Caterpillar and Autodesk become LPs as McRock falls short of its original $200 million target.
MacRock CapitalToronto-based venture capital firm, announced today that its total commitments have exceeded C$120 million (US$88 million) with the final close of its third fund focused on industrial technology.
McRock co-founder and managing partner Scott MacDonald told BetaKit in an exclusive interview that he is pleased McRock has closed a third fund of this size and achieved this level of scale as a first-time manager in Canadian venture capital, despite “really tough fundraising situation“
With a third fund of $120 million and $300 million in AUM, managing partner Scott McDonald says the 13-year-old venture firm is where he thinks it should be.
Since the launch of this fund with initial closing of C$111 million In mid-2024, MacRock added two more strategic U.S. limited partners (LPs) from the construction industry: longtime investor Caterpillar and first-time LP Autodesk.
The pair joins a group of LP Fund III that already includes existing institutional backers EDC, BDC Capital, Alberta Enterprise Corporation, Fonds de Solidarité FTQ and Aspen Technology (AspenTech), as well as newcomers such as Bell Ventures, CIBC Innovation Banking and Venture Ontario, as well as a host of undisclosed high-net-worth individuals.
While $120 million is a far cry from the $200 million McRock first set out to raise for the fund, it still makes Fund III the largest to date. McDonald says total assets under management (AUM) are now $300 million. Order of Canada last week.
“If it were lower [than $300 million in AUM]I would feel like we let ourselves down… If it was higher, it might be a sign that things were going really well,” MacDonald said.
The fund closed in December. McDonald said McRock was able to reach this milestone because of the capital it was able to put back into records and its “focus of effort,” which he noted is reflected not only in the size of its team and portfolio, but also in its focus on industrial technology.
When MacDonald and Rockley founded McRock, the bet was that industrial markets would be transformed by technology. MacDonald argues that this thesis has since been vindicated and says that the advent of AI has ushered in another wave of innovation.
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Over the years, MacRock's investment strategy has remained largely consistent, aside from a shift to investing exclusively in industrial software with Fund III after some early bets on hardware.
“What we found was [that] hardware was less straightforward – not because the business wasn't amazing and there wasn't growth – it's just that they were [on] different velocity trajectory than software companies,” McDonald said, noting that the time frame for investing in and exiting software startups more closely matches the 10-year life cycle of a venture capital fund.
McDonald characterized McRock's initial target of $200 million for Fund III as an “aspirational number” based on the firm receiving more support from some large institutional funds. But after the initial shutdown, MacDonald said market conditions “really tightened” and major up-and-coming records went into “pause mode.”
This group included Canada Pension Plan Investments (CPP Investments), which was an LP in MacRock's second but not third fund. McDonald said CPP Investments is “firmly committed” to becoming the “cornerstone” LP in Fund III before restructuring and downsizing its overall venture investing efforts amid uneven returns.
This time around, MacRock also did not receive any support from the Canadian government's Venture Capital Catalyst Initiative, which was the LP in his first and second funds.
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McDonald expressed pride that McRock was still able to raise its largest fund to date and secure participation from two major corporate venture capitalists in Caterpillar and Autodesk, despite the setback.
MacRock is backing Series A and Series B industrial software startups with $5 million and $7 million in first checks. McDonald said the venture capital firm is targeting businesses with annual revenues between $5 million and $20 million and hopes to help them scale to $100 million and beyond.
MacRock's first fund, launched in 2014, had a $70 million fund. The venture capital firm raised $112 million for its successor in 2019. Through the two funds, McRock backed and exited six companies, including Kitchener-Waterloo. Clearpath RoboticsAgTech startup from Alberta Determined FarmingMontreal Internet of Things and artificial intelligence firm Mnubo—acquired from McRock LP AspenTech – training platform for factory workers in Quebec Holeand Houston LegalTech ThoughtTrace.
McDonald said McRock is on track to make three times the return on Fund I, which he said has extended the life of the company because he still owns stakes in some companies that he remains bullish on and doesn't want to offload in a “crappy market.” While it's too early to gauge Fund II's performance, he said McRock has already returned 40 percent of its committed capital to its LPs through some of the acquisitions mentioned above.
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The venture capital firm's active portfolio includes a Montreal-based 3D scanning technology startup. Prevu3D and Edmonton's crisis detection and monitoring platform. Samdesk. Currently, MacDonald said it has two companies with annual sales exceeding $100 million: St-Laurent, a smart display startup based in Quebec. E2ip Technologiesand a Kitchener-Waterloo traffic management software company. Myovision.
With its latest fund, McRock hopes to build on that track record. To date, MacRock has announced two investments from Fund III, Boston-based cellular security company OneLayer and California-based artificial intelligence startup Foundation EGI.
MacRock intends to build Fund III's overall portfolio of approximately 10 companies. McDonald expects the venture capital firm to place 60 percent of the fund in Canada and most of the remainder in the U.S., with select investments to be made in Europe and Israel.
To support these plans, McRock added a fourth partner to its ranks earlier this year when it appointed Udit Bhatnagar to the position. Bhatnagar joins MacDonald, Rockley and existing partner Ha Nguyen among the company's eight-person management team.
Image courtesy of McRock Capital. Photo by Ara Coutts.
