Wellington opens California office

It’s a big ole world out there, and the time has come to tackle a bit more of it.

We announced the opening of a California office yesterday, which is our first physical foray outside of our home base in Toronto. Since Wellington Financial Fund II started doing deals in 2004, we’ve been inundated with Canadian-based financing opportunities. With just under 50 closed financings ($275 million of deal leads) between our Funds II and III since that date, there was never much need to look outside Canada for great Innovation stories.

But that’s changed, and for a few key reasons:

– the global credit crisis has dramatically reduced the amount of capital available for growth stories, and venture debt firms that relied on 3rd party bank warehouse lines or conduits to provide part of their capital base have seen much of that capital disappear (we are 100% equity financed);

– although the USA has oodles of venture capital available, at least on a relative basis, this year’s estimated US$18 billion of new VC investments is still down from 2008’s US$29 billion. For American Innovation stories, that’s US$11B less to go around…tacked on to a recession and a bleak fundraising climate going forward.

– in January, the Canadian and U.S. governments decided that it no longer made sense to charge a 15% witholding tax for cross-border interest income; we can now compete with U.S.-based funds;

– the American idea of a “small company” is about twice as big as the same candidate in Canada, which means a far larger pool of high quality opportunities for us to review, leaving aside the fact that the U.S. annual GDP is about 12x that of Canada’s. That’s a massive fire hose;

– over the years, we’ve worked with about a dozen U.S. VCs on Canadian deals, and the experience has been fantastic (Airborne and OZ Communications, to name but two, were home runs for all involved);

Why Southern California? Good question. Over the past few months, we’ve spent time meeting with U.S. players on the East Coast, all the way down to the tip of Florida. The Northeast and Mid Atlantic regions are particularly handy to Toronto, and the time zone is a treat.

Travelling to Boston or Washington is faster than many Canadian cities, even with the border. If you’re a Boston-based tech company, for example, we’ve found that they don’t really care whether we are based in New York or Toronto; the issue is simply “do you get it?”

Although we did a Seattle-based transaction in July, we’ve got a Mass. deal closing later this month — the East coast suitcase strategy is working for now.

California, however, requires a local presence to have any impact. And then there’s the tricky issue of remote teams. Since one can’t overstate the important of ethics and team fit in this industry, it’s never been easy to get one’s head around multiple office locations.

But, in Eric Speer, we’ve found someone who has 20+ years experience working with high growth companies. The past 6-7 years were with Vencore, a U.S. venture debt fund backed by merchant bank D.E. Shaw. Several local VCs spoke very highly of him, and although he’s not based in Silicon Valley, that made sense as well. Southern California is underserved on a relative basis, and as VC markets go, it is still #4 or #5 in all of North America depending upon the year.

We are excited to have Eric establish Wellington Financial’s presence in the California region. And he thinks companies are going to love our non-amortizing term debt product, not to mention the one-stop-shop revolver / term loan structures that make us unique among independent firms.

Welcome Eric, and all of your neighbours!

MRM