Friday Interview with VC John Varghese

We can’t let the month of June pass without another crack at a venture capitalist. This week’s interview candidate is John Varghese, Managing Director of VentureLink Funds, a Toronto-based labour sponsored fund. John and I attended U.W.O. at the same time, but didn’t really get to know each other until we were both working on Bay Street. VentureLink manages over $250 million.

Question 1: When the management team bought the Skylon franchise (renamed VentureLink) from C.I. Mutual Funds just over a year ago, what were the first few things you did to make the place your own?

There was the business plan, a branding exercise, office space. Hiring an outside sales team was key.

Question 2: As an Ontario labour-sponsored fund, how hard was it to raise capital over the last RRSP season?

The market place declined last season, but we were able to double our sales and marketshare. I still think we could have done more, but it was still a success. Increased marketing and good results helped. It would have been easier had the provincial government not changed the rules on us, of course.

Question 3: Tell us about some of VentureLink’s recent investment successes.

We had six exists in the past 12 months. The worst return was 16.6% IRR. Deals included VFC, MCCI Communications, Curomax, Stone & Co. and Rockwater. The best return was above 30%. I suspect that’s as many exits as any domestic VC or PE firm has enjoyed over the same timeframe. [ed. note: Wellington Financial also had 6].

Question 4: How much do you feel the Ontario venture capital market has contracted over the past two or three years?

$225 million in labour sponsored money was raised in Ontario three years ago. That fell to $155 million two years ago. It was $145 million during this most recent window. I’d say the general VC market has contracted as well, but more so in Ontario than Quebec, for example.

Question 5: Is it so simple as the Ontario Liberal government closing the door on labour sponsored funds, and having no obvious plan to foster the venture capital market in its absence?

The impending removal of the tax credit in Ontario has significantly reduced our industry’s ability to raise money. This has limited our ability to make new investments. Fewer new jobs were created, etc. The government has not implemented any programs to replace us, and any initiatives they’ve announced are both smaller in scale and have yet to be deployed.

Question 6: What sectors is your team investing in these days?

Financial services, broad-based mezz debt for traditional industries and technology. We are the right place in the “J-curve” now with our alternative energy funds, and are working to produce good returns in that vehicle.

Question 7: What’s on your iPod?

Sad to say, but I don’t own one. I live on my Blackberry.

Thanks John. Congrats on the recent success at VentureLink. And thanks as well for your support of our Sunnybrook neonatal intensive care unit fundraising campaign. Both you and VentureLink have been extremely generous.

MRM
(disclosure – VentureLink is a Wellington Financial limited partner)