Investing in Alberta tech: Accelerate Fund, managed by Yaletown Partners

Geoffrey Kelsall (00:09): Tell us about the importance of the technology that the Accelerate Fund is investing in and what that means for the province of Alberta and the VC space here.

Arden Che (00:18): Alberta enterprise corporation has been tasked with stimulating venture capital investment here in Alberta, and back in 2012 they had launched the first in a series of Accelerate Funds because they saw a need to fill in that kind of space before a Series A and after an angel round. A lot of startups didn't have any institutional investors coming in to help them get to a more proper and a larger institutional round.

And so, the importance of this capital isn't just the companies we’re investing in, it's the purpose of it. So, what our fund does is with the Yaletown has experience as an institutional investor, we help bring that knowledge and help prepare some of these early-stage companies for later raises. So, for example, we’ll help them in analyzing their capitalization table, we’ll help them align their strategy to their metrics and through their fundraising strategy.

So, there's a lot of things that need to be put in place before you can really go on to take a larger investment. And we're there to help them do that. Accelerate Fund focuses only on Alberta-based companies. We have a lot of seed-stage venture capital funds here that will invest across the country or multiple geographies. The fact that we have enough deal flow and opportunity here for a fund to form a thesis around it, I think says a lot about the opportunities here and what we're seeing, especially out of Calgary.

Geoffrey Kelsall (01:47): Right. Well, it's interesting, right? I think nationwide there was a general pullback in VC last year, but Alberta itself, their numbers remained pretty strong. I think they really were sort of an outlier in still leading that growth and in managing to sort of buck the trend, so to speak, on the pullback.

Yasmine Al-Hussein (02:06): The Accelerate Fund invests in a variety of different technology-style companies, so in industries from financial technologies to property technologies, life sciences, a really huge underlying ecosystem of technology companies that we can invest in. So, it is really important to have all of these represented in the Alberta economy that is typically a more maybe natural gas or more kind of commodities-based economy in general as to the kind of the outside world.

So having this tech ecosystem and community really rise up and be a main player in Alberta is quite important. So having players on the VC side, on the financing side, whether it is early-stage, late-stage or even angel investing is quite important as well just to show that kind of faith in the tech ecosystem here.

Geoffrey Kelsall (02:55): Right.

Yasmine Al-Hussein (02:56): But even more than that, just knowing that there are opportunities for these technologies, not only here in Alberta, but to prosper and grow throughout Canada, throughout North America, go global as well from there. So, there's so much opportunity here and so much intelligence in this province alone. It's been fantastic to see the founders go face to face with them, but also what they're building.

Arden Che (03:17): I would just reiterate; I think that there's a great opportunity here. What's going to be interesting, again, coming from a more traditional finance background, while there's been a lot of great emphasis on the amount of investment coming into Alberta, I think what's going to be even more telling in the road and in the road ahead is the number of exits we get because that's where true wealth generation is created when companies get acquired, they go public.

There's a liquidity event, the investors, employees and founders then actually have generated wealth for themselves. So, I think it's important for us all as professionals in this industry, to remember that the investment is only one half of the equation.

Geoffrey Kelsall (03:54): Right.

Arden Che (03:54): The other half, very importantly, is the actual wealth creation that comes from all of that. And that's what we're watching out for and I'm very hopeful for, obviously, but that is the next part of that, and we have to help our companies get there.

Geoffrey Kelsall (04:10): What do you look for in the startups you invest in? You know, what are some of the key elements you're looking for out of these companies before you put your face in them, so to speak?

Yasmine Al-Hussein (04:19): Of course, it has to fit the investment thesis. So, is it Alberta-based? Is it early-stage pre-seed or seed- stage of their financing? But more broadly, I guess the three core areas we look for are team, market and technology. And to kind of break those down a little bit more, because we invest so early-stage, oftentimes the product or the end result of the company’s outcome will shift over time.

They will have some pivots. They'll find new traction; they'll find their fit in a new area. So oftentimes the team itself, the founders or those that are in the executive leadership are so pivotal to the success of that business that we hold that pillar, if you will, at core value for Accelerate Fund and what we look for.

