St. John's, a city that once barely registered on the tech radar, has become a surprising hub for innovative startups, and the story of its transformation is an inspiring one.
In 2014, the Newfoundland and Labrador government took a bold step by committing $10 million to a venture capital fund, with the aim of nurturing local tech talent. Despite the allure of a 30% tax credit, expectations were low, and only a handful of investors, including philanthropist John Phillips, stepped forward. Phillips saw his investment as a social endeavor, a way to support a small, remote community with little expectation of financial gain.
Fast forward to today, and St. John's has emerged as a thriving startup ecosystem. The venture capital fund, Venture Newfoundland and Labrador LP (VNLI), managed by Pelorus Venture Capital, has proven to be one of North America's top-performing investment vehicles. Its early backing of CoLab AI Inc. and Spellbook, two of Canada's hottest startups, has paid off handsomely.
VNLI has already returned an impressive $21 million to investors, generating a 24% average net internal rate of return. Its second fund, launched in 2021, has continued this success, with an 11% average annual return to date. And now, as St. John's tech scene gains global attention, Pelorus is doubling down.
On Monday, Pelorus announced it had secured $20 million for its third fund, VNLIII, with significant contributions from the province and John Phillips' investment company. The goal is to reach $50 million, and Pelorus president Chris Moyer is confident they will achieve it.
"Pelorus has demonstrated how early investment can catalyze local growth, create jobs, and attract new investment to our province," said Lin Paddock, Minister of Jobs, Growth, and Rural Development. "The new fund is a significant step forward for our technology sector."
Despite the larger fund size, Pelorus' mandate remains focused on pre-seed-stage investments in local companies. The fund aims to provide initial capital of $500,000 to $1 million to 10-15 fledgling startups, with additional funds set aside for follow-on rounds.
St. John's has several advantages for startups. The city's tight-knit community, coupled with Memorial University's presence, creates a supportive environment for entrepreneurs. Co-founders Adam Keating and Jeremy Andrews, for instance, returned home to build CoLab after working with U.S. innovators like Tesla Inc.
Consistent government support and investments from local financiers like Mark Dobbin's Killick Capital have also played a crucial role. Additionally, the province's remoteness and small population size force startups to think globally from the outset.
St. John's has produced notable successes, including Verafin Inc., a fraud detection software maker acquired by Nasdaq Inc. for $2.75 billion in 2020. This success has inspired other local entrepreneurs, and prominent investors from Silicon Valley have taken notice, backing startups like Spellbook and CoLab.
Mr. Moyer draws a parallel between Newfoundland and Labrador and Estonia, a small former Soviet republic that has produced numerous billion-dollar tech ventures, including Skype.
Pelorus's story is a testament to the power of early investment and local support. With its third fund, Pelorus is poised to continue its success, backing innovative startups and driving economic growth in St. John's.
But here's the intriguing part: despite the province's increased investment in each fund, its share of the capital has decreased. This shift raises questions about the sustainability of government support and the role of private investors in driving the tech ecosystem.
And this is the part most people miss: Pelorus doesn't just fund local companies because they're local. They treat these startups like any other, with the same valuation and investment criteria.
So, is St. John's tech scene a sustainable success story, or is it a flash in the pan? What role should government play in nurturing local startups? These are questions worth exploring further.
What are your thoughts? Do you think St. John's can maintain its momentum, or is it a one-off success story? Share your insights in the comments!
