In late 2018, following the departure of founding CEO John Ruffolo, then-managing partner Damien Steel was “tapped on the shoulder” to take the helm of OMERS Ventures.
Despite being the venture arm of one of Canada’s largest pension funds—known for backing Canadian tech success stories like Shopify and Wave—according to Steel, it wasn’t an “automatic yes.”
In short, Steel had demands. “One was that I wanted to drastically increase the amount of capital we were putting towards venture,” he told BetaKit. “Two was that I’d always had ambitions of creating a global venture fund out of Canada.”
“Lots of funds say they’re global, but the reality is, when you look under the covers, they’re not.”
Taking OMERS Ventures global was an ambitious ask, given that the firm was solely focused on Canadian companies at that time. Yet the thumbs-up from OMERS came faster than Steel had expected.
“I went back to OMERS, and I said, ‘hey, these are my ambitions,’” Steel recalled. “And they said, ‘great, sure, go.’”
That Steel received an easy yes from OMERS leadership might be due to the fact that Ruffolo had laid much of the groundwork for an international expansion within the firm prior to his departure, going so far as to announce plans publicly. While an announced Asia office never materialized, early sourcing work at the time by Ruffolo, along with other OMERS alumni such as Sid Paquette and Sara Cooper (now at RBCx and Jobber, respectively), led to OMERS Ventures’ eventual leadership hires in Europe and the US: Harry Briggs and Michael Yang.
By early 2019, it was time to turn these shared ambitions into action.
Steel’s first task was to get OMERS Ventures established in two new international markets: the United States and Europe. He began with the “baby steps… to get relevant”: making initial investments in a handful of local startups and establishing offices in Silicon Valley and London, England.
These offices needed to be staffed, which meant a handful of new key hires: Yang in the US, Briggs in Europe (later joined by Jambu Palaniappan), and partners Laura Lenz and Shawn Chance in Canada. Steel, who spent the majority of the year flying back and forth from Toronto to either London or the Valley, had this to say about the experience: “don’t ever open up two businesses at the same time in opposite directions.”
Four years after Ruffolo’s departure, OMERS Ventures has built its global venture fund out of Canada. But 2023 has brought more changes for the firm: with plans to launch its fifth fund this year, OMERS Ventures has overhauled its operational structure and unified under one global investment committee.
The reason? As Steel told BetaKit: “you could offer something unique in an industry where it’s harder than ever to be unique to early-stage tech founders.”
On the heels of a hectic 2019, Steel travelled to OMERS Ventures’ London office for the firm’s first partner offsite. By that point, Steel began hearing rumblings of “something weird happening in China.”
“When I flew home, whammo, the world came to a screeching halt,” Steel said.
The COVID-19 pandemic proved to be far from fatal for many venture firms, including OMERS Ventures, but Steel said his firm’s success was the result of the team trying to make “the best decisions possible every step of the way, without having any playbook for what the right thing to do was.”
One of those decisions was to allow the firm’s three international offices to operate independently. This move was intended, Steel said, to allow the team to be as “nimble as possible and as quick as possible in a market that we thought required that kind of pace.”
Over the course of the pandemic, OMERS Ventures tripled the size of its team and deployed $700 million in capital between 2019 and the end of 2022 (prior to this period, OMERS Ventures typically deployed $40 to $60 million annually), investing in companies like Wefox, Deliverect, and Bold Commerce.
The pandemic also didn’t stop OMERS Ventures from launching a transatlantic fund in mid-2020, its first fund allocated for all three regions, with roughly one-quarter of the $750 million sole-sourced fund earmarked for Canadian firms, 40 percent for Europe, and the remaining 35 percent for the US.
By 2022, OMERS Ventures certainly walked and talked like a global venture fund, but the firm’s decision in 2020 to have its three international teams operate autonomously meant there was little cohesion between OMERS’ three markets. Steel said this realization prompted the team to pause in the middle of last year and assess whether its global operations actually met the original vision from 2019.
“Lots of funds say they’re global, but the reality is, when you look under the covers, they’re not,” Steel said. “They’re actually separate businesses that have the same brand name, and they maybe share a little bit of carry, but they have different investment committees… that was not what we wanted to do.”
One org, one investment committee
In 2022, OMERS Ventures began developing a new operating model that would oversee how the firm sourced, discussed, and pursued investment opportunities. This meant organizing the firm’s three markets into two: Europe and North America. Yang, who has led the OMERS Ventures Silicon Valley office since 2019, was named head of North America in 2022. As of January, its Canadian and US teams now operate as one.
