OMERS taps Bay Street giants for investing in venture-capital fund

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Pension giant OMERS has closed its third technology-oriented venture fund, a $300-million capital pool that includes backing from five other Bay Street giants – and no government money.

OMERS Ventures Fund III is also backed by Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Toronto-Dominion Bank, Sun Life Financial and U.S. fund-of-funds investment firm Wafra Group. OMERS didn't disclose the breakdown but sources said OMERS contributed roughly two-thirds of the capital and the other six institutions accounted for the balance.

It's the second time OMERS Ventures has tapped outside private investors, after it raised funding from BMO and Cisco Investments for its $260-million second fund, which closed in 2015. OMERS Ventures closed its $240-million first fund in 2011.

OMERS Ventures chief executive officer John Ruffolo said the outside fundraising was "a pretty fast process" and that the six outside institutional investors agreed to invest after one meeting, meaning the fund was able to reach its full target with its first close. "It was not painful at all. We had to turn so much capital away."

That's in stark contrast to the typical experience of Canadian venture capitalists, who often complain it's a difficult and prolonged process to raise money. Many have pushed for continued financial support through government vehicles such as the Venture Capital Action Plan (VCAP) to help them raise their funds.

The Canadian banks were initially reluctant to back VCAP and had to be pressed by the late former finance minister Jim Flaherty earlier this decade to invest funds alongside the government's contribution to seed the Canadian venture-capital industry. Since then, several Bay Street institutions, including most insurance giants and some banks, have become increasingly active in backing Canada's venture scene. "Corporate Canada is clearly serious and putting money where their mouth is," Mr. Ruffolo said.

OMERS arrived on the tech scene at an opportune time early this decade, tapping Mr. Ruffolo, former lead of Deloitte's Technology, Media and Telecommunications practice, to lead its venture investing efforts. Canadian VCs had sustained a decade of dismal returns and the Canadian tech sector was reeling from the declines of Nortel Networks and BlackBerry.

At the same time a new wave of young, globally minded, Canadian-based tech entrepreneurs were establishing themselves as global players, including Shopify Inc., Hootsuite Media, Vision Critical, D2L, Wattpad and Vidyard. As one of the only big-cheque writers in Canadian venture, OMERS Ventures took centre stage in several large financings that also attracted capital from well-known U.S. venture-capital firms. It has invested $370-million to date in 26 Canadian companies and five from the United States and has $800-million in assets under management.

"OMERS has been a catalyst for the Canadian VC ecosystem," said Daniel Debow, a Toronto-based tech entrepreneur and angel investor who is an adviser to OMERS Ventures. "In a relatively short time, they have become the go-to partner for top-tier Canadian CEOs. They have proven they have both the guts to make very early bets on bold ideas and proven entrepreneurs – and the firepower to write significant later-stage investments into the key scale-up companies … that will define Canada's future."

OMERS Ventures' best bet so far was leading a $100-million (U.S.) financing of Shopify in 2013, the last private financing raised by the surging Ottawa merchant software firm before it went public in May, 2015. OMERS Ventures is believed to have put in about $45-million – its biggest single investment to date – and returns from that investment enabled it to return an amount equivalent to the size of its second fund to investors.

The third fund has a fairly broad mandate to invest in all stages of startups, from $500,000 for seed financings to tens of millions of dollars for late-stage pre-IPO funding. Areas of focus include fintech, artificial intelligence, robotics, quantum computing and synthetic biology.