Note: This article is the first in a series of interviews highlighting the work of interesting small funds.
Stephen Nicolle is a founding partner of Island Capital Partners, an early stage venture capital fund based in Prince Edward Island, Canada. After many years of experience as CEO of international venture-backed technology companies in telecom, video surveillance, wireless convergence, and healthcare IT, Steve now focuses on advising young entrepreneurs and the companies they lead.
Stephen, thank you for participating. When was the fund established, and is this the first fund you have managed?
The fund was established in late 2017. Yes, this is my first gig as a General Partner in a fund, although I’ve been an LP in several funds and have raised lots of money from venture funds in the past when I was a CEO.
Do you have a thesis or focus on any particular type of founder, company or industry? Are there particular types of startup companies you steer away from?
We have a geographic focus in Prince Edward Island (PEI), Canada and are by necessity industry agnostic. We steer away from what we would call “lifestyle” companies (i.e. those that don’t have the potential to grow to $100M+ revenue).
Tell me a little bit about your fund size, stages you focus on, and your typical check sizes when investing in early stage companies?
Our Fund I is CDN$4.2M. We invest in early-stage companies and are often the first money into a startup. That allows the founders to bring their ideas to life and prime them for growth capital. For the ventures within our portfolio that show promise, we have a follow-on reserve, allowing us to participate in their continued growth. Average initial investment is $250K with another $250K held in reserve for follow-on investment. We are currently raising our Fund II with a target size of CDN$12M and a similar early stage focus.
What would you say are the main things that differentiate you from other similarly-sized VC funds?
The fund is run by company operators - all General Partners in the fund are successful operators with 30+ years experience on average. We do not manage a lot of institutional money - the majority of our fund comes from private individuals here in PEI. We do not charge our LPs a management fee. And we are the first venture fund ever in PEI.
Tell me a bit about yourself; what makes you good at what you do?
I’ve been CEO of startup companies for 16+ years in Canada (Toronto, Halifax) and the US (Boston). I’ve returned over $300M to my investors. I’m good at strategy, leadership, and general management to scale technology companies. My pedigree is in Computer Science, which always helps. I am a dual citizen of Canada and the US and split my year between PEI and Atlanta so am able to bridge those two startup communities.
Tell me a little bit about your LPs?
The provincial government of Prince Edward Island is our largest LP but the majority of our money comes from LPs that are high net-worth individuals here in Prince Edward Island. Our individual LPs are generally successful business people but not with a lot of experience in the startup space.
Do you lead rounds or do you tend to follow other leads? Do you have a preference and, if so, why? What's your view on taking a board seat?
We will gladly lead but are equally happy to follow with our syndicate partners. When we lead, we like to take a Board seat as a vehicle for adding value as an active investor. To us, Boards are an opportunity to develop strategy and team – we don’t approach them from an administrative perspective.
Would you consider your fund an especially “active” or “value-added” investor, and if so, what are some of the ways you like to get involved and help your portfolio companies succeed?
We like to be active. As experienced operators, each of the Partners has lots to offer in terms of experiential mentoring and networking. One area we really try to help with is access to executive talent to augment the founding team.
Are there some portfolio companies you are especially proud to be working with or simply would like to highlight?
That’s like asking which of my children I like best! Honestly, they all have their own potential – some are just getting there faster than others. If I wanted to highlight one company, it would be our latest investment in Aurea Technologies. They have a portable wind turbine product for powering mobile devices and have just completed a hugely successful Kickstarter campaign but with a military market target as well.
What are the most important ways you would say the investing world changed during your time as an early stage investor? Looking ahead in the area of early stage investing, what are you most excited about? What keeps you up at night?
Obviously COVID. Even within Atlantic Canada, we’ve done very little face-to-face in the past two years and we miss that. Being the first venture fund ever in PEI, we had to do a lot to put the startup industry on the map. Having achieved that, I’m excited now about bringing in some younger people to our fund to continue the momentum. What keeps me up at night is how to bring talent – physically and virtually – to our region.
If you could give entrepreneurs one piece of advice about working with you or your fund, what would it be?
Be prepared for some tough love and lots of straight talk. I will always be pushing you.
Tell us about "The one that got away."
One of our first investments was in a company with a solid idea and a market that really accelerated during COVID. We totally misread the founding team’s commitment and the company imploded. In hindsight, the signs were there – we just chose to ignore them.
What's the greatest advice you received about early stage investing?
When you think you’ve paid enough attention to the founding team … pay some more.
What tips would you pass on to someone getting started/raising their first fund/making their first investment?
Even for a fund as small as ours, take the time up front to put in place the right and appropriate systems and processes (like Seraf for portfolio tracking and analytics). You’re going to be making many more investments that look a lot like your first one.
What early stage investing blogs/thought leaders/sources do you follow?
Even though we compete, I make a point of trying to speak openly and frequently with other fund managers in our region – that often ends up with valuable advice/lessons going both ways. I also follow the Seraf Compass and startups.com. Plus, forENTREPRENEURS by David Skok from Matrix Partners is excellent.
What is your biggest challenge running a fund?
For us it is deal flow. Not so much competition as just breadth of opportunities.
Do you have set expectations for founders on how they should lead their teams and communicate with their investors?
Always and often. My 16+ years as a startup CEO have given me a lot I can pass on here. For example, don’t use board meetings to just provide updates. Use them to discuss issues and strategy. That then forces you to make sure you communicate to your investors regularly outside of board meetings.
What do you see as the key drivers of success when investing and driving returns?
Alignment. When I feel that my expectations as an investor and shareholder are misaligned with the company’s then we’re not heading in the right direction.
Any good war stories to share?
In the middle of the night before closing the acquisition of one of the companies I was CEO of, our legal team called me to say they had discovered that the company owned a condo in downtown Toronto – did I know anything about that? I did not. So we hooked a cab (pre-Uber days) and knocked on the door. Turns out one of the original founders was using it as slum housing for tech immigrants. Never a dull moment.
What are the top 3 qualities you look for in a startup founder?
Coachability, Transparency and Agility.
Stay tuned for additional interviews as The Seraf Compass continues to profile interesting small funds, impact investors, women investors and family offices.