Photo: Hans Knapp, Partner, Yaletown Partners and Chair of the 2019 CVCA Awards Committee
Sourcing Innovation and Making an Impact
With exceptional innovation comes the impactful products, services, and technologies that make for great investments.
When asked where the highest potential innovation can be found, Ray Fitzpatrick, Venture Capital Director of Investments for the New Brunswick Innovation Foundation (NBIF), is quick to answer. “Universities are where the ideas come from. Without their work, I don’t have anything to invest in.”
It is for this reason that the venture capital side of NBIF looks to the work happening in post-secondary schools for opportunities. An independent corporation that specializes in venture capital and research investments, the firm is dedicated to building innovation in New Brunswick. In addition to VC funding, they also provide research funding to universities, community colleges, and research organizations throughout the province.
An accountant by trade, Fitzpatrick has been with NBIF for more than five years. He also teaches venture capital and finance courses part-time at the University of New Brunswick (UNB), which is where he and his team first discovered and began investing research funding in what would become the Computational Fluid Dynamics (CFD) technology company, Envenio.
Envenio was founded by Dr. Andrew Gerber and Dr. Gordon Holloway, both professors at UNB, along with alumni Ian McLeod (BScME ’04, MScME’06), who became CEO upon the company’s founding in 2010.
Dr. Gerber, whose background includes both academic and industry engineering simulation, recognized the potential for graphics processors (GPUs) to speed up his work by a factor of 10 or more.
“In a world where simulations can take days, weeks or months, a 10x speedup is a big deal,” explains McLeod. “Simulation software vendors were not providing GPU solutions, and so the industry had no access to fast, low-cost simulation technology. We identified this as our core opportunity, assembled a team from Andrew’s university lab, and got to work bootstrapping our next-generation tools.”
McLeod wasn’t looking for an investment partner initially, recalls Fitzpatrick. “It was something we kept an eye on because we knew from our non-dilutive research funding that they were working on something really cool. It took a while to establish a relationship.”
The fact that NBIF wasn’t impatient is something the Envenio team valued. “Many investors have little patience or unrealistic expectations, but NBIF was very patient with us,” said Scott Walton, who was brought on as VP of Business Development in 2016. “This was particularly important when commercializing new software that can be used in many industrial applications. We A/B tested everything until we landed on the right indicators where we would start to scale.”
NBIF made its first investment in February 2016, with a CAD $300,000 convertible debenture. While there was other non-dilutive funding coming in, NBIF was the only financial investor that took an equity stake at that time. This was significant, as it opened the door to pre-seed funding from agencies that insisted on VC funding as a precondition, including the Atlantic Canada Opportunities Agency and the National Research Council of Canada.
One year later, NBIF invested another C$100,000. This was followed by a debenture conversion in June 2017, when Envenio brought Celtic House Venture Partners and Green Century Investments in as additional investment partners. In February 2018, NBIF made another C$112,698 investment in convertible preferred shares.
In November 2018, Envenio was acquired by JUUL, an electronic cigarette company based in San Francisco. The acquisition bolsters JUUL’s engineering expertise, allowing them to implement rapid prototyping technology for more efficient product testing.
“NBIF’s patient, non-intrusive guidance and coaching were critical for me as a first-time CEO,” said McLeod. “They struck a good balance between communicating their expectations and letting us set our own direction for the company. At times they drew on their experience to help me recognize the shortcomings in the plan and pointed out gaps in Envenio’s expertise that needed to be filled.”
Fitzpatrick agrees that Envenio was a perfect fit for NBIF, as well. “They had a high degree of innovation and strong intellectual property. They were experts in their fields and did what a lot of professors aren’t able to do – securing clients and running a profitable business for five years before we came in with an investment.”
The deal was one of two recognized by the CVCA with a 2019 Regional Impact Award. NBIF and Envenio won for Atlantic Canada and the private equity firm Novacap and pipeline inspection services company Onstream won for Western Canada. This award recognizes member firms whose investment has positioned their portfolio company to make a meaningful mark within the community and the broader business ecosystem. Winners are committed to making impactful investments to help fuel job creation, diversity of talent and community engagement.
Approximately 15 jobs have been created in Fredericton since NBIF’s first investment, which is significant for the resource-based economy of New Brunswick.
“JUUL is one of the fastest growing start-ups in the world right now,” said Fitzpatrick. “Good things come from bringing in a company of that size to Fredericton… It basically lifts the whole community. You start to see developments happening around town – new hotels, condos, housing developments, parks. Looking back at where that wealth is coming from, a lot of the time it’s the well-paying tech jobs.”
NBIF’s investment in Envenio has also had a positive impact on the University of New Brunswick and its professors, who are recognized and compensated for their contributions. On a larger scale, it serves as an example for other Canadian universities, showing the opportunities that lie within their innovative work.
“When we look at schools like the University of New Brunswick – it’s not like going down to MIT or Stanford,” said Fitzpatrick. “A lot of professors don’t know what it means to take their research and span it out into a company. The success of Envenio gives us a story to take back to different universities, showing them it’s something they could be doing too.”
With an internal return rate of 95.6% on their venture capital funding, Envenio proved to be a successful investment for NBIF. To Fitzpatrick, it is a perfect example of the ideal scenario – when NBIF helps high potential companies build from the ground up, making a positive impact on the community in the process. “We get research money into the organization, create a company and incubate it. Then, hopefully, we turn it into a success, like Envenio was.”