Montreal VC community launches $100-million smart city initiative for small firms

Leveraging a vibrant ecosystem

Small and growing businesses in the City of Montreal could soon be receiving at least $100 million in new venture capital with the creation of Capital Intelligent Mtl and its Smart City initiative. The funds will be provided by 23 venture capital firms, financial institutions and corporations — including two from Ontario — in a bid to make the municipality a world leader in business-driven "smart city" innovation.

The project will be managed by PME-MTL Centre Ville, the city's recently rebranded business support organization focused on small- and medium-sized enterprises or PMEs (Petites et Moyennes Entreprises).

"It's much more a marketing tool than a fund … We have the money and the city is an interested client so we want to beat the drums on this to focus entrepreneurs on the subject," says Jacques Bernier, president of Teralys Capital and co-founder of Capital Intelligent Mtl. "This is good for entrepreneurs with lots of options for collaboration."

Rather than build a $100-million fund, Bernier asked each participating fund how much each could contribute to smart city initiatives. They came up with the target, which is says is "on the low end of what's available" as it doesn't include major institutional players like Caisse de dépôt et placement du Québec. The city and the province are providing $400,000 for operations and promotion. The City of Montreal will have no say in the project's governance although there will be frequent two-way communication, he says.

A board of directors will operate through PME-MTL but the organization will not manage individual investments. Rather, one or more investors will initiate deals typical of series ‘A' financing (between $150,000 and $5 million) although Bernier says they could be even larger.

"We'll wait for the entrepreneurs to respond. In the three weeks since we launched the fund a lot of deal flow is coming in," says Bernier. "There are a whole lot of investors in different sectors at all stages of investment that want to do something for entrepreneurs."

Potential projects could include various aspects of information and communications technology (ICT), smart meters, mobility transportation and clean tech such as new LED street lighting systems.

Part of Smart City Action Plan

Capital Intelligent Mtl is one of 70 projects launched under the 2015-17 Smart City Action Plan. Others include InnoCité MTL, a start-up accelerator, Mtl Wi-Fi and a new open data policy. When the city expressed interest in creating a smart city fund, the VC community responded with the current initiative to tap into the multitude of financing sources that have emerged over the past decade.

"Smart city is many sectors, with companies in the early stage, late stage, everywhere. One team can't do that alone," says Bernier. "The unique twist is, we already have an ecosystem of many funds and many are interested in smart city (initiatives) so we're pulling our resources together and collaborating."

Back from the brink

Though unique in Canada, Capital Intelligent Mtl reflects the slowly maturing VC sector in Montreal, Quebec and Canada. Following the collapse of the telecommunications sector and the bursting of the dot com bubble in the early 2000s, the Canadian VC industry went through period of contraction. Surviving firms become increasingly risk averse, starving start-ups and expanding companies of a critical source of financing.

Compounding the problem was a high concentration of insular public VC funds including Labour Sponsored VC Corporations, which began in Quebec, and augmented by others including the publicly funded Innovatech corporations (R$, March 18/04 & September 28/04 & May 3/05) .

The previous federal government responded with the Venture Capital Action Plan. It injected $400 million into four private sector led fund of funds which attracted considerable private sector financing.

Bernier says the VCAP program was one factor that contributed to today's healthy VC ecosystem in Montreal. But notes the initial impetus goes much further back, to the release of the 2003 Brunet report on the province's VC sector, named after its lead author Pierre Brunet, who chaired the Canadian Institute of Chartered Accountants.

"The Brunet report told the (Quebec) government to move away from the venture capital world and instead promote private, specialized funds," says Bernier. "Then it moved to the federal level and that all culminated to what we are seeing today ... The environment has changed so much in the last decade. All VCs are now willing to collaborate."

In the coming weeks, Capital Intelligent Montreal will select a GM among more than 40 applicants to oversee the initiative. The first transactions are expected as early as the fall.

"We've never seen this level of collaboration before. The silos are breaking down," says Bernier. "There's a new atmosphere in Montreal."

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