OMERS Ventures, the venture capital arm of the Ontario Municipal Employees Retirement System, has opened two offices in Silicon Valley and San Francisco as part of an expansion aimed at investing in US startups.
The new offices in San Francisco and Palo Alto/Menlo Park for the more than CA$95 billion (US$72.5 billion) pension system’s venture program represents a shift from the program’s previous primary focus prioritizing investments in Canadian startups. Investments in Canadian startups have made up 80% of OMERS Ventures’ investments, show OMERS statistics.
“We are proud to operate on a ‘Canada-first’ mandate,” said John Ruffolo, former CEO of OMERS Ventures, in announcing the close of OMERS Ventures Fund III in May 2017.
Now the pension plan has not only opened the California offices, but also plans to have venture capital (VC) officials based in London to source deals in Europe.
Michael Yang, who is running the Silicon Valley office as a newly hired OMERS Ventures managing partner, told CIO that the US offices are part of a global expansion of the VC program. He said having two Bay Area offices puts OMERS Ventures in the heart of the tech-startup ecosystem.
“The advantage of being on the ground here is being closer to deal flow,” said Yang. He says this will allow OMERS Ventures to find promising startups not only in the Bay Area, but across the US.
Yang, a veteran VC investor, was a managing partner at Comcast Ventures, based in the Silicon Valley. Michelle Killoran, a principal at OMERS Ventures, will relocate from Toronto to California to join Yang.
It’s unclear how much money the US team will have to invest in startups. Yang said it will depend on the deals that are sourced.
OMERS Ventures was founded in 2011 and has raised CA$800 million through three funds. Yang said the latest fund, Fund III, has invested CA$150 million of the original CA$300 million.
Yang said that he and Killoran will first focus on finding potential investments for that fund before moving on to source new investments for subsequent funds.
Yang said OMERS Ventures will look for multi-stage investments in early venture, mid-venture, and late venture companies.
OMERS Ventures is unique in the world of pension plans. It is its own venture capital firm, acting as a general partner, then finding limited partners who act as co-investors in its funds. For example, Fund III co-investors include BMO Financial Group, CIBC, National Bank of Canada, Sun Life Financial, TD Securities, and The Wafra Group.
OMERS hasn’t disclosed the financial arrangement for OMERS Ventures, but normally venture capital firms get 20% of the profits for managing the venture funds even though they only put up a small percentage of the fund’s capital.
OMERS Ventures’ successes include its investment in Shopify, a Canadian e-commerce platform. It led a CA$100 million funding round in Shopify in 2013. The company had a valuation of CA$1.2 billion when it went public in 2015.
The OMERS connection to the US through its planned Silicon Valley office is an indication of the increased interest in venture capital investments by pension plans, Ben Meng, the new chief investment officer for the California Public Employees’ Retirement System (