St. John’s Pelorus Venture Capital Firm Intensifies Support for Local Tech Startups Following Major Successes

Venture Capital in Newfoundland and Labrador: A Success Story

The Beginnings of Venture Newfoundland and Labrador LP

In 2014, expectations were muted when the Newfoundland and Labrador government pledged $10 million to establish a new venture capital fund aimed at nurturing local tech startups. At that time, St. John’s, the province’s capital, lacked recognition as a tech hub. Despite the allure of a 30% tax credit, investment in the fund was limited, with only nine investors contributing a combined $2 million. Among these was John Phillips, a prominent Shopify angel investor, who viewed his $1 million investment not as a profit-seeking venture but as an opportunity to support the local ecosystem.

Growth Beyond Expectations

Fast forward to today, and St. John’s has transformed into one of Canada’s most promising small-city startup ecosystems, thanks in large part to Venture Newfoundland and Labrador LP (VNLI). The fund, backed by Pelorus Venture Capital Ltd., has outperformed expectations, repaying investors $21 million—equating to $1.50 for every dollar invested. With an impressive net internal rate of return of 24%, VNLI has positioned itself as one of North America’s top-performing venture capital entities.

Recent Developments and New Funds

In 2021, VNLI launched a second fund with $26 million at the peak of the tech market. This fund is currently generating an encouraging 11% average annual return, placing it within the top quartile of that year’s offerings. Capitalizing on this success, Pelorus has recently announced plans for a third fund, VNLIII, which aims to secure $50 million, including $15 million from the provincial government and $5 million from Phillips’ investment company, Klister Credit Corp.

Lin Paddock, the province’s Minister of Jobs, Growth, and Rural Development, emphasizes the long-term benefits of Pelorus’ investment strategy, highlighting its positive impact on local job creation and economic growth.

Focus on Startup Investments

Pelorus aims to make between 10 to 15 pre-seed-stage investments in provincial startups, providing initial funding of $500,000 to $1 million. Notably, the provincial government’s contribution to the fund has decreased from 71% in the initial fund to 30% in Fund III—reflecting growing private-sector confidence and investment.

St. John’s has several advantages that create a fertile ground for startups. The presence of Memorial University has helped foster a local talent pool, with many entrepreneurs choosing to return home after gaining experience elsewhere. Among these is CoLab AI, founded by local co-founders Adam Keating and Jeremy Andrews, who returned to Newfoundland after working with notable innovators like Tesla.

A Thriving Entrepreneurial Environment

The support from the provincial government, along with contributions from local financiers like Killick Capital, has been crucial in cultivating a startup-friendly environment. The remote location of the province urges entrepreneurs to adopt a global mindset, recognizing that their market extends beyond the local population.

A highlighted success story in this ecosystem is Verafin Inc., a fraud detection software firm that was acquired by Nasdaq in 2020 for an astonishing US$2.75 billion. Such remarkable outcomes have inspired a wave of local entrepreneurs, including CoLab and Spellbook, which have attracted investments from high-profile organizations, including Silicon Valley-based Khosla Ventures.

Comparing to Global Benchmarks

Chris Moyer, managing partner at Pelorus, draws parallels between Newfoundland and Estonia, a small nation that produced multiple tech unicorns. This comparison underscores the potential for St. John’s to grow into a vibrant tech hub, capable of attracting substantial investment and emerging companies.

Notably, Pelorus was initiated at the urging of a provincial bureaucrat who encouraged its founders, including Moyer, to establish a new fund during a pivotal moment in the venture capital landscape.

Trust in Local Companies

Moyer reflects on early skepticism regarding the potential for more success stories in the province, pointing to CoLab and Spellbook as proof that the initial concerns were unfounded. Pelorus treats local companies with the same rigor as those in larger markets, evaluating them based on their merit and potential.

The investment landscape has welcomed various innovative startups, including Mantle, a revenue management platform for Shopify app developers founded by former local employees, as well as Mysa, a smart thermostat maker, and Sparrow BioAcoustics, which has developed smartphone technology for acoustic measurement.

Supportive Partnerships

CoLab’s Keating acknowledges the invaluable role Pelorus has played in their journey, likening them to additional co-founders whose insights and support are critical during key decision-making processes. This collaborative relationship emphasizes the importance of mentorship and guidance for fledgling companies navigating their early stages.

As St. John’s continues to emerge as a notable player in the North American tech landscape, the synergy between government support, local talent, and venture capital will likely propel its growth, setting a compelling example for other regions aiming to foster their own entrepreneurial ecosystems.