Sprout Fund is quickly approaching the goal for its second fund, which will eventually provide momentum to a new group of seed-stage tech companies in Western Canada.
Fund II, the only one of its kind headquartered in Edmonton, is aiming for a minimum first close target of $10 million before moving into the investment phase. Its deal flow will consist of software-as-a-service companies in Western Canada in the business-to-business space, said Kristina Milke, one of the four managing partners of Sprout Fund.
They'll invest about $150,000 to $250,000 in each company, with an eye for early-stage traction and a diverse founding team.
"We know that diversity plays a fundamental role in helping making good decisions for our organization ... we want to see it on the founding teams of the companies we invest in," Milke told Taproot.
Sprout Fund's initial endeavour of Fund I led to investments in 10 companies, including DiveThru, Dryrun, and EZOPS. It also helped Milke and her partners narrow their focus.
In the lead-up to building Sprout Fund, the four managing partners were all A100 members and had angel investing experience.
"We decided that we wanted to try to see what kind of deal flow we could get in the region as well as trying to get investors into our first fund that were not typical investors in this asset class — we wanted to see if we could get more people interested in investing in technology," Milke explained.
In addition to involving non-tech investors, their goals were to learn about fund management through a small pilot fund and determine what kind of deal flow was possible. Two and a half years out from the first investment, Fund I's portfolio is 2.5 times its initial value. Now, about 50% of investors from the first fund have come back for the second.
"It feels really great that we have investors that went in on Fund I at a $20,000 investment that are now coming into Fund II at a considerably higher investment level," Milke said.
Kristina Milke is one of Sprout Fund's founders alongside Mark Benning, Lindsay Dodd, and Shaheel Hooda. (Supplied)
One of those returning investors is James Keirstead, president of Levven Electronics. He was drawn to the opportunity to invest in tech startups for the first time, after amassing more than 20 years of experience as an entrepreneur and investor.
"I wanted to start building a portfolio of startup investments but I'm trying to run a scale-up myself and I don't have the time, capacity, or the experience to go out and vet opportunities," he said, adding that he knew all four fund managers and their track record in Edmonton's startup community.
"It seemed like a low risk way for me to get involved."
He was also attracted to the fact that Sprout Fund II is Edmonton-based.
"One of the biggest challenges in growing an innovation community is getting enough visibility into the businesses inside the community and helping them grow," said Keirstead, who has been active in the Rainforest Alberta movement to build an ecosystem here. "You have all these little diamonds in the rough that are sitting here but no one can see them because it's kind of like a needle in a haystack. If you don't pull out a piece of it and only look at that one piece, your chances of finding those gems are really slim,"
"Our system is finally starting to produce some momentum, so something like this really speaks to ... how this is going to be a really great market for technology businesses."
Similar to the first fund, Sprout Fund II has a term of 10 years. For the latter part of that time, the focus will be on growing the fund's investments and exiting.
Correction: This story has been updated to reflect that Sprout Fund II will invest $150,000 to $250,000 in companies.