investment fund that aims to accelerate the growth of application software products and services in Canada.
Administrators of the Covington Strategic Capital Fund said Tuesday that joining forces with HP Canada and Microsoft Canada can offer investee companies more support with channel distribution, implementation strategies and marketing, allowing them to be successful more quickly.
The fund contrasts with a typical venture capital model that raises concerns about market success even though the technology in question is viable, explained Scott Clark, vice-president of investments at Covington Capital in Toronto.
With the insights of the two technology partners, “”We can invest knowing that we’re going to be able to take that company in certain directions and achieve certain sales objectives that we wouldn’t have known in the past.””
The Covington Strategic Capital Fund also differs from the VC arm of a tech company that is “”more passive on the day-to-day activities of the investment””and may not necessarily take a lead role, he said.
Proponents said the fund is entering the market at a time when software is leading a rebound in the technology sector. International Data Corp. reported that growth in the independent software vendor industry in Canada will rise to 26.9 percent this year compared to 12.2 per cent in 2002.
Covington and its partners hopes to raise between $15 million and $30 million and invest in five to 10 software companies this year. “”As we continue to raise money, that number could increase or decrease in subsequent years,””said Clark.
They are in search of companies generating revenues ranging from $2 million to $15 million and that have developed enterprise applications that can be rolled out into Fortune 500 operations, Clark said.
“”I think the sweet spot is somewhere between $1 million to $50 million in revenue,”” said Chris Stanley, senior director of the enterprise and partner group at Microsoft Canada in Mississauga, Ont.
Funding recipients must also be private firms based in Canada that are willing to strengthen their management teams, grow their business locally or abroad and have a desire to create intellectual property, said Stanley.
Yet above all, fund backers said, firms willing to partner will attract some of the most attention. “”We are looking for companies that can either port to, or are already on, the .Net architecture,”” explained Clark. “”What makes this interesting for Microsoft obviously is that we are going to help . . . develop companies who will develop applications that will drive the .Net adoption broadly.””
Covington will typically own between 20 per cent to 40 per cent of candidate companies taken under it wing and abandon the investment after three to five years, said Clark.
This is the first time Microsoft Canada, which will take no stake in investee firms, has been involved to this extent in a labour-sponsored investment fund, said Stanley. In the past, however, the company provided technical guidance and software to organizations involved with Compaq’s investment division.