If you work for a Canadian startup, you almost certainly know OMERS Ventures. Though relatively new to the scene, OMERS has been making some big bets on Canada’s limping tech sector. While other venture capital companies might commit a few million to a startup, OMERS is handing out tens of millions to Canada’s biggest, most promising young tech companies.
Cities like Toronto and Vancouver have strong startup scenes, but Canada’s growing tech firms have struggled to secure the kind of money thrown around in Silicon Valley. Money that would help these companies scale upward into $1-billion-plus valuation territory. To the Ontario Municipal Employees Retirement System, a $61-billion pension fund, this was untapped opportunity, which was why it launched its venture capital arm, OMERS Ventures, in 2011.
Since then, OMERS Ventures has backed many of Canada’s best-known young tech companies, such as HootSuite, Shopify, Wattpad, BuildDirect, Vision Critical and Desire2Learn.
Last week, OMERS Ventures announced it was hiring a new managing director, Kent Thexton. He comes with an impressive resume, having held leadership roles at various international and Canadian companies, including chief operating officer at Rogers Communications (which owns Canadian Business). I caught up with Thexton recently to ask him about his plans for OMERS Ventures and how Canada can build the next BlackBerry.
CB: What attracted you to OMERS Ventures?
Thexton: An interesting thing happened in Canada in the financial crisis. Canada was already underserved by venture capital, but so many limited partners that invest in the asset class stopped investing in the asset class. So the amount of venture capital available in Canada, the number of venture firms, and the size of the funds all declined. I wanted to see Canada be successful. It’s a critical part of the ecosystem. So OMERS has stepped up in a significant way, building the position it has in Canada, probably as the leading player now. In an ecosystem that needs more venture capital, OMERS is investing significantly. The opportunities from Canadian technology companies are better and brighter than they’ve ever been.
I often hear Canada’s problem is late-stage funding. In other words, turning startups into big companies. Do you find that to be the case?
What we need to build to be successful in Canada are not companies that just serve the Canadian market, but serve the global market. And those are going to need serious ongoing funding to build to scale. Look at some of the investments that OMERS has like HootSuite or Shopify. They’re big global technology companies that are going out there and making an impact on the world scene, and they’ve raised significant capital, which OMERS is proud to be a part of.
There’s an adage in venture capital: you gotta back your winners. You look at all the big funds in the U.S. and their hundreds of millions of dollars. When they have a winner, they’re able to step in and make sure they raise the capital required for them to go out and be a global leader. When you’re playing in the U.S. market, you’re almost de facto positioned to do that. In Canada, it’s a big step from just serving the Canadian market to serving the global market.
You mentioned HootSuite and Shopify, both of which have healthy revenue models. Would you consider funding a company like Snapchat—lots of buzz, but no means to make money?
We would absolutely seriously consider looking at a company that’s fast growing, doesn’t have a good revenue model yet, but is getting a high level of engagement.
I know the VCs behind Twitter and had some really good serious debates back in the early days before it was clear it was going to be a success. And I was saying, yeah, but you guys don’t have a revenue model and the VC said, no, we don’t want to distract ourselves with revenue right now—we just want to get growth and we want to get engagement. He certainly proved to be correct. I might have wanted the company to start a revenue model a bit earlier than they did, but, hey, we’re Canadian and we’re conservative.
What about a company whose endgame is to be acquired?
I won’t speak for OMERS in this regard, but when I was building businesses, the philosophy I’d bring in is you always want to be able to create stand-alone value. Building for someone else to buy you is a real risky thing to do. If they don’t buy you, then you have no value…. I like taking businesses to scale when you can. Sometimes, you end up selling, but I think it’s good to go to scale. We’re patient money at OMERS.
Does Canada need another OMERS Ventures?
I think Canada needs more venture funding. From a selfish perspective right now, it’s good to be in the position OMERS is in because we’re getting to see all the best and brightest. If you’re in Silicon Valley, there are so many VCs.
Nortel and RIM (now BlackBerry), our two biggest success stories, don’t occupy the lofty positions they once did. It’s great to see the new crop of companies that are coming along and doing great things, but they need investment to get there.
Does Canada’s tech scene have a bright future?
Success breeds success. The reason that Waterloo, Ont., is such a hotbed is because RIM was so successful and a lot of people saw that, jumped out and started their own thing.
It takes courage to start a company up. Believe me, I’ve been there. You’re sitting there trying to figure out if you’ll have the funding to make it and the risks you’re taking, the time you’re putting in for, at the time, insignificant rewards. You gotta have a belief system. You gotta be surrounded by success.