Bridgescale Partners and Edgestone's Venture Fund to team up?

Change is afoot in the Canadian venture capital landscape. It has just been four weeks since I penned the “The creative destruction of Canada’s VC industry” post, and here we are. The creative part of the “creative destruction” appears to be underway at five different VC firms.

Exits always get the ink, so the buzz at the CVCA annual conference will likely feature today’s two VC exits:

– Toronto/Boston-based Xkoto has been acquired by Teradata, which is yet another great milestone for Boston’s Grand Banks Capital and the Toronto Growthworks team.

– Over at VenGrowth, SonoSite’s US$71 million deal for VisualSonics is one more reminder that Ontario’s retail venture capital sector is able to invest, grow and successfully harvest their investor’s capital.

Although its the M&A deals that grab headlines, this week’s big news really should be the rumoured combination of California-based Bridgescale Partners with Edgestone’s Venture Capital fund. According to numerous industry sources. it seems that GMP Capital (GMP:TSX) has agreed to spin-out the VC division of Edgestone in a manner that would see the Bridgescale and Edgestone investment venture teams join-up, with NewCo running Edgestone Venture I (2000 vintage) and Edgestone Venture II (2004 vintage), along with the existing cross-border mandate of Silicon Valley-based Bridgescale I.

To say that this idea is a major coup for Bridgescale’s effervescent Rob Chaplinsky and the uber-successful Howard Gwin would be an understatement. Bridgescale will now be perfectly positioned to inherit Edgestone’s unfunded $20 million commitment for their would-have-been-could-have-been-should-have-been Fund III from the Ontario Venture Capital Fund and drive forward with Bridgescale II. For GMP and Edgestone’s team, this transition is a very elegant solution to the fundraising inertia that has beset many a talented local investment team of late.

Does the rumoured merger create new doors for Canadian entrepreneurs to knock on in their search for capital? No. But it does consolidate a range of skills and LPs, and that is dramatically better than the alternative.

This fund team merger is just the first of two that are expected to be made public over the next few days, and each speaks volumes about what is coming down the pike in Canada’s VC land.

It would be easy to say this is further evidence that the trend of “Out with the old, in with the new” is taking hold. Let’s see if that holds true over the coming months.

MRM