OMERS Ventures Directors Discuss $260 Million Fund II, Opportunities, and Canada

In its four years of existence, OMERS Ventures, an arm of the Ontario Municipal Employees Retirement System (OMERS), has backed some of the most high-profile companies in the Canadian tech sector, including Shopify and Hootsuite. 

Renewing their commitment to the sector and investment thesis, OMERS Ventures this month announced the closing of Fund II, their second venture capital fund with $260 million CAD in commitments with co-investors BMO Financial Group and Cisco Investments.

I spoke with OMERS Ventures Managing Director Jim Orlando and Director Sid Paquette to discuss the vision behind the fund, opportunities and domains of interest for them, and their thoughts on the Canadian tech sector.

I understand that this latest fund is part of a long-term vision for OMERS Ventures.  I’d like to go into that.

JO: OMERS Ventures started four years ago, back in 2011. We felt there was a very strong opportunity to invest in technology entrepreneurs in Canada who could build up successful world-class businesses.  One of the key missing elements at that time was access to a relatively large source of capital for companies to compete on the world stage; venture was too risky of an asset class after the financial crisis.  OMERS Ventures’ Fund I was founded with the firm belief that investments in the technology startup ecosystem could provide meaningful returns.

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Shown through Fund II, there is renewed commitment from OMERS in venture capital, and we intend to continue investing with the same thesis of strong founders that bring meaningful technology differentiators to address new market opportunities. 

OMERS’ Fund II co-investors, BMO and Cisco, both bring something to the table in addition to capital. Cisco is a world-renowned systems company and BMO is a leader in the financial area, both of which are areas of interest for us. We felt that the ability to have those investors alongside OMERS was better for us, and most importantly, better for our investees.

SP:  In terms of our strategy, it hasn’t changed. We are still very excited about what we are seeing in the market. There are a lot of opportunities in Canada, and a lot of really good companies that are deserving of funding.

Fund II is part of our long-term strategy and always has been. We are looking forward to deploying more capital in Canada, and opportunistically outside of Canada.

What are you seeing at OMERS in general about the Canadian tech sector?  What’s the development?  What are the opportunities?  There’s a lot of talk about problems with talent or ecosystems not developing enough, with other people saying ecosystems will develop and mature.  What’s your thought?

JO:  We believe a few elements need to come together in order to build successful venture-backed companies:

First and foremost, you need a real market opportunity that can be addressed – new, emerging markets or different ways of doing things that venture-backed startups can bring to market. That’s not a Canadian thing, that’s a worldwide opportunity.  That’s equally addressable to all venture-backed companies. 

The second thing you need are entrepreneurs who are willing to take the risk, who want to seize those market opportunities.  They want to step out and do something different. 

The third element is having the capability to build differentiated and innovative technology.

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Now, the last area, as part of the ecosystem, is really just capital; a willing pool of capital to back the entrepreneurs, and to take the risks. The ecosystem is developing quite nicely. A phenomenon that we have seen since OMERS Ventures was founded is that US-based venture firms don’t really view Canada any different now than markets within their borders. As an example, if there were a Silicon Valley-based venture firm that was willing to make an investment outside of that geo, be that Chicago, or Dallas, or any one of the other major communities that are not Silicon Valley, then they would equally add a Vancouver, or a Toronto, or a Montreal to that list. It is no longer viewed as being any different. In some cases, it’s viewed as more positive because of the favourable exchange rate, tax incentives and stronger employee loyalty.

SP: I think that there are opportunities at every level within Canada.  You’ve got a really good startup culture in Canada across a number of different geos. 

From a sector perspective, I’d say the bulk of our focus is going to be on enterprise software, consumer software, and opportunistically, on hardware-embedded software opportunities.

I think the focus in Canada has to be on innovation.  VCs want to fund companies that are truly innovative in Canada, and I don’t know if we have the level of innovation in Canada that maybe we think we have.  I think we can certainly improve on that a lot.

What do you mean by that?

SP: There are a lot of ‘me-too’ companies, ones that are making incremental changes to current technologies that may or may not be relevant.  This isn’t a Canadian issue by any means, this is an issue we’re seeing in the US as well: there are lots of solutions for problems that don’t really exist. 

You see a lot of really smart entrepreneurs. What they are doing today may not be what is ultimately fundable, and they are going to iterate and have some losses along the way. But ultimately and hopefully, they’re going to get to something that’s really going to be innovative.

Do you feel that being in Canada provides any unique opportunities for companies?

SP:  If you were to take a holistic view and look at Canada as a whole, areas of opportunity where we could be world-leading from a tech perspective, is in the FinTech sector. Our banks historically have done a reasonably good job of implementing technologies.  There is a need and a desire amongst our banking groups now to actually expedite that process and incorporate a lot more technology than they have historically, and given our position globally in the financial sector, there are many opportunities for entrepreneurs.

I know that cybersecurity and media are areas of interest for OMERS Ventures.  What are the opportunities in these domains?

JO: We consider ourselves to be a broad ‘TMT’ investor – tech, media, and telecom. In media, where we are most intrigued, is the emergence of new ad technologies, and in particular as being applied to video. In the next five years, there will be more video delivered over the Internet, and there will be an opportunity for some advertising capabilities in that regard.

Cybersecurity is another area we have been looking at, specifically in FinTech as Sid mentioned, and in particular what bitcoin and block chain capability bring in terms of differentiated opportunities. We hope to find a couple of investments for Fund II related to bitcoin and the block chain, and the security side of that whole paradigm.

Another thing I’ve heard mentioned regarding cybersecurity is the Internet of Things (IoT), and the proliferation of endpoints without security.  I understand this is something else that’s on your radar, right?

JO: We have spent quite a bit of time on IoT, and we have one investment in this area to date— Mojix.  The investment in Mojix came as a result of our deep understanding of the sector and its evolution, and a belief that there would be a further rollout of these connected points.

What do entrepreneurs who are now considering approaching you need to know?

SP: We’re looking for innovation, an innovative solution as opposed to a minor tweak on something else that is successful in the market today.  We are looking for companies that have a global opportunity and a strong management team.  The management team needs to have some evidence that they can execute on the vision.

You have also got to take a look at your business and understand where you are on the potential growth curve, and if you’re not forecasting exponential growth that is capital efficient it just may not be a VC-fundable company.   

A Visual Guide to Why Omers Ventures Was Named 2014’s Venture Capital Firm of the Year

Omers Ventures has invested $250 million in 22 Canadian companies in rounds totalling more than $1 billion in capital raised.

Omers, which was 2014’s Canadian Venture Capital Firm of the Year, has invested nearly $400 million in Vancouver, including more than $250 million in Hootsuite, and almost $200 million in Kitchener, including over $150 million in Desire2Learn.

Other companies Omers has invested in include Vancouver’s BuildDirect ($94 million), Ottawa’s Shopify ($122 million), and Toronto’s Wattpad ($67 million).