Proposed Edge Fund would benefit from sharper focus, says investment manager

· The Pulse

The city's proposed $5 million Edge Fund will need a tighter focus and clearer objectives to make a real difference for innovation in Edmonton, suggests an investment manager who has dealings with Calgary's much bigger investment fund.

"This thing has to become much more specific to be successful. And if it doesn't, it's kind of doomed to not have the impact that they're looking to have," Arden Tse of Yaletown Partners told Taproot after reviewing the documents supporting a budget request for $5 million to set up the Edmonton Edge Fund. "The potential is there, but only if the city is willing to really focus."

Tse manages Accelerate Fund III, a venture capital fund that matches angel investment in early-stage tech startups in Alberta. It has invested in Edmonton startups such as Truffle and Areto Labs, and was recognized as Start Alberta's Tech Investor of the Year for 2022. It has also received a $6 million contribution from the Opportunity Calgary Investment Fund (OCIF), which the City of Calgary created in 2018 with $100 million from its reserves.

Mayor Amarjeet Sohi has expressed his support for Edmonton's proposed Edge Fund, saying it would "address a current gap in capital available to local innovators and entrepreneurs operating in, or entering, the Edmonton market," while "promoting business growth, economic diversification and talent retention." He promised to set up an innovation fund during the 2021 election campaign, saying he wanted to create something modeled on initiatives like OCIF.

OCIF has committed $68.5 million to 23 projects since it was founded, including $4.5 million for supply chain company Attabotics, and $3.25 million for AltaML to fund applied data science internships in Calgary. It has since shifted to investing in funds that invest in early-stage companies, such as Tse's Accelerate Fund III and Thin Air Labs Fund I.

"I think they've learned a number of lessons, which manifests itself in how they now administer their fund," Tse said of OCIF. "They know they want to support Calgary technology startup companies. And they're investing in local venture capital firms to do that. That's a nice, specific, easily actionable and measurable program."

The Edge Fund under consideration for Edmonton is nowhere near the size of OCIF, though the documents supporting its creation say it will scale over time. Starting small is OK, said Tse, "recognizing that the city is experimenting with something — they're dipping their toe in the water — and that could lead to more down the road."

A portrait of Arden Tse

Arden Tse of Yaletown Partners manages Accelerate Fund III, a venture capital fund that includes $6 million from the Opportunity Calgary Investment Fund. (LinkedIn)

But it's trying to do a lot at the same time, with eight criteria to align with: economic impact, job creation, connection to key industries, benefits to the innovation sector, connection to existing initiatives, social benefits, inclusive growth, and environmental goals. The funding is available to private-sector companies, not-for-profit organizations, and public institutions proposing local investments. Broadness may not serve it well, Tse said.

"Big-tent approaches get too diffuse, and we often never see the real results or the impact of it," he said.

Phase 1, drawing $5 million from reserve funds set aside for COVID-19 recovery, would be run at the outset by city administration, working with organizations such as Edmonton Unlimited and Edmonton Global to refine the program. This will give administration "the opportunity to establish a viable internal governance structure, to assess program uptake and the success of funded projects or initiatives, as well as provide insights into how to establish a sustainable, permanent version of the program," says the proposal.

It's important to learn those lessons well, Tse said. "At the end of the day, what matters is, 'Can we figure this process out that's going to warrant more?'"

That said, Tse has concerns about the amount of money that will go to overhead. The current proposal expects a full-time equivalent salary, legal support, communications, website development, advertising, and other expenses to come out of the initial $5 million. "That's a not insignificant amount of money that's going to evaporate in operating costs."

The Edge Fund is one of many budget requests that city council is considering as it prepares to set its operating, capital, and utility budgets for 2023-26. Two days of public hearings began on Nov. 28, and the first budget meeting is scheduled for Nov. 30.