Does the change mean OMERS Ventures’ Canadian investments are now being decided out of the Valley? Not quite. As part of the firm’s new changes comes one unified investment committee responsible for deciding on investments around the globe.
According to Steel, the change means that OMERS Ventures can be more deliberate about delegating deals to team members who add the most value through domain expertise, rather than selecting deal teams based on geographic proximity. “Why does a Canadian deal have to be done necessarily, or led by, a Canadian partner?” Steel asked.
“What we’re trying to do is really bring the best of skill sets and best of expertise, and more of a team-oriented approach to things,” Yang said in a separate interview with BetaKit.
“Why does a Canadian deal have to be done necessarily, or led, by a Canadian partner?”
Steel added that one investment committee forces global attention on investments in each region. The hope is that unified attention allows the firm to offer boots on the ground not just where portfolio companies are based, but also where they may expand to later on.
“Ten years ago, you’d meet a tech startup, and they wouldn’t start thinking about Europe until they were $100 million in revenue,” Steel said. “Today, when you talk to a Canadian company, they’re thinking international right away… If that’s how our companies are acting, then why wouldn’t we do the same thing as an investor?”
“We want to find the best companies globally full-stop, and we want to add value to those companies from a global perspective right out of the gate,” he continued. “This was a way for us to gather and make sure that all the partners at OV know about every deal we do.”
Not like every other fund?
The final piece to OMERS Ventures’ 2023 overhaul is more philosophical. Steel noted that for many years, the firm shied away from its identity as a pension-backed firm and worked to position itself to founders like it was “every other venture fund.”
“We have $130 billion in assets surrounding us. We don’t hide that anymore,” Steel said. “…We don’t hide the fact that most of our capital comes from OMERS.”
Following a year that saw public and private tech valuations sink dramatically and cash preservation become the status quo, liquidity has become a serious issue for not just founders, but also investors. Recent reporting from BetaKit revealed instances of LPs not honouring capital calls, financing deals collapsing, and money being clawed back from founders at the eleventh hour. Since it sole-sources its capital from the pension fund, rather than a broader (and more fragile) collective of LPs, OMERS Ventures has not faced these issues.
“In times like this, with the market we’re living in right now, it feels really good to have an LP like OMERS behind you who is able to look at the world with a very long-term horizon,” Steel added.
The pension fund also appears eager to continue supporting its venture arm, allocating roughly one percent of its total assets to the firm. Steel said OMERS Ventures plans to use that capital this year for a fifth fund. The firm expects to deploy between $200 million and $300 million per year, and plans to keep that investment pace consistent for the foreseeable future.
“I think it’s really important to be consistent in the pace at which you deploy capital, and never try to time the markets too much,” he added.
OMERS Ventures’ advantages don’t fully protect its portfolio companies from the current macroeconomic climate, however. Hootsuite, which once hoped to go public, saw the ouster of CEO Tom Keiser at the beginning of the year as part of the company’s third round of layoffs in the last six months. More recently, Ottawa-based software startup Tehama entered into insolvency after the company lost key customer contracts, its debt facility with CIBC, and a potential Series B round.
In a statement sent to BetaKit regarding Tehama, partner Shawn Chance said like most VCs, OMERS has certain milestones it expects companies to meet in order to secure follow-on funding.
“Even when companies don’t meet the criteria, we will always aim to support the founders in other ways for as long as we are useful to them (and as long as they want us involved),” Chance said. “We want to be known for sticking by founders, even after we pass the point at which we are able to keep funding the business.”
On the flip side, OMERS Ventures does have nine companies in its portfolio now worth more than $1 billion—five of which, including Hopper, League, and Xanadu, are Canadian.
“[OMERS] had the foresight, long before venture was cool in Canada, to say, ‘let’s start the building blocks to build something of significance,’” Steel said. “I think we’re slowly approaching the point where we are significant, and that is super exciting because it took 12 years to get here.”
With a new operating model, Steel believes OMERS Ventures’ globally unified team is the true value-add to founders. Instead of supporting companies through geographic silos, he said OMERS’ investors now have full visibility into each company and are incentivized to care about and support those companies wherever they are.
“Now, when you’re a Canadian founder, and you take money from OMERS, you know that you have people that care about your company, and they’re helping you recruit, helping you source talent and customers, and deal with problems all throughout the US and Europe,” he added. “I think that matters today.”
With files from Douglas Soltys. Image courtesy of OMERS Ventures.
UPDATE (02/26/23): This story has been updated with additional details regarding the early days of OMERS Ventures’ international expansion plans.