that comes with helping companies structure and prepare for future fundraisers, making introductions that are strategic forming syndicates for future fundraisers or even the current round.
And obviously introducing any kind of partners that could help them in their journey. That’s on the higher level. Of course, we also get our hands dirty on the inner world. From reviewing models to building PR strategies together. We, we do a lot of different things, but we like to get our hands dirty. We come from an operator mindset. We practice what we preach
The Startup Coach: is your capital fully deployed or are you still looking for investment?
Matthew He of Brightspark Ventures: So in our last fund, that was closed in early 2020. We have still one last investment to make out of that fund. So we are actively looking for that. And as we speak right now, we are actually in the fundraising. For what will be our fourth institutional fund. And we’re looking at a late Q2, early Q3 close for that, which means we are constantly looking for investment opportunities.
The Startup Coach: Do you like to lead an investment round or join existing rounds?
Matthew He of Brightspark Ventures: We lead or co-lead rounds. So we like to take that lead that very actively to position.
And more than that, we’d like to structure meaningful syndicates.
The Startup Coach: Are there any terms you require?
Matthew He of Brightspark Ventures: For us, it goes back to how we take governance seriously. So the board seat had always want that. We’d like to see beyond that. It’s always a case by case basis.
The Startup Coach: What is a red flag for you when a startup is pitching or negotiating?
Matthew He of Brightspark Ventures: There’s quite a few. I think requiring NDAs is one of those things. That’s always a non-starter. And if you want to dive into the why of it is because we see so many companies and if I signed an NDA with certain company in a certain field, and then we end up not investing in you, but somewhat. We open ourselves to be liable for things like that.
Other than that, having counsel legal counsel that aren’t familiar with venture deals is typically a pretty big red flag on the pitch deck, having an exit horizon saying, Hey, in seven years, we’ll create this much value and be sold for that much is not really aligned with what we look for in Brightspark.
We want to see founders who want to create value in the long run. Really build meaningful businesses rather than say, oh, let’s go for a fast exit.
The Startup Coach: What one thing do you like to see in a pitch that you don’t see very often.
Matthew He of Brightspark Ventures: This is a slide that I actually, I’ve only seen a couple of times, but something I love is when the founder dissects from their perspective, how their business could potentially fail and then dive into the details and how they see the mitigation happen, because it shows the level of raw understanding of the realities of building the business.
That yes, there is tremendous upside, but there is a grounded understanding of these are our weak points. This is where we need help. And that makes our job as investors, as people who will eventually take a board seat and work with you. Getting our hands dirty, a lot more straightforward.
The Startup Coach: What do you wish more founders understood before negotiating investment terms?
Matthew He of Brightspark Ventures: One of the ones that I think everyone has in the back of the mind, but it’s still shocking when you sit on paper is how quickly dilution hit you. If you’ve raised a bunch of convertibles and safes, it’s easy to put that off and do the math later on, but I’d suggest you start today because you very quickly realize how little of your company you could have after enough of those.
Other than that, it goes back to having council and board members who are willing to get their hands dirty in the process. We’re also actually experienced in this and looking out for terms that could affect future fundraising and liquidation down the line. One other thing would be how chasing valuation really isn’t a long-term winning strategy because you’re always playing catch up.
If you have a valuation that’s so far ahead of where you are currently.
The Startup Coach: what do you look for in a startup?
Matthew He of Brightspark Ventures: As early stage investors it boils down to one thing. And that really is the team. What we mean specifically a bright spark. We like to look for domain experts who have earned some sort of unique insight in their field.
And the keyword there is earned either through time, through understanding from a previous business through academia, but something that is a unique insight in their field and that they have the capability and the will to execute on solving that problem over an unknown period of time. Team for us is at the heart of every company we invested.
The Startup Coach: When should startups reach out to you?
Matthew He of Brightspark Ventures: To me specifically, I have an open door policy.. If you reach out to me and it reads like a personalized email, I will reply and I want to set up a chat. We really like to build relationships early on and understand how you as a founder, how your company evolves over time, rather than just seeing you at one snapshot and making the decision. Then there
The Startup Coach: one book, every entrepreneur should read before talking to investors?
Matthew He of Brightspark Ventures: I have a responsibility to save venture deals by Brad Feld and Jason Mendelson. Because if I don’t say that I am not doing my job. Yes. That’s the book about basics of the venture negotiations dissected from both the founders and the investors perspectives.
But if you’re listening to this podcast, I am betting that you have read that already. So I’ll say the one that I like to say to people when I meet them privately. On a one how to win friends and influence people by Dale Carnegie. And the reason for that one is venture business. It’s a relationship based domain and to be able to effectively navigate those relationships is in my opinion, a key asset to have as a founder.
The Startup Coach: Best cold outreach technique you’ve seen by startups?
Matthew He of Brightspark Ventures: Warm intros are definitely really good. But for me, a personalized message with a concrete ask at the end is all it takes to show that you aren’t just sending massive emails. I don’t think anybody likes to feel like they’re a single contact cell in your CRM. And one of thousands receiving the same email, but story-wise and a firm I previously worked for called frontal ventures.
We did invest in a company called check, please, that sold software to restaurants, and they ran a pulled out reach strategy of going door to door with gift baskets, just to set up a warm relationship and begin those conversations. And they worked, they recently got acquired by a huge player called. So for me getting creative, getting personal and doing things that don’t scale initially, especially at that first few, couple months, first few years stage, that matters.
The Startup Coach: How do you see the venture capital landscape changing in Canada?
Matthew He of Brightspark Ventures: I’d say two things. Number one, because of the innovation we’ve done in democratizing access to VC, we have seen exactly how private investors. Thinking about this asset class. And what we’re seeing is an incredibly growing number of both angel investors and high net worth individuals who previously have not had any exposure to venture capital, wanting to come in and diversify their holdings by getting the reward potential that VC holds.
So we right now have 5,000 plus investors with us on the deal by deal platform. And we’re seeing tremendous growth in both the volume of deals we’re doing and the appetite in terms of actual dollars invested. So for example, in 24, From that SPV site alone, we did $15 million. And that number’s only going up.
The other thing that we’re seeing as a change in the Canadian landscape, at least it seemed more young first-time founders come in and want to build extremely ambitious companies, companies that might not be considered the safe businesses that we often see in Canada, but have that ambition, that talent and that will to succeed.
And I do think that that is a category that we as investors need to pay a lot more attention to what is coming out of the universities.
The Startup Coach: If people want to find out more, where should they go?
Matthew He of Brightspark Ventures: We have brightspark.com, which has all the information you could ever want. But since you’re listening to this podcast, if you have a company, if you have an idea, if you have any questions and curiosities, please don’t be shy to reach out directly to me at firstname.lastname@example.org. That’s spelled with two T’s and we can link that in the show notes as well.
The Startup Coach: Thank you very much for taking the time to be part of who are these investors.
Matthew He of Brightspark Ventures: Thank you for having me.
The Startup Coach: This has been, who are these investors find out more at? WhoAreTheseInvestors.com. And follow our live events at TorontoStarts.com/events