SmallCapPower.com spoke with Rick Nathan, Managing Director of Kensington Capital Partners, at the recent Canadian Innovation Exchange’s (CIX) one-day forum in Toronto. In our interview he describes the qualities he covets in a start-up tech company and offers some insight into what he thinks could be the next big thing in technology.
It was at this event that Kensington Capital Partners announced the launch of the Kensington Venture Fund, with an initial investor commitment of $160 million. The Fund is the next step in the Government of Canada’s Venture Capital Action Plan (VCAP), a $400 million strategy launched in January 2013 to help increase private sector investments in early–stage risk capital in Canada. The Kensington Venture Fund will invest in promising VC funds and companies in the technology, cleantech, IT, telecommunications, and digital media sectors.
Although the Canadian government has a 33% stake in the Kensington Venture Fund, its involvement will be a “completely passive” one according to Mr. Nathan, adding that the government’s role is to pay attention and watch what Kensington does as would any investor, although the Kensington team will be making all of the investing decisions.
When asked what he looks for in a start-up tech company, Mr. Nathan explained his team needs to see an opportunity that’s financially strong and that company has to be going after a good market with some early traction.
“We want to see a product that’s out there (in the market) – we’re not going to invest in something that’s still at the idea stage. We need to invest in (a company) that has customers already that are paying to use (that product). It doesn’t have to be profitable yet. It doesn’t have to be a lot of customers,” he said.
Mr. Nathan added that he avoids companies run by entrepreneurs with what he calls “unrealistic expectations,” such as what they perceive a company’s valuation to be.
He believes Canadian investors should be allocating more of their high-risk capital to early-stage technology companies as opposed to concentrating solely on junior resource stocks.
“Technology is in a great growth cycle right now, and that includes software, media, energy, cleantech, etc. And if you have all of your risk capital tied up in one sector it’s just not a good portfolio plan. There are a lot of opportunities in tech,” Mr. Nathan said.
And while there is venture capital investing opportunities throughout Canada, Mr. Nathan contends that the markets in Alberta and British Columbia have historically been underserved by venture capital funds.
“Because we’re also looking at energy technologies a lot of that market is based in Alberta, so that’s one reason why we like that part of the country.”
When asked what he thinks could be the next big thing in technology, Mr. Nathan said he was interested in the mobile payments space, believing that it could be the closest to reaching the next “critical mass.”
“We’re seeing a lot of competing ideas (in this space), but I think that’s going to get sorted out in the next few years.”
