OMERS Ventures has launched a US$750 million fund, one of the largest ever in Canada. However, after months of negotiations it has not yet received the backing of any other institutional investors.
It is only the second private venture capital fund in Canadian history to launch with over a billion Canadian dollars, based on current exchange rates. However, the pension giant sought the participation of all investors who were part of the $300-million Fund III it closed in May 2017, including BMO, CIBC, National Bank, Sun Life, TD and the Wafra Group. None have yet committed to the new fund. OMERS was planning to announce its launch earlier this year but held off, first in the hopes of attracting other institutional capital, then due to COVID-19, according to multiple sources with knowledge of the situation.
OMERS Ventures started negotiations with past investors in its funds in January but has not yet secured a commitment from any. Damien Steel, the fund’s head of venture capital, says the main reason is paused negotiations due to COVID-19. But according to multiple sources with knowledge of the situation, whom The Logic agreed not to name as they were discussing sensitive commercial matters, OMERS’ conversations with these investors were not going well prior to COVID-19.
Damien Steel, OMERS Ventures’ head of venture capital, told The Logic COVID-19 is the main reason no other investors have committed to the fund.
“Those discussions were going great. And then COVID hit. And as soon as COVID hit, simply out of respect for those organizations and the challenges that we’re all facing, we decided to put those discussions on pause,” said Steel, adding that he plans to resume discussions when “current market challenges” subside.
But according to multiple sources with knowledge of the situation, whom The Logic agreed not to name as they were discussing sensitive commercial matters, OMERS’ conversations with these investors were not going well prior to COVID-19. At least one investor, Wafra, had previously reached a point where it asked to pull money out of Fund III, citing concerns about the departure of a number of senior OMERS Ventures staff, according to the sources. Asked if Wafra Group had asked to have its capital removed from Fund III Steel declined to comment, but said Wafra’s money remains invested in the 2017 fund.
When OMERS Ventures paused negotiations amid the COVID-19 pandemic, they had been in discussion with investors for several months without securing any commitments, according to multiple sources. Steel confirmed negotiations started in January but said they would typically take three to six months to conclude.
With a mandate to back firms in Canada, the U.S. and Europe, this marks OMERS Ventures’ first transatlantic fund. It’s the firm’s fifth since 2011, and will focus on early-stage investments.
The launch of the global fund follows a busy year for OMERS Ventures. The pension opened offices in San Francisco and London, and for the first time hosted a summit where its venture CEOs met with the chief executives of the pension’s other portfolio companies. However, it has made relatively few investments. “Everybody keeps asking because the view is that we’ve been quieter in the market,” Steel told The Logic in November 2019. “What I keep telling everybody is don’t let the press fool you. Just because we’re not out there making announcements doesn’t mean we’re not building an incredible team and making incredible investments.”
However, much of OMERS Ventures’ senior leadership has departed in the last year. Managing partner Jim Orlando left in 2019 to manage venture capital investments for the Weston family, followed by another managing partner, Sid Paquette, who is now leading an innovation division for RBC. At least five other senior staff have also left recently.
Steel said the new fund has already committed to eight investments, which either have closed or will do so in the next month. Two are in Canada, two in the U.S. and four in Europe. The Canadian investments will be the first new venture capital investments, excluding follow-ons in firms it has already invested in, that OMERS Ventures has made in this country in nearly two years. Steel did not say to which companies those commitments have been made.
The new fund will be used by staff in all three offices. Steel plans to invest about US$180 million, or one quarter of the fund, in Canada, with about US$300 million being deployed in Europe and about US$270 million in the U.S.
That’s a departure from the strategy the firm announced last year, which centred on a €300 million London-based fund, its fourth, with a mandate to invest exclusively in European startups. That fund, which has deployed about $100 million so far, will use the rest of its capital to make follow-on investments in portfolio companies.
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The reliance on OMERS’ own capital comes with a reduction in compensation for staff, sources told The Logic. OMERS capital comes with a 10 per cent carry, whereas third-party capital comes with a 20 per cent carry, according to a source with knowledge of the situation. The setup, which is common among venture capital funds, allows investors to share the risk of deploying new capital and boosts compensation for staff who can attract outside funds. Asked if OMERS Ventures was changing its carrying amounts for this fund, given the lack of outside capital, Steel declined to comment.