Ingredients for a Successful Software Investment Fund
A fund like Haro Ventures is needed in Victoria, and will have a big impact on the tech scene both locally and in BC more broadly.
But, how can we design the fund to maximize the potential for strong returns to our investors?
This is a question we’ve been working through — researching, discussing, and analyzing.
Below is a checklist of organization, structuring, and procedure to help maximize the upside of high returns to investors while managing downside risk.
- Angel Collective — Victoria has a team of angel investors and accomplished software entrepreneurs who want to work together and support tech companies. With these many smart minds working together in a coordinated fashion, this will really up our game and potential for higher returns to investors.
- Best Practices — a fund helps codify and ensure the design and implementation of best practice for:
- deal sourcing
- screening and due diligence
- diversification and portfolio management
- supporting our companies
- helping them exit
- accounting and reporting
3. Much Lower Risk Than Individual Startup — while still a high risk investment, investing with the fund is much less of a risk than any one startup asking for other people’s money. With a portfolio of 20 to 40 software company investments, the diversification of the fund’s portfolio greatly reduces downside risk.
4. Fund Investment Advisory Board (FIAB) — as part of our late stage due diligence process we can build in a check point where we seek feedback from top rated partner funds, especially for series “A” deals.
5. Sophisticated Co-Investors — we can make an agreement where we always invest alongside sophisticated angel investors (for our seed deals) and sophisticated funds (for our series “A”).
6. Limited Partners Advisory Council (LPAC) — this is like a board of directors for the fund, where significant LPs provide governance and feedback on fund operations, direction, strategy, etc. and constitutes another level of oversight by experienced people.
7. Investment Committee — though GPs make the final investment decision and it would need to be unanimous, we would have our Special Limited Partners at the table to provide council and input.
8. Meeting Institutional Requirements — having institutional investors like BDC, BC Tech Fund, and other institutions and family offices further ensures we’re managing the fund well and not taking unwarranted risks.
9. Focus on High Net Worth / Accredited Investors — we will only take money from people who have lots of money, and we won’t be a substantive part of their overall portfolio.
10. Tax Planning Credits and Benefits — VCC 30% tax credits and RRSP eligibility greatly diminish downside risk to investors, with 30% back immediately and by allowing the investment to be made with before tax dollars. Also, if done outside an RRSP, the returns are capital gains.
11. Ensure Risk is Properly Communicated and Papered — we are candid with our investors, telling them the opportunity and our strengths, but also the risks and challenges.
12. Code of Ethics and Core Values — Haro Ventures will agree upon a high integrity code of ethics and core values, and conduct all our affairs in light of these ethics and values.
13. Victoria & BC’s Leverage — the Victoria tech scene is very quickly and enjoying a virtuous cycle. There is very little competition for funding startups locally and the cost base of running companies in Victoria and throughout BC is very favourable.
There are challenges to being in a smaller city, but our Angel Collective will help bring expertise, experience, and network to our portfolio companies mitigating this weakness.
Successful investing into high growth software start-ups is hard work.
Anyone can write a cheque, but setting up and managing a fund to have the highest chances of a superior economic outcome is not easy.
We at Haro Ventures are giving this much thought and seeking advice from other very successful fund managers and angel investors. We are building the right mix of talent, process, and environment to launch and grow an awesome software investment fund based in Victoria BC.