New VC fund kicks much-needed cash into digital media coffers

Financial trend-spotters and digital media companies say a new BC-based venture capital fund started by people with serious electronic know-how is excellent news for the industry – especially in light of a dismal 2008 for Canadian venture capital overall. “The investment community is small and young in Canada,” says Kenton Low, president of New Media B.C., a not-for-profit organization promoting the west coast’s digital media sector. “To have a group like Vanedge show up on the scene bodes well for the future.” Headquartered in Vancouver with offices in Shanghai, China and in Silicon Valley, Vanedge Capital is a new venture capital fund for investments in interactive entertainment and digital media businesses. On track to complete an initial $100-million financing round in May, Vanedge’s partner list consists of former bigwigs from videogame maker Electronic Arts Inc. (EA), which maintains a substantial studio in Burnaby, B.C. Paul Lee, was president of EA Studios; Glenn Entis, was the chief visual and technical officer; Owen G. Mahoney, the senior VP of corporate development; and Jason Chein was GM of EA China. Together the Vanedge team has a combined 86-year history in the digital media world. Vanedge representatives weren’t available for comment, but industry insiders say it’s about time someone developed a venture capital vehicle for new media. “Paul Lee is involved and Glenn Entis is involved – I know they have a really strong understanding of the industry,” says Brenda Bailey, chief operating officer of Deep Fried Entertainment Inc. (DFE), an independent Vancouver videogame maker. She points out that it can be difficult for new media companies to explain what they do and how the finances work for venture capitalists. “That’s one of the concerns – the amount of education you’d have to engage in is huge.” Last year was the worst in a while for venture capital. In a report, the Canadian Venture Capital Association (CVCA) noted that VC investment was the lowest recorded since 1996. In 2008 just $1.3 billion was invested, down 36% from the $2.1 billion invested in 2007. Market activity was particularly slow between October and November, when the financial crisis took hold. The report also indicated a trend towards smaller VC transactions, and a drop in foreign investment. “Look at what’s taken place in the last couple of years in terms of the supply of venture capital,” says Richard Remillard, the CVCA’s executive director. “This $100-million fund represents a substantial addition.” But it could be some time before the industry feels the effect. “There’s always a lag between fundraising and investing,” Remillard says. “It takes two-to-three years to deploy the capital in new investments. If you project outwards the decline in venture capital financing down the road, investments could be severely affected.” Low from New Media B.C. says he would like to see Vanedge support small, innovative firms that sometimes fail to capture the attention of investors. “Mobile companies have great potential. They’re going to need help from a capital standpoint.” Investing is challenging, he says. It can be difficult for investors to put their fingers on the companies poised to become real winners. “Which opportunities have the greatest potential here? In Canada and B.C., those potential investors, do they have the ability to fund the smaller, riskier companies – knowing that one might be the next Google? In Silicon Valley, that happens.” There are more than a few B.C.-based new media superstars, such as Flickr, the photo-sharing service scooped up by Yahoo Inc. a few years ago, and Club Penguin, the social media site for kids, purchased by The Walt Disney Co. DFE has had some success as well – you’d recognize the company’s work from Sega Corp.’s racing game, Full Auto 2. According to Bailey, her firm traditionally declined VC offers, preferring to maintain control of the operation. “We’ve been heavily approached by VCs, but that stopped about a year ago,” she says. Now the company is keeping its eye on new distribution models, such as Valve Corp.’s Steam system, Apple Inc.’s App Store, and other channels that eschew bricks and mortar. DFE is also moving with the times. The economy has made business more challenging. “We’re hitting the reset button and retooling,” Bailey says, adding that companies looking to survive should stay flexible and keep informed about potential new revenue streams. Stefan Dubowski is a freelance writer in Ottawa. You can reach him via sdubowski@rogers.com.

New VC fund kicks much-needed cash into digital media coffers

Broadcast | April 28, 2009

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