The Globe and Mail - 09.03.2020

B2| REPORTONBUSINESS O THEGLOBEANDMAIL| MONDAY,MARCH9,

One of the best-known Canadian
technology leaders in the San
Francisco Bay Area is joining
Power Corp. of Canada’sfinan-
cial technology venture capital
firm, Portag3 Ventures, as a part-
ner.
Chris O’Neill, former chairman
and chief executive officer of
note-taking app company Ever-
noteCorp.andpreviouslyheadof
Google’s Canadian operations,
joins Portag3 three months after
it closed Canada’s largest finan-
cial technology venture fund, its
second, raising $427-million
from 20-plus institutions in
North America, Europe and Is-
rael.
Portag3 is the early-stage in-
vestment unit of Power’s alterna-
tive-asset management arm Sa-
gard Holdings.
IthasbackedsomeofCanada’s
most prominent startups, includ-

ing robo-adviser Wealthsimple

Inc., mobile banking service pro-

vider Koho Financial Inc., bene-

fits provider League Inc., artificial

intelligence firm Integrate.ai Inc.,

online lender Borrowell Inc., tele-

medicine firm Dialogue Technol-

ogies and e-commerce merchant

financier Clear Finance Technol-

ogy Corp. (known as Clearbanc).

Portag3 CEO Adam Felesky

said his firm, which has a man-

date to invest in North America

and Europe, had been looking to

add a San Francisco-based part-

ner for two years and “we don’t

think we could have a better part-

ner to do that than Chris.”

He added that Mr. O’Neill, who

becomes Portag3’s sixth invest-

ment partner (alongside Mr. Fe-

lesky, Sagard chairman Paul Des-

marais III and three others in Pa-

ris, Singapore and Toronto), is

the first “who’s scaled a business

beyond $50-million of revenue.

We think he’s going to be of huge

value to our portfolio companies

that are a little more mature.”

He will also help shape invest-

ing strategies for Sagard and Por-

tag3.

Mr. O’Neill, the son of Cana-

dian Tire franchisees in Goderich,

Ont., moved to the Bay area in

1998 for what was supposed to be

a two-month stint when he

workedformanagementconsult-

ing company Oliver Wyman.

He has spent most of his life

since then in the region. Mr.

O’Neill worked for Google for a

decade before joining Evernote

for three years starting in 2015. He

isachartermemberoftheC100,a

Bay-area-based organization of

Canadian tech executives that

helps entrepreneurs from north

of the border make connections

locally,andservesontheboardof

Gap Inc.

Mr.O’Neillhasalsobackedsev-

eral Canadian startups as an an-

gel investor, including food-or-

dering app company Ritual Tech-

nologies Inc. and AI specialist

Layer 6 Inc., bought by Toronto-

Dominion Bank for more than

US$100-million in 2018.

“I enjoy and get energy from

curious and driven people that

have world-changing aspirations

and want to build enduring com-

panies,” Mr. O’Neill said.

He said he felt his experience

guiding employees and entrepre-

neurs “could be valuable [to oth-

ers]. In this next stage of my [ca-

reer] I want to be working with

people I really enjoy. ... When I

spent time with Paul and Adam it

became clear this is the perfect

time and place to have that im-

pact I was seeking. The fact it was

tied to my homeland was a bo-

nus.”

ChrisO’Neill,seeninRedwoodCity,Calif.,in2018,istheformerchairmanandCEOofnote-takingappcompany
EvernoteCorp.andwaspreviouslytheheadofGoogle’sCanadianoperations.JASONLECRAS/NYT

PowerCorp.’sPortag

hiresSiliconValleystar

hris$Ì"eill•oins

thefirmthreemonths

afteritclosed
anadaÌs

lar‚estfinancial

technolo‚ðíenturefund

SEANSILCOFF
TECHNOLOGYREPORTER

On the heels of a banner year for
Canadian venture capital invest-
ing, a new class of funds is set to
launch here that will enable
startup financiers to double
down on their winners.
Vancouver-based seed-stage
investor Version One Ventures
LLC announced Sunday that it
has closed its first, $25-million
“opportunity fund” backed by
funds-of-funds investors North-
leaf Capital Partners and Har-
bourVest Partners, LLC. The op-
portunity fund differs from Ver-
sion One’s core funds, including
itsthird,whichraised$57-million
in 2018, by enabling it to keep
backing its most successful port-
foliocompaniesastheygrow–an
opportunity previously beyond
its reach.
“These type of funds haven’t
reallyhitCanada”yet,saidIanCa-
rew, managing director with
Northleaf,whichencouragedVer-
sion One to launch the fund and
put in US$5-million. “We’re not
reinventing the wheel, but taking
something that’s been tested and
proven” by U.S. venture capital
firms starting with New York’s
Union Square Ventures in 2010.
Version One founding partner
Boris Wertz, who co-manages the
firm with Silicon Valley-based
general partner Angela Tran, said
past backers quickly signed on
and the fund closed in four weeks

• unusually fast for Canada. “A lot
  of people found it super interest-
  ing,” he said.
  Northleaf isn’t stopping there.
  Mr. Carew has suggested the idea
  totwootherCanadianseedfinan-
  ciers and pledged to fund them if
  they proceed. He declined to

identify them but it’s believed

Golden Ventures of Toronto and

Waterloo’s Garage Capital are

contemplating similar funds.

