Unique approach to company formation earns Brightspark venture capital award

A small Toronto-based venture capital firm has parlayed is knack for creating and growing early-stage software companies into a successful business with a spectacular divestiture that earned it the prestigious Annual Deal of the Year Award. Brightspark Ventures earned the award from the Canadian Venture Capital Association (CVCA), which gives it to the company that generated the most significant return over the past 12 months.

The CVCA award recognizes the four-year-old Brightspark for its sale of Think Dynamics to IBM Ltd, Armonk NY, which rolled the firm into its Tivoli division. Think Dynamics’ dynamic provisioning software addresses computing demand peaks and system failures by allocating resources just before a system becomes stalled. The transaction typifies the kind of financing play that Brightspark hopes will eventually propel it to profitability.

“Think Dynamics makes us good and square. The next one is where the upside is,” says Tony Davis, Brightspark’s co-founder and managing partner. “One more exit would make us extremely successful.”

The privately held Brightspark began with US$52 million in funding and has already started three companies in its short history, exiting two through initial public offerings. Davis says the company’s willingness to play in an early-stage niche with relatively few players makes for considerable investment potential.

“We’ve got what it takes to understand the nuances and intricacies of early-stage investing,” he says. “We buck the trend in that we disagree with the prevailing attitude of buying existing companies for next to nothing. They have an old, existing culture whereas we prefer to begin with a clean slate.”

Brightspark prefers to purchase an early-stage firm or evolve technologies to the point where they are standalone corporate entities, bringing the full suite of services and expertise to bear on the investment through its operating arm, Brightspark Services.

“We own these companies outright with a certain amount going to the founders,” says Davis, a veteran of company formation who began as a developer and created the WinFax PRO communications system in 1989. “We also bring in other investors and then spend one or two years with the initial investment adding value developing the initial customers and revenue.”

Davis compares Brightspark’s operational strategy to that of an incubator designed to start up companies simultaneously and develop them for rapid exists.

“That’s what we do. We excel at creating small companies and growing them and ending up in IPOs or acquisitions,” he says. “We’re real operational guys who are deeply involved in our companies.”

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