Bridgescale and Edgestone demerge

Not a good day for entrepreneurs.

Since we broke the news about the merger (see prior post “Bridgescale Partners and Edgestone’s Venture Fund to team up? May 27-10), it seems only appropriate that we close the loop for you. It appears that the 2010 tie-up of Bridgescale Partners and Edgestone Ventures has ended. Rumours have been swirling for weeks, but the departure of the Edgestone portfolio, along with Derek Smyth and Howard Gwin, is now confirmed on the Bridgescale team website.

The idea of a US/Canada fund made so much sense at the time, and Bridgescale leader Rob Chaplinsky did an excellent job of making the case for a cross-border, dual office team that had was to have the best of both worlds when it came to deal flow and industry contacts. For GMP Securities, who wanted out of the venture business, Bridgescale was a natural home for the 2004-vintage CPP Investment Board-backed Edgestone portfolio. Since Edgestone Ventures had been one of the few funds that the purse masters at Northleaf found worthy of an Ontario Venture Capital Fund commitment, albeit too late, the Bridgescale/Edgestone deal seemed to assure a $25 million+ provincial government order for Bridgescale Partners’ 3rd fund.

Bridgescale had played their cards beautifully, with high profile Canadian investments in Blue Cat Networks, Dayforce, Rypple and Vision Critical (a Wellington Financial Fund III portfolio co.). Their Digital Puck effort showed they had both a marketing savvy and a desire to encourage the fostering of a community in techland.

Although four Canadian limited partners seemed ready to sign up to Bridgescale III, with Messers Gwin and Smyth on board, no U.S. limited partners appear to have had the same confidence in a dual-nation approach. Which is a shame, since the loss of so many important funds (such as Brightspark, Edgestone, Propulsion, VenGrowth, Ventures West….) has severly constrained the amount of start-up and growth capital available to worthy Canadian entrepreneurs. It seems hard to imagine that four Canadian fund-of-fund institutions couldn’t chin up to a $100 million collective commitment on Bridgescale III, which seemed to be about sufficient for VanEdge to get off the ground with its new 2010 fund. I’m sure many in the ecosystem had hoped Bridgescale would do a first close of $100M, and see if other LPs would come in 2012. But with the big funds (AIMco, BCIMC, CDP, OMERS, and OTPPB) out of the VC Fund business, this episode proves how hard it is going to be for the industry to carry on.

Sadly, Canada is now short one of the handful of teams that was supposed to be part of the core VC ecosystem for years to come.

MRM