Ontario Municipal Employees Retirement System, one of the first Canadian institutional investors to back domestic information technology startups after the 2008-09 financial crisis, is signalling a renewed commitment to this country’s innovation sector with the launch of its latest venture-capital fund.
The US$750-million fund will back early stage companies in Canada, the United States and Europe, investing $5-million to $25-million in companies bringing new technologies to financial services, workplaces and health care and property sectors.
It is OMERS’s first transatlantic venture fund and fifth fund launched since the creation of its venture-capital arm, OMERS Ventures, in 2011. It follows a period of transformation within the pension giant’s private capital group, including high turnover at its senior ranks and expansion to London and San Francisco.
OMERS is set to announce investments in two Canadian startups in the coming weeks. They will be the first venture-capital deals it has made in Canada – excluding follow-on investments in previously funded companies – since June, 2018. It is working on six deals in the U.S. and Europe.
Damien Steel, managing partner and head of ventures, said one of the consequences of OMERS Ventures’ international expansion was that “we lost focus on Canada … through no fault of our own but by pushing the boundaries elsewhere.” He said he realized that the unit had lost touch with the market last year when he began learning about venture deals in Canada that had closed “and knowing that our team didn’t get a look” beforehand.
“I can’t control whether we win a deal or not, but we can control that we get to see the deals," said Mr. Steel, who joined OMERS in 2011. "That’s what I want to get back to. We want Canadian founders to think about us every time they’re raising money.”
OMERS’s commitment to the Canadian tech sector has come into question since Mr. Steel’s predecessor, John Ruffolo, left in December, 2018. Mr. Ruffolo, previously head of Deloitte’s technology, media and telecommunications practice, joined OMERS in 2011. His mandate was to revitalize a Canadian information technology sector hit hard by the 2008-09 recession, the decline of heavyweights Nortel Networks Corp. and BlackBerry Ltd. and the retreat by many Canadian venture capital funders. The timing was ideal, as a wave of Canadian tech entrepreneurs established themselves globally, attracting U.S. investors.
Mr. Ruffolo became a vocal advocate for the sector and OMERS backed some of the biggest tech names to emerge from Canada, including Shopify Inc., Hootsuite Inc., Wave Financial Inc. and Wattpad Corp. He brought outside investors, including several Canadian banks, Sun Life Financial Inc., Cisco Systems Inc. and U.S. investment company Wafra Inc., into its second and third funds, which raised $260-million in 2015 and $300-million in 2017.
But after he left, OMERS’s private capital group was hit with a slew of exits, including Canadian venture-capital managing partners Jim Orlando and Sid Paquette and global private equity head Mark Redman. As OMERS sat out Canadian deals, domestic venture-capital companies Georgian Partners, iNovia Capital, Radical Ventures and Portag3 Ventures raised big funds.
Mr. Steel said “the market loves to talk about people who have left OMERS Ventures. I’m sick of hearing it.” He said he has rebuilt his investing team, adding partner Laura Lenz and venture partner Shawn Chance in Canada. Another five partners, a mix of entrepreneurs and investors who have joined since 2018, will lead deals from London and San Francisco, along with Toronto-based Mr. Steel and Brian Kobus.
Mr. Steel said he expects OMERS Ventures will invest close to one-quarter of the fund in Canada – roughly US$180-million – 40 per cent in Europe and the rest in the U.S. Its British partners made several investments from a €300-million ($457.8-million) OMERS Ventures fund launched in 2019, but all new Europe investments will come from the latest fund, he said.
The new fund is also being solely financed by OMERS, unlike its second and third funds (its first $200-million fund was internally financed). Mr. Steel said he had been in discussions with “most of our partners from the previous fund" to join the latest fund, but “when [the pandemic] hit … we put those discussions on hold.”
He said OMERS made the decision out of consideration for the partners to focus on their own businesses amid economic uncertainty, although sources familiar with the situation told The Globe and Mail that at least two past backers didn’t intend to return. The Globe is not revealing the names of the sources because they were not authorized to discuss the matter publicly.
“We were in the process of looking at it, and remain in that process," said Colin Ryan, co-head of technology, media and telecommunications investment banking with National Bank. “Damien wanted to make sure the limited partners had time to take care of more important things right now."
“It’s great to see OMERS Ventures continue to support the tech sector with this fund," said serial entrepreneur Michael Serbinis, whose latest startup, online health benefits provider League Inc., got early backing from the pension fund.
"Investing in tech is way more competitive today than it was five years ago, and I know entrepreneurs will be looking to the best investors in the world to support their companies.”