Sidewalk Labs and Plaza Ventures plan to launch a venture capital fund focused on smart-city technology, The Logic has learned. Expected to be between $20 million and $30 million, it would focus on high-risk investments in early-stage companies with the goal of establishing Toronto as a “global centre” for smart-city tech — but is contingent on Waterfront Toronto moving ahead with Sidewalk as a partner in a controversial development on the city’s lakeshore.
The Urban Technology Venture Fund would be led by Sidewalk’s director of investments, Nicole LeBlanc, and Plaza general partner Matthew Leibowitz, according to an investor presentation deck obtained by The Logic.
Sidewalk and its parent company Alphabet have already committed $10 million to the fund, according to the deck. Other participants would have to contribute a minimum of $2 million. The fund would make investments of around $1 million in companies at the seed and Series A stages; investments could be as small as $200,000 “to capture companies in the ecosystem early, while follow-on and later-stage investments [could provide] companies the needed dry powder for continuous growth.” The fund has set an investment term of 10 years, with a designated investment period of 18 to 24 months. Sidewalk and Plaza would leverage their networks to help scale the companies in which the fund invests, the deck says.
Sidewalk and Plaza are targeting companies that solve problems around mobility, affordability and sustainability in cities. According to the investor deck, that could include technology to improve waste management, energy-efficiency in buildings, air and water quality and last-mile delivery.
“Urban tech startups today face numerous challenges such as long pilot and procurement cycles, higher financing needs due to hardware requirements, lack of standardization making implementation bespoke, and data silos that make scaling difficult,” Leibowitz told The Logic. “We are looking forward to partnering with Sidewalk Labs on the establishment of this fund to support Canadian urban technology companies, build the ecosystem and transform Toronto and Canada into the global urban technology hub.”
The portfolio companies’ technology could be used in Sidewalk Labs’ planned development for a section of Toronto’s eastern waterfront, according to the deck: “The Fund will complement Sidewalk Labs’ proposal to transform the Quayside neighbourhood. Portfolio companies could assist in developing key technologies required to recreate the neighbourhood.” The presentation is dated September 2019, a month before Sidewalk and Waterfront reached an agreement on some contentious issues in their partnership, including the scale of the development; the deal announced October 31 was dramatically reduced from Sidewalk’s proposed 190-acre plan, restricting it to the 12-acre Quayside neighbourhood for which Waterfront initially issued a request for proposals in March 2017.
In Sidewalk’s Master Innovation and Development Plan for the project, released in June, it said it would commit $10 million to a venture fund that would invest in local startups contributing to urban innovation. In October, The Globe and Mail reported that Sidewalk was meeting with members of Canada’s venture capital community.
“The venture fund is in our proposal for Quayside and we said we would move forward with if the Sidewalk Toronto project is approved by Waterfront Toronto and governments,” Sidewalk spokesperson Keerthana Rang told The Logic Thursday. “In the meantime, we have started reaching out to Toronto’s tech sector.”
Sidewalk provided more detail about the potential fund in its Digital Innovation Appendix, released November 15.
“Over the last 18 months, Sidewalk Labs has engaged with over 300 Canadian urban tech companies, helping inform the fund’s emerging investment thesis,” that document reads.
The appendix says Sidewalk Labs would not take ownership of portfolio companies’ intellectual property (IP): “Our investment thesis rests on the assumption that retaining IP will be integral to the success of Canadian companies, and this is foundational to the fund’s practice.”
It says the fund’s “advisory network” would provide support in the companies’ IP strategies. It does not name Plaza Ventures as a partner in the fund.
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Andrew Tumilty, a spokesperson for Waterfront Toronto, said the agency was aware Sidewalk and Plaza were discussing a venture fund. The initiative is in keeping with the RFP, said Tumilty, which asked the successful bidder to “consider the feasibility of a catalyst fund to invest in emerging companies engaged in the project.”
The fund hinges on the deal between Sidewalk and Waterfront Toronto moving ahead, Tumilty confirmed: “Sidewalk Labs has indicated that the establishment of the fund is contingent on the Quayside proposal moving ahead to implementation, a decision which will be made by Waterfront Toronto, our Board of Directors, and our government partners.”
Plaza Ventures is the venture capital division of Plazacorp Investments, a real estate investment firm that leased Sidewalk Labs the land for its Toronto office at 307 Lakeshore Blvd. E. in March 2018.
Plaza has experience investing in early- and growth-stage technology companies, including Kitchener-Waterloo-based traffic-technology company Miovision Technologies. Miovision’s CEO, Kurtis McBride, has been a member of Waterfront Toronto’s digital strategy panel throughout the agency’s partnership with Sidewalk Labs, and helped launch the Open City Network, a non-profit Canadian tech coalition aiming to establish best practices around data collection in smart cities.
“I support any initiative that grows Canadian owned technology companies and keeps Canadian intellectual property, and the national economic benefits that flow from it, in the country,” McBride told The Logic.
The proposed Urban Technology Venture Fund’s cheque sizes are relatively small. Radical Ventures, another Toronto VC firm that invests in early-stage artificial intelligence companies, including those working on smart-city technology, typically cuts cheques for between $5 million and $10 million, according to Salim Teja, a partner at the firm.
Alphabet has its own venture capital investment arm called GV (formerly Google Ventures), which also focuses its investments on early- and growth-stage technology companies. It lists Uber, Slack and Medium among its portfolio companies.
In August, Sidewalk Labs, Alphabet and the Ontario Teachers’ Pension Plan launched an infrastructure holding company called Sidewalk Infrastructure Partners (SIP). SIP was spun out of Sidewalk to make investments focused on North American technology-enabled projects. Earlier this month, SIP announced its first investment in AMP Robotics, a Denver-based startup that makes recycling robots.
The next major deadline for Sidewalk Labs and Waterfront Toronto’s Quayside project is March 31, 2020, by which time the parties will need to agree on a development plan to move ahead with the project. They are currently working together to create a new innovation plan for the neighbourhood. It will draw some ideas from Sidewalk’s initial proposal, but incorporate the new principles agreed upon in October.