The firm’s investments include SkipTheDishes and Sheertex.
by eva lau Two small fish companies is moving upstream with the launch of a third fund.
The venture firm has secured $24 million CAD ($17.5 million USD) in an initial closing as it targets a general fund size of $40 million CAD.
With 40 investments under his belt, including notable bets and exits, Two Small Fish has the confidence and returns on capital to build a much larger fund than in years past.
“What that means is that they have seen our success, they know what our secret ingredient is, [and] they know our winning recipe.”
– Eva Lau, Two little fish
Founded in 2014 as an angel investment group, Two Small Fish reaches its third fund with five total exits, including SkipTheDishes, which he left for a sum of $110 million CAD. Two Small Fish has also invested in sheertexunicorn start up adaY Teal Book.
Founder and General Partner (GP) Eva Lau explained that while Fund III remains focused on early-stage investing, the larger fund allows Two Small Fish to be a leading investor for the first time in its history.
Two Small Fish was created by Eva and her husband, Wattpad co-founder Allen Lau, with the goal of bringing operational expertise to early-stage investing in Canada.
The Toronto-based firm raised its second fund in early 2019, securing $9 million CAD in an initial closing. Two Small Fish had hoped to reach C$15 million with the fund, though Eva noted that the COVID-19 pandemic held it back.
After securing an additional $3 million CAD before the start of the pandemic, the second fund closed with a total of $12 million CAD. Eva explained that not raising additional capital after that was deliberate: The company could have raised more financing, but chose to focus on investing rather than fundraising, as the pandemic sparked an influx of startups and competition for capital. Beyond follow-on capital, Two Small Fish has fully deployed its second fund.
For its third fund, Two Small Fish has continued to raise capital from limited partners (LPs) who are a mix of high-net-worth individuals, family offices and institutional investors. The firm declined to disclose the majority of investors, although it noted that all of Fund II’s main investors returned for its latest fund, including CIBC and Canso Investment Counsel. Fund II LPs also featured Wealthsimple’s Michael Katchen, Red Hat’s Bob Young, as well as Globalive and Wind Mobile founder Anthony Lacavera.
The new investors also joined Two Small Fish for its latest fund, but the firm declined to name the new additions. Eva noticed, however, that Wattpad’s output Naver helped attract interest from international family offices.
“What that means is that they have seen our success, they know what our secret ingredient is, [and] they know our winning recipe,” said Eva.
That winning recipe is something Eva has been working on since she started making angel investments through Two Small Fish around 2014. She recalled launching Fund II around 2018, which marked her first venture fund.
“Allen raised a lot of money from Silicon Valley in terms of a [entrepreneur], but raising a fund is very different. So at that time, as a GP for the first time, a lot of people looked at me and said, ‘What’s your history? How can we trust you to pick the winners?’”
Eva claimed to have seen a multiple of three times in the invested capital of her angel investment fund at that time, a number that has since multiplied by 15. It is that data that, she said, gives confidence to investors in Two Small Fish.
Beyond SkipTheDishes, the company’s outputs to date include Useful, gallop labs, CalendarHero (formerly Zoom.ai) and Globalive Technology by Anthony Lacavera. A Two Small Fish spokesperson also told BetaKit that the company has had “several partial exits” but noted that they could not reveal details.
Eva started doing angel checks after they raised Wattpad $17.3 million in Series B financing in 2012.”[I was] I just wanted to share my war scars and my experience with the ecosystem because back then we didn’t have as many investors turned entrepreneurs,” said Eva.
Before launching Two Small Fish, Eva was a member of the founding team at Wattpad and served as community manager for a few years. She has also worked at companies like Symantec, ATI Technologies (acquired by AMD) and Brightspark, where she mentored several technology startups.
After more than 15 years at the helm of Wattpad, Allen recently began working more actively with Two Small Fish after go down as CEO of Wattpad (where he remains in an advisory role).
Two Small Fish partner Brandon Zhao also hails from Wattpad, where he worked as one of the first data scientists helping build the company’s platform.
The Lauses see their experience starting Wattpad and taking it to their $600 million dollar exitcombined with decades of operational experience at other technology companies such as Symantec and IBM, as a key differentiator for Two Small Fish.
The Laus aren’t the only ones to be traders-turned-investors, with many exiting entrepreneurs looking to invest in newcomers. What makes Two Small Fish stand out, in part, is that most entrepreneurs don’t raise a $40 million venture fund to invest in the next generation of companies.
“We’re able to engage more effectively and share our experience because our experience, in part due to Wattpad leaving, is actually more comprehensive now,” Allen said. “Then we can say to founders, ‘hey, while you have these five problems at hand, we’ve already dealt with them ten times.'”
In addition to closing a fund now being a great opportunity, Allen noted that Two Small Fish feels well positioned to find and advise companies through the current macro environment given Lau’s collective experience.
While the dollar amounts are higher, Fund III continues to be based on the same thesis that Two Small Fish has held from the beginning: industry-independent investment in early-stage technology companies.
The company plans to make 20 investments from its third fund with check sizes ranging from $250.00 to $2 million. That high-end range is where Two Small Fish hopes to lead deals rather than just co-invest.
Two Small Fish hopes that by leading more rounds he will be able to work more closely with companies to share his team’s operating experience.
“[Two Small Fish wants] simply looking for the next generations of tech giants while they are still in their infancy and supporting them through the full journey based on our operational and product-oriented mindset,” said Eva. “[And] help them walk this journey together.”
Main image courtesy of Two Small Fish.