What qualities must a Canadian company have to make OMERS interested in investing capital in them?
We have three criteria. First of all, you identify the rock-star management team, and it’s usually two founders, and you’re looking for someone who is trying to solve a problem that has been eating away at them. They’re really passionate about this problem and they really believe in it, and they’re not doing this simply to start up a business. They’ll do what it takes to solve this problem. And they also have a view that the world is not just Canada, but they are trying to solve a problem for the rest of the world.
Secondly – and we are largely looking in the technology sector – we’re looking at a problem that results in a large enough market. It’s a bit of a challenge, when you’re investing in a very early-stage business, and you don’t have validation what the size of the market really is. …We have to be able to have the vision to see that this could be a very large market on a global basis. There doesn’t have to be evidence of it today, but we have to be able to dream it.
Thirdly, depending on the stage at which you’re investing, you look at the company momentum. Are there proof points, now that you know you’ve got a great team? And how quickly are they getting traction in the market? How do they get traction? You extrapolate on this.
We make investments right across the spectrum of the stage of the company [– a lifecycle company]. We go as early as seed stage [$500,000 to $2-million of capital], early growth stage [needing to raise $2-million to $10-million] and late stage [in Canada, it’s typically $10-million to $30-million financing.] The very unique thing for OMERS Ventures is that we run across all three stages. Our investments to date range from $500,000 to $30-million. We take a balanced portfolio approach. Out of our first 10 investments, four of them have been in the later-stage category.
Is Canada indeed lacking innovation to become competitive, as some critics say?
I don’t think so. I think that purely from an innovation engineering part of development, I would put Canada up against anywhere in the world. When I’m down in the [Silicon] Valley, they talk about the Canadian engineers, particularly from Waterloo, [Ont]. I was stunned. This is from the top [venture capital] investors in the world.
Innovation isn’t the issue. The issue really is, how do we get more of these folks building companies, to get them the support to be successful. That support includes capital, mentorship, government support. Every country is trying to compete against Silicon Valley.
Right now, I would say the issue for Canadian competitiveness is that the days of Canada thinking we can compete in all industries, at all levels, are over.
With globalization, Canada is going to have to make very strategic choices of where it’s going to focus and innovative industries is one of those. It also means that you’re also not going to be able to do some things that traditionally Canada has supported. And that’s part of the problem [with convincing governments]. It’s very anti-votes. The voters right now tend to be in traditional industries.
There’s just not enough money to do everything. … Those manufactured products that are highly labour-intensive, the reality is that we are not going to be able to compete. It’s painful not to support those industries, but the reality is, those industries will die and it’s only a matter of time.
Do you get rid of all manufacturing? Absolutely not. You look at high-end manufacturing, where it requires massive investment in high-end technological equipment. Who does this very well? Germany.