Fund I will write $50,000 cheques to winners of Startup TNT investment summits.
In May 2019, Zack Storms launched what became an Edmonton “Thursday night tradition.” Aptly named Startup TNT, the event began with a simple vision: create a space where local entrepreneurs, investors, and ecosystem stakeholders could mingle, have fun, and collaborate on building great companies.
At one of those Thursday night events, a happy hour focused on how to write newsletters, Storms was greeted by Tim Lynn. At the time, Lynn was an entrepreneur looking to connect with Edmonton’s startup ecosystem.
“I’m really excited to see that the fundamental philosophy that we have is, in fact, leading to high-quality investments.”
Zack Storms
Upon a referral, Lynn showed up to what he recalled as a “locked bar, and the only people there are the owner of the bar and this dude that had been writing a newsletter for five weeks.”
“That was my introduction to the startup community, and I mean, it’s hard to go down from there,” Lynn quipped.
According to Lynn and Storms, things went up from there. That happy hour would later grow into one of the Prairies’ most active investment events. Over the past four years, Startup TNT has hosted 30 summits, and engaged 375 angel investors to invest over $12 million into more than 90 Prairie-based startups. Now, the non-profit has announced the first close for its first-ever venture fund, for which it is targeting $5 million.
Building a venture fund, which Lynn and Storms will lead as general partners, has been “part of our dream from the beginning,” Storms said. With $2 million closed and 14 investments already deployed, Startup TNT is looking to double down on its conviction that Canadian investors can succeed by betting on local entrepreneurs.
Filling the $100,000 gap
Startup TNT runs semi-annual investment summits throughout Alberta, Saskatchewan, and Manitoba, which host early-stage entrepreneurs and angel investors willing to commit $5,000 to a local startup. For each summit, Startup TNT conducts due diligence over eight weeks with 20 to 40 other investors, and then uses a single special purpose investment vehicle (SPV) to syndicate deals at each event.
The organization also organizes weekly meetups to connect entrepreneurs and investors, and runs an investor training program and specialized summits for specific verticals, such as life sciences and cleantech.
Storms and Lynn first revealed plans to raise a venture fund in early 2022. Speaking with BetaKit recently, Lynn said the impetus for launching the fund came from wanting to address a specific gap in the Canadian startup funding ecosystem.
He noted that it’s generally difficult for startups to secure cheques in the $100,000 range, since they are considered too small for venture funds, but too large for individual angel investors.
Startup TNT’s model is already similar to an angel group, since it is pooling resources to write larger checks, but with a focus on bridging the gap for local early-stage companies seeking significant but not excessively large investments.
“We really want to be helping these companies be able to raise and build from home,” Lynn added.
Building a venture community in the Prairies
The new fund will write $50,000 cheques into Startup TNT winners alongside the investment they raise from angels. The summits will be the exclusive source of deal flow for the fund, and combined, with the combined contribution falling between $150,000 and $300,000 per company as a first cheque. Lynn noted the stage of rounds will be either pre-seed or seed rounds.
A significant portion, approximately two-thirds, of Fund I will be saved for follow-on investments, meaning roughly $100,000 will be reserved for each company, though those follow-on cheques will be disbursed on a discretionary basis.
In addition to funding, Startup TNT will also pair each portfolio company with two venture partners: either an investor from the TNT network or a current entrepreneur who has raised to Series A or higher. Those venture partners will be responsible for supporting the portfolio in their journey to a Series A round and providing input for the fund’s follow-on investments.
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“We’ve got this network of venture partners, about 15 to 20 people, at least, that are all investors in the VC fund, but also actively supporting the portfolio companies,” Storms said. “Many of them have an active interest in maybe transitioning into the VC world at some point in the future. So we look at this as a way to build out our venture community.”
Thus far, the fund has approximately 30 limited partners, most of which are active investors in the Startup TNT summits. Lynn and Storms hope to bring on a few family offices as the fund approaches its final close, which is targeted for 2024.
The timeline of the fund is from June 2022 through to 2025, and given the fund is solely dedicated to Startup TNT winners, there have already been 14 investments in the fund, including Calgary-based Nimble’s $2.7-million seed round announced in April and Regina-based Offstreet’s $1.2-million seed round.
Lynn and Storms expect four more investments to close this month, which means the fund will have deployed $900,000 into 18 companies by the end of this year.
Home-grown returns
While $5 million is a small allocation for a venture fund, Lynn described it as a “first step” for Startup TNT.
“The ultimate goal is for us to bring institutional capital [in future funds] and deploy it at scale through the power of community, [and] to be able to write a combined $500,000 cheque into these companies,” he said.
Storms noted that the venture fund is also a direct outcome of the ethos the duo championed during the inception of Startup TNT four years ago: using grassroots community-first events to uncover promising investment opportunities.
The ethos has paid off so far. The winner of Startup TNT’s inaugural investor summit was University of Alberta spinout DrugBank, which secured $125,000 from the event in February 2020. DrugBank would later go on to raise $9 million in seed financing and is backed by investors like Brightspark, Amplitude Venture, and Belgium’s Theodorus Investment Funds.
“I’m really excited to see that the fundamental philosophy that we have is, in fact, leading to high-quality investments,” Storms added.
Feature image courtesy of Startup TNT.
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