Through Hillcrest Merchant Partners, Toronto’s Mark Attanasio and Donato Sferra apply the full extent of their deep knowledge in investment banking and capital markets to find, fund and nurture early stage and mid-market growth companies.
In a recent interview, the managing partners of the merchant bank talked about Canada’s thriving VC environment, their position within it, and sectors they single out as worth looking at.
FinSMEs: First, why do you think a thriving VC market is important?
Mark Attanasio: Well, it takes more than a good idea, inspiration and personal savings to grow a startup from being a small company to being a large stable enterprise. . VCs, whether they’re in the “seed to growth” end of the market or investing in later-stage companies, are a critical funding source and an important economic driver.
Donato Sferra: I think it’s also important to point out that the Canadian VC marketplace has been on a five-year upward trend in both the size and volume of our capital investment. In this year’s first half, some $1.7 billion was invested across 308 deals, 7 percent greater than in 2017, according to the Canadian Venture Capital and Private Equity Association. It speaks to the health of our startup community, particularly in Toronto, where about half of those funds were invested.
FinSMEs: Hillcrest Merchant Partners invests in companies in an interesting range of sectors from cannabis to technology. These are pretty divergent sectors. Are there any commonalities that you look for in assessing prospective investments?
Donato Sferra: Sure. Because it’s not just the industry and its potential for growth that we look at. Due diligence is essential before we invest in any company and a large part of that is evaluating the company’s founder and leadership.
I want to see a track record of excellence – not necessarily having won at all costs, but having been positively competitive. I want to see a leader who gets the difference between leading and managing and knows when to hand off the managing duties. It’s also important to establish the leader’s integrity. As an investor, I want to be comfortable that bad news is going to be shared and not glossed over.
FinSMEs: One of the industries Hillcrest Merchant Partners has targeted is cannabis, and no surprise. With recreational and medicinal marijuana now legal in Canada and a growing number of states in the U.S. and other nations legalizing it in some way, shape or form, opportunities abound. What are the aspects you find attractive?
Mark Attanasio: What I find so attractive is that there are so many innovative businesses being tailored to cannabis, and it goes way beyond simply growing and production. Some are looking at data-based business and market intelligence tools aimed at the industry. Others are developing digital solutions to support order and sales management, payments processing, compliance and seed-to-sale tracking. Further, the ancilliary businesses that are further down market such as retail, brands, and other consumer packaged goods is a significant opportunity.
Donato Sferra: It’s interesting, though, to look at the dichotomy that exists in the U.S., where the majority of people support legalized marijuana and enough states have legalized it to push sales to over $8.5 billion in 2017. Because it’s still federally illegal, cultivators and retailers are blocked from taking normal tax deductions. Plus, banks and VCs have, on the whole, stayed away from the business in the U.S. because of the risk of regulatory and legal fallout. It gives us Canadians a nice leg up!
FinSMEs: Hillcrest Merchant Partners also invests in different aspects of technology – blockchain, or fintech, communications infrastructure, wireless and more. Is there an underlying theme to what appeals to you as an investment?
Donato Sferra: We look for two key traits: Companies that create solutions to difficult problems, with applications to large, addressable markets. Typically, they’ll hold long-term patents and provide competitive, sustainable competitive advantages over other companies.
Mark Attanasio: It’s important to note that we have no real interest in investing in companies that are creating me-too types of products and are trying to compete with other providers who also are creating me-to types of products. We want to nurture the companies creating real solutions to real, difficult problems in the tech space.