Strong team, we need them to have some industry domain or expertise, knowledge of the space, and then as well, surrounded by great advisors or great team members in general. Under the market piece as well, extremely important specifically in venture when we are investing, so early-stage, we need to know that there is a massive market outcome potential effectively.

So, they're not playing in something of a smaller market space that can do very well but might not provide the kind of returns that we would expect at a venture capital firm.

Geoffrey Kelsall (05:34): Right.

Yasmine Al-Hussein (05:34): So that's, you know, large markets is sort of the areas that we're looking for, and the technology, it comes back down to that piece. Is there something special and proprietary there that they are working on? Is there a competitive moat advantage that we can clearly see even early on in the days of the startup that we can put our belief behind that company, that team, that market, and that technology and ensure that our investment is going behind something that is not just a copy of the latest platform, whatever it might be. There's something very special there.

And then the technology has some standing on its own as well. So, those are our three main pillars, but a lot of decisions go into effect for a new investment. And of course, it's always a team decision. So, we have lots of experts on the team around the Accelerate Fund and Yaletown that help make that decision as well.

Geoffrey Kelsall (06:27): How do you feel about the market in 2024? Where do you see the rest of the year shaking out?

Arden Che (06:34): You know, this is where having 20 years of experience in the capital markets comes in handy because, you know, I've seen and worked through a number of cycles.

Personally, I think it's a very exciting time because whenever there is a correction in the market, whenever there is a pullback, or the end of, you know, a major trend, there's always opportunity.

And I think, honestly, when you look at how pricing has been going, not only in private companies but in public equities as well.

Geoffrey Kelsall (07:03): Yeah.

Arden Che (07:04): It’s coming back down to more reasonable levels. And funds that are out there now investing are likely going to—actually we did a study of this at Yaletown—about how funds of certain vintages following a downturn tend to do better because they're buying in and getting better opportunities.

Now, the tech companies are the same. It's not like, you know, suddenly there's different or newer tech companies out there. It's just that valuations, the competition for capital, becomes a little bit more balanced than it was, say in the last several years. And I think that, you know, a lot of us in the venture community are excited about the opportunities ahead.

And, when you look at—one of our partners, Brad, said, A lot of times, cycles in the past, you look at how long they've taken to kind of come back out and for the business cycle to pick up again.

Geoffrey Kelsall (07:53): Right.

Arden Che (07:54): But I think a lot of people are underestimating the power that new technologies like artificial intelligence are going to play in pulling us forward and getting out of the downturns.

And so, now that we're seeing interest rates kind of basically become more steady inflation is showing too, while it's still been a little bit, we'll just say a little bit challenging, or stubborn. It has slowed down.

Geoffrey Kelsall (08:20): Right.

Arden Che (08:21): And so, looking ahead, as an investor, we're thinking about the years ahead, not the quarters in the months in private investment.

Geoffrey Kelsall (08:27): Right.

Arden Che (08:28): And so, when you look at the—for example, one of our portfolio companies just raised a Series B, $27 million Series B, in what is arguably a tight environment right now.

Geoffrey Kelsall (08:40): Right.

Arden Che (08:40): But they have strong fundamentals, and they are in a space that is helping their consumer, like it's a real company, solving real problems, obviously, and generating real revenues.

The opportunities there, there will be investors. Capital always finds the best opportunities. It just might not be where you think it will be, but as long as you're running a good company and you're solving a real problem that there's demand for, there should be capital there for it.

Yasmine Al-Hussein (09:09): It's wonderful to be this angel matching fund as well. So, any dollar that we put into an investment gets matched 1-to-1 by angels or private investors. We don't typically see that in a lot of funds or especially in venture or institutional-style funds. So, it's been nice to see the amount that it's not a 1-to-1 ratio for most of Accelerate Funds II and III.

It's been more than that and I think it's truly telling of the excitement in the tech industry here, but also the sophistication that we are building up at the private and angel investor level as well. So, there's lots to be proud of here in Alberta. I think that's a great kind of telling factor that we have: those ratios, those amounts to showcase that, yeah, we are doubling, tripling the amount that Accelerate Fund would put in an institutional VC, backed by great private investors based here.

A lot of them are in Alberta, some of them are more widespread, but it just goes to show that I think we're all getting our minds wrapped around tech as a true economy base for Alberta, as well. So, there's lots to be proud of here.