Caterpillar and Autodesk Join McRock as Limited Partners Amid Shortfall in Fundraising Target
In a significant move for the venture capital landscape, McRock Capital, a Toronto-based firm focusing on industrial technology, has officially announced the final close of its third fund, despite falling short of its initial fundraising goal. The fund has secured over $120 million CAD (approximately $88 million USD) in total commitments, making it the largest fund to date for McRock.
Surpassing the $120 Million Milestone
Scott MacDonald, co-founder and managing partner of McRock Capital, expressed his satisfaction with the closure of this fund, noting that achieving this scale is commendable, especially in “a really tough fundraising environment.” Although the fund did not meet its initial target of $200 million, MacDonald views the achievement of $120 million as a testament to McRock’s growing influence in the Canadian VC ecosystem.
New Partnerships with Industry Giants
Among the new investors contributing to McRock’s Fund III are two high-profile limited partners (LPs): Caterpillar, a longstanding investor in construction, and Autodesk, marking its first investment with McRock. This addition reflects McRock’s strategic focus on aligning with industry leaders who can add value beyond financial investment. Other LPs in Fund III include existing partners like EDC, BDC Capital, and the Alberta Enterprise Corporation, alongside newcomers like Bell Ventures and CIBC Innovation Banking.
Fund Size and Future Aspirations
With a total of $300 million in assets under management (AUM), McRock is poised for further growth. MacDonald articulated that reaching this particular AUM is where he had envisioned the firm would be back when it was established in 2012, alongside fellow managing partner Whitney Rockley. “If it would have been lower,” MacDonald said, “I would have felt like we disappointed ourselves … Had it been higher, it might have been a sign that things had really gone crazy well.”
Evolution of McRock’s Investment Strategy
Since its founding, McRock’s investment strategy has evolved, with Fund III focusing solely on industrial software. This shift was informed by previous experience in hardware investments, which, according to MacDonald, proved to be “on a different trajectory of speed” compared to software. The firm’s strategy aims to invest in startups at the Series A and B stages, typically writing checks of $5 million to $7 million, targeting businesses that generate between $5 million and $20 million in annual revenue.
Market Conditions and Fundraising Challenges
The initial target of $200 million was described by MacDonald as an “aspirational number” contingent on securing support from larger institutional funds. However, tightening market conditions led many prospective LPs to adopt a “pause mode.” Notably absent this time around is the Canada Pension Plan Investment Board (CPP Investments), which had previously committed to McRock’s second fund. Despite the challenges, McRock successfully attracted substantial backing from Caterpillar and Autodesk.
Track Record and Future Investments
Established in 2014 with a $70 million initial fund, McRock Capital has a robust track record that includes significant investments in successful companies like Clearpath Robotics and Decisive Farming. The firm estimates a potential 3x return on its first fund and has already returned 40% of its second fund’s committed capital to LPs, thanks to strategic acquisitions.
Active in the growing sector of industrial technology, McRock is now concentrating on building a diverse portfolio for Fund III, with plans to invest approximately 60% of capital in Canadian companies while also eyeing opportunities in the US, Europe, and Israel.
New Faces in Leadership
To support its continued growth, McRock recently promoted Udit Bhatnagar to the role of partner, enhancing its leadership team alongside MacDonald, Rockley, and Ha Nguyen. This expansion reflects McRock’s commitment to nurturing talent and expertise within the firm as it gears up for its next phase of investment.
In summary, while McRock Capital did not meet its initial fundraising goal, it has nonetheless made substantial strides in fostering critical partnerships and solidifying its presence in the evolving venture capital landscape.