OMERS' new VC fund designed to support tech firms through entire life cycle

One of Canada's largest pension funds is making a serious foray into venture capital investing with a commitment to deploy $180 million over the next three years — the largest pool of patient, long-term capital in the country -— and the prospect of much more to come. OMERS (the Ontario Municipal Employees Retirement System) has launched OMERS Ventures (OV) as a division of its OMERS Strategic Investments division to target promising tech, media and telecom firms throughout their life cycle, from angel to larger follow-on investments.

The entry of OMERS into the VC market is seen as a promising development that may lessen the tendency of cash-starved firms of turning to US VC sources for larger follow-on financing. Investments can range from a seed round of $500,000 to $2 million up to $30 million to support a company's growth phase. Initial projections are for five to seven deals in the first year leading to larger deal flow by year-three once OV brings on more staff to boost its initial complement of eight investment professionals.

"In the past, Canadian VC often de-risked the deal and then US VC would come in with huge capital and take the bulk of the return back to the US," says Mark Ruffolo, CEO of OMERS Ventures and senior VP and head of knowledge investing at OMERS Strategic Investments (OSI). "We can go toe-to-toe with any US VC. If I need $100 million I could do it through a private equity fund. OMERS has $75 billion under management and $55 billion on our balance sheet."

patience, size and flexibility

Ruffolo says his estimate for OV's initial pool of capital can easily be expanded if there are enough promising deals to be made.

"This is not a capital constraint issue. The $180 million is not a fund but an allocation. I estimated for three years with the idea being, I will get another allocation of $200 million and then $200 million more," he says. "There is a huge flow of in-bound deals. It took 10 days to get out from under the flood of deals. There's a demand for capital that is unprecedented … Right now we're in reactive mode but we need to be proactive as well."

Unlike traditional VC, OV has the advantage of time and timing. Traditional VC has become risk averse after years of posting poor returns and a current weakness in fundraising. Over the past 15 years, the Canadian market has shifted from too few dollars chasing too many deals to one in which the asset class is no longer large enough to meet demand. OV's entry comes at a time when the quality and quantity of investments is greater than it has been in years.

"It's a very significant pool of capital but there is no pressure to invest. We're here for a long time. We don't have to deploy capital in three years and quickly exit in order to fund new ventures. We can follow through the funding life cycle," says Ruffolo. "We will be both syndicate and go-alone. We will go alone when it's just capital and syndication if it will give us strategic value."

Prior to its official launch earlier this month, OV had already made its first investment as part of a $5-million Series A round in Toronto-based Wave Accounting Inc, a developer of free online accounting software now being used by 75,000 small businesses in 98 countries. The lead investor is Charles River Ventures, Boston MA and Menlo Park CA, one of the oldest and largest early-stage VC firms, with $2.1 billion under management.

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