Both declined to comment.

Advocates for opportunity

funds lay out a compelling ratio-

nale for them. Version One typi-

cally invests $750,000 in startups

in Canada and the United States,

backingpromisingentrepreneurs

early on. But as its best bets scale

up, Version One only gets a limit-

ed bite of the upside: It participa-

tesinoneormaybetwofollow-on

financings investing another

$750,000tomaintainitssharebe-

fore their financing needs grow

too large to continue.

For example, it hasn’t partici-

pated in recent fundings by one

of its top picks, digital textbook

provider Tophatmonocle Corp.

The opportunity fund changes

that. It’s a sidecar with a mandate

to back the best performers from

Version One’s first two funds.

Now, it can invest $3-million to

$5-million in companies it knows

well and believes have the best

chance to create value. Version

One charges about half its typical

fees (industry norms are 2 per

cent of assets to manage funds

plus 20 per cent of the gains).

Since it invests later in the com-

panies’ lives, it targets a return of

two to three times invested cap-

ital over four to five years – com-

pared with 10 times over 10 years

for its core fund. It also lets big

Version One backers such as

Northleaf maintain ties with the

startups until they become big

enough to consider funding the

companies directly themselves,

Mr. Carew said.

The model has succeeded for

Union Square: Its first US$135-

million opportunity fund has

been one of the industry’s top-

performing venture funds, The

Wall Street Journal reported re-

cently. “We are happy with the

performance of our opportunity

funds,” said Union Square ma-

naging partner Albert Wenger,

whose firm raised its third such

fundlastyear,forUS$250-million.

“Having one makes a lot of sense

for early stage funds, who other-

wise cannot follow their best in-

vestments,” he said.

Mr. Wertz said Version One’s

opportunity fund “is relatively

small because we see it as [a

chance] to prove out the model.”

If it works, the firm may raise an-

other opportunity fund with its

next main fund, he said.

The arrival of opportunity

fundsherefollowsayearinwhich

venture capitalists invested $7.3-

billion in Canadian companies,

according to Refinitiv – second

only to the peak dot-com year of

2000 adjusting for inflation. It “is

asigntheCanadianmarketisma-

turing[andproducing] break-

away companies,” HarbourVest

managing director Senia Rapisar-

da said. “In the last 10 years, the

seed market has produced some

outstanding [investors] in Cana-

da. This is a way to access better

opportunities at better econom-

ics [and] for us to de-risk our

portfolio and for seed managers

not to leave the majority of the

upside on the table.”

B.C.’sVersionOneVenturescloses

$25-million‘opportunityfund’

SEANSILCOFF
TECHNOLOGYREPORTER

Thearrivalof

opportunityfundshere

followsayearinwhich

venturecapitalists

invested$7.3-billionin

Canadiancompanies,

accordingtoRefinitiv.

A battle for dominance in Canada’s East Coast fisheries is

playingout,asrivalfoodcompaniesweigh$450-million-plus

bids forClearwater Seafoods Inc., the country’s largest

owner of licences to harvest lobster and shellfish.

Clearwater’sboardofdirectorsputtheHalifax-basedcom-

pany up for sale last week by launching a strategic review

after Clearwater “recently received several expressions of

interest” from potential buyers, according to a press release.

Clearwater’s board said options under consideration include

sale of all or part of the company, or a merger.

Bidders are expected to include publicly tradedPremium

Brands Holding Corp., a specialty food producer, and pri-

vately owned Cooke Aquaculture Inc. of Blacks Harbour,

N.B.,whichmadeanunsuccessfulofferforClearwaterin2011,

according to analyst Doug Cooper at Beacon Securities.

Mr. Cooper said private equity funds will also consider a

takeoverafterClearwater’sstockpricedroppedbymorethan

15 per cent in recent weeks, in part due to concerns that the

novel coronavirus outbreak will cut seafood sales.

“If COVID-19 is a short-term issue, this could be a perfect

timeforanopportunisticbidforClearwater,especiallyasitis

coming off a record year with its leverage ratios at five-year

lows,” Mr. Cooper said.

Clearwater co-founders John Risley and Colin MacDonald,

who started the business out of the back of a pickup truck in

1976, control the company and have made it clear that they

are willing to sell. In an interview last week with Halifax’s

Chronicle Herald newspaper, Mr. Risley said: “COVID-19 is a

temporary phenomenon. [Clearwater’s strategic review]

process is likely to be a several-month process and extend

well beyond whatever tempo-

rary effect COVID-19 is having

on markets.”

Clearwater’s market capital-

ization was $372-million,

based on its $5.71 per share

closing price Friday on the To-

ronto Stock Exchange.

Analyst George Doumet at

Scotia Capital Inc. said in a re-

port the company could fetch

upto$470-millioninacontest-

edtakeover.Clearwaterposteda$53-millionprofitonsalesof

$616-million in 2019.

“The seafood mergers and acquisitions space has been ve-

ryactiveinthelastfewyears,”Mr.Doumetsaid.“Wehighlight

that if a transaction were to occur, it would have to be major-

ity Canadian-controlled.”

Clearwater bills itself as the largest domestic holder of

shellfishlicencesandquotas,withpermitstoharvestlobster,

clams, scallops, crab and shrimp, along with licences to har-

vest scallops in Argentina. Thefederalgovernment’s Fisher-

ies and Oceans licensing policy requires that Canadian fish-

ing licences be held by entities that are majority Canadian-

owned.AnalystssaidClearwatercouldattractinterestfroma

domestic company with an international minority partner.

Premium Brands is based in Richmond Hill, B.C., and chief

executive George Paleologou has built a business that sells

$3-billion of food annually, including $480-million of sea-

food, by doing 61 acquisitions worth a total of $1.8-billion

over the past 15 years. The company’s brands include Ready

Seafood, a Maine-based lobster producer; Diana’s Seafood;

and Hub City Fisheries.

Family-owned Cooke Aquaculture has operations in

AtlanticCanada,theUnitedStates,Spain,ChileandScotland,

with a focus on fish farming. The company offered to buy

Clearwater for $3.50 a share nine years ago, a bid that was

rebuffed by Clearwater’s board and valued the company at

seven times its annual earnings before interest, taxes, depre-

ciationandamortization(EBITDA).Scotia’sMr.Doumetsaid

successful takeovers in the seafood industry are playing out

at valuations of eight to 10 times EBITDA.

Spokespersons for Cooke Aquacluture and Premium

Brands declined to comment on their potential interest in

Clearwater. Christine Penney, vice-president of Clearwater,

also declined to comment on the review, and said in an

e-mail: “For the operations of the company this is ‘business

as usual.’ The announcement does not result in any changes

to current work plans, projects, locations or employment.”

An independent committee of Clearwater directors hired in-

vestment bank RBC Dominion Securities Inc. and law firm

Stewart McKelvey last week to run the strategic review.

Rivalsmovetohook

ClearwaterSeafoods

ANDREWWILLIS

AnalystGeorge

DoumetatScotia

CapitalInc.saidina

reportthecompany

couldfetchupto

$470-millionina

contestedtakeover.

D

ebt markets have so far passed their biggest test since

the 2007-09 financial crisis, with liquidity remaining

intact as concerns mount about the economic impact

of the coronavirus, market experts say.

Although analysts and investors expect liquidity to tight-

en if markets remain under stress over the coming weeks,

they are positive that debt markets are operating in a way

that can help avoid a credit crunch in all but the most ex-

treme scenarios.

Fixed income market structure has changed over the past

decade, largely as a result of postfinancial-crisis regulations

that make it more expensive for banks to act as market mak-

ers.

Whilethishasloweredtheriskofbanksfailing,ithasshift-

edbondmarketliquiditytoprofessionaltradingfirms,many

of them trading on electronic platforms. It has also made

fixed income exchange-traded funds (ETFs) a more attrac-

tive option for many firms when sourcing liquidity.

Some analysts and investors have expressed concerns the

banks’ retreat left debt markets vulnerable to freezing in

times of stress. They have also voiced fears that big outflows

from ETFs could leave managers stuck with illiquid bonds

they cannot off-load.

However, Matt Freund, head of fixed income strategies at

Calamos Investments, said that, so far, credit and bond mar-

kets have remained relatively liquid and prices were trans-

parent.

“We’re certainly not out of the woods and we’re going to

have to take body blows along the way, but I think markets

are functioning as they should,” he said.

Mr. Freund said he expects prices to be more volatile than

they would have been in previous crises, in part owing to

trading fees being scrapped for many retail investors.

“Peoplehavegoneexceptionallyshort-termintheirthink-

ing because there’s no cost in selling out of everything today

and buying it back tomorrow,” he said.

REUTERS

Reshapedbondmarkets

passingbiggestliquidity

stresstestinadecade

MATTSCUFFHAM

JOHNMcCRANKNEWYORK