Pender Ventures closes second B2B software, healthtech-focused VC fund at $100 million

Vancouver-based venture capital (VC) firm Pender Ventures has closed its second fund with over $100 million CAD in total commitments to invest in early-stage Canadian business-to-business (B2B) software and healthtech startups. 

Pender Ventures, which is the VC arm of Vancouver investment firm PenderFund Capital Management, announced the first close of the Pender Technology Inflection Fund II in January 2023 after securing $50 million towards its $100-million target. The firm held the final close of Fund II in late September. 

Though it took Pender Ventures longer than initially anticipated to close Fund II, the firm was ultimately able to hit its mark despite tough VC fundraising market conditions, which have led to missed goals and longer timelines for many of Canada’s VC firms. This final close brings Pender’s total assets under management to approximately $150 million across its two funds.

Pender Ventures’ Fund II limited partners (LPs) include returning institutional investors Export Development Canada (EDC)—which anchored the fund—and credit union Vancity. The firm also garnered the support of numerous new backers, including Bank of Montréal Capital Partners, the Business Development Bank of Canada, the federal government’s Venture Capital Catalyst Initiative (through its inclusive growth and life sciences streams), the Alberta Enterprise Corporation, CIBC, provincial strategic investment fund InBC, Kinsted Wealth, affiliate the Pender Growth Fund, Co-operators, and undisclosed family offices and high-net-worth individuals.

“In the boom times, if you didn’t show that you were smart enough to take some money off the table, that will really work against you.”

Maria Pacella, Pender Ventures

In an exclusive interview with BetaKit, Pender Ventures managing partner Maria Pacella attributed the VC firm’s success in meeting its target to three factors: its distributed to paid-in capital (DPI), EDC’s support, and its consistency.

“We had DPI—real DPI—to show, we had a very large, committed anchor [in EDC] in the first close; and then we stuck to our investment thesis and scope for Fund II,” she claimed.

The focus for Pender Ventures’ second fund remains the same as its first but with bigger cheques, a slightly larger portfolio, and a pan-Canadian approach. Pacella said that Pender Ventures secured its first close of Fund II within “a reasonable time period,” but noted that as market conditions deteriorated, it took the VC firm longer than expected to close the remainder.

The Pender Ventures managing partner noted that lots of LPs in Canada are “feeling tapped out” lately amid cool initial public offering (IPO) and mergers and acquisitions markets. While money still exists for great Canadian VC funds and tech companies, there is “just a higher bar to get it,” she said.

One thing that helped Pender Ventures get to this point was warehousing three investments before securing its first close of Fund II with the help of some supportive Fund I investors. Pender Ventures also exited Copperleaf Technologies earlier this year and sold partial positions in two other undisclosed portfolio companies earlier this year. She noted that a lot of VC funds held on—and in some cases, doubled down—hoping for higher rather than selling when the market was hot.

“If we hadn’t had some return of capital on Fund I, I’m not sure we would have hit our target,” Pacella said. “We really needed to demonstrate that … in the boom times, if you didn’t show that you were smart enough to take some money off the table, that will really work against you.”

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EDC was attracted to Pender Ventures’ investment thesis, the diversity of its team and portfolio, and its performance, EDC vice president of investments and mid-market lending Lissa Bjerkelund told BetaKit. “Pender [Ventures] has a successful track record of scaling Canadian companies in high-growth sectors,” Bjerkelund said.

Through its first, $25-million fund, with a few exceptions, Pender Ventures focused primarily on British Columbia (BC) and Western Canada. For its much larger second fund, the firm has expanded its investment team and geographic presence to capture some of the deal flow it sees across Canada and provide more on-the-ground support to portfolio companies.

Pender Ventures’ biggest standouts to date have been BC tech stars Jane App, which offers a practice management platform for health and wellness practitioners, and Copperleaf, which sells enterprise decision analytics software to companies managing critical infrastructure. 

Prior to joining Pender Ventures, Pacella led one of the earliest investments into Copperleaf during her time with GrowthWorks Capital and later bought into the company in 2019 through Pender Ventures ahead of its 2021 IPO. Pender Ventures also became an early investor in Jane in 2019.

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Jane, which has raised less than $10 million in primary capital to date, recently became a centaur after hitting $100 million in annual recurring revenue, while Copperleaf went public in 2021 at a more than $1-billion valuation before returning to private markets earlier this year in a $1-billion deal.

“Maria and her team have a strong track record of supporting companies from inception to exit through the ups and downs of several economic cycles,” CIBC Innovation Banking managing director Joe Timlin told BetaKit. “We believe experience and the proven ability to succeed in any financial environment will continue to serve them, their investors and portfolio companies well.”

Pender Ventures plans to build a concentrated Fund II portfolio of 12 to 14 companies, writing first cheques of between $2 million and $5 million into B2B software and healthtech startups across Canada that have reached “the inflection stage.” Pacella defined this as companies that have achieved product-market fit with “enough critical revenue” to indicate this, noting the firm considers quality of revenue and if a startup has a repeatable sales or go-to-market strategy.

The VC firm typically comes in at or around the Series A stage and prefers to lead rounds when possible, though will also support. Pacella said the firm also invests a lot through secondaries, particularly for startups that have taken a while to reach this point or have seen founders depart and require some “cap table realignment,” noting that at least half of Pender Ventures’ investments have involved some form of secondary.

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Pender Ventures has allocated half of its latest fund to new investments and half to follow-on support, with an equivalent breakdown going towards B2B healthtech versus software in other verticals.

Pacella said that there are lots of big problems to solve when it comes to healthcare. “We believe Canada punches above our weight in terms of innovation in [healthtech], and not a lot of funds that focus [on] that area,” she added. In addition to Jane, Pender Ventures’ healthtech investments include Edmonton-based DrugBank and Toronto’s Swift Medical.

“Maria and her team have a strong track record of supporting companies from inception to exit through the ups and downs of several economic cycles.”

Joe Timlin, CIBC

Through Fund II, Pender Ventures has already made four investments, backing Burnaby, BC-based Traction on Demand spinouts Traction Rec and Traction Complete, Kanata, Ont.’s DistillerSR, and one other undisclosed startup.

Pacella claimed that Pender Ventures’ net internal rate of return (IRR) to date through Fund I is between 20 and 30 percent, but declined to share the exact figure or other performance metrics. “Even in the heydays of 2018 to 2021, we were disciplined about the price we’re paying on the way in … and then we’ve always been very conservative on our valuations,” Pacella claimed.

Amid the tech downturn, many Canadian VCs, including two of Canada’s largest investors in the space, BDC Capital and Georgian Partners, have been forced to mark down some of their investments.

Pacella noted that Pender Ventures has done the same with some of its Fund I investments. She claimed that the VC firm has been marking to market as much as possible, and “slow on writing stuff up because it’s just paper,” a process Pacella said Pender Ventures plans to continue for Fund II.

Over the past year or so, Pender Ventures has added three venture partners to its team, including Judi Hess, the former CEO of Pender Ventures-backed Copperleaf. With its final close complete, Pender Ventures plans to hire in Alberta and fill out its analyst and associate ranks to support the deployment of Fund II.

Feature image courtesy Pender Ventures.