OMERS VC firm taps Cisco and BMO for new fund – and not the taxpayer

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For years, Canadian politicians, entrepreneurs and investment professionals have lamented the lack of private capital available to fund early stage tech companies domestically. The late Jim Flaherty even compelled the federal government in 2013 to pour $400-million into Canadian venture capital when he was finance minister to spur on investment in startups.

But one domestic fund continues to show it doesn't need to raid the public purse to fund startups: On Monday, OMERS Ventures, the VC arm of the Ontario Municipal Employees Retirement System, said it had closed its second fund, a $260-million war chest co-financed by Bank of Montreal and Cisco Investments. That follows OMERS' original $210-million fund, launched in 2011.

"There's not one dollar of taxpayer capital" in the new fund, said OMERS Ventures CEO John Ruffolo. "That's unusual, especially in Canada. I wanted to show it was possible that you could get money that didn't have any other strings attached" except from investors looking to make solid returns. It also enables OMERS to tap the know-how of a tech leader and a bank experienced in taking companies public, he added.

The new fund also represents a unique model globally, with a pension fund investing venture capital on behalf of outside private investors. "This is an innovation that has surprised a lot of funds," said Mr. Ruffolo. "Usually it's the other way around, with pension funds investing in companies."

Chris Arsenault, managing partner with Montreal-based VC firm iNovia Capital, said "to see large corporations and banks coming into venture via established management teams sends a strong signal to the market that there is a huge opportunity to generate strong returns."

OMERS remains a rarity in Canada: a domestic pension fund that invests directly in startups, given that actively managed venture portfolios are often deemed too small to move the needle for enormous pension funds. To give a bit of perspective: OMERS Ventures' $470-million of funds under management equals well below 1 per cent of OMERS' $72-billion in net assets.

But with that relatively modest sum, OMERS Ventures has established itself as one of the only Canadian-based VC investors willing and able to write big cheques alongside savvy U.S. VC firms to back breakthrough tech companies here, including Vancouver's Hootsuite, Waterloo-based Vidyard and Shopify Inc., the Ottawa-based commerce software company that went public in May.

"The domestic VC landscape used to mean that Canadian startups would have to look to the U.S. for their venture funding," said Shopify chief platform officer Harley Finkelstein, an adviser to OMERS.

"This new fund announcement is a turning point for two reasons; first, from an entrepreneur perspective we now have significant funding horsepower at home north of the border, and secondly, this validates that Canadian VCs can have very strong returns by leading investments in Canadian technology companies."

As of the end of 2014, OMERS Ventures had invested $250-million in 22 Canadian companies which collectively raised an additional $750-million in private capital.

BMO Capital Markets Managing Director David Wismer and Cisco Investments director Kay Min will join the new fund's advisory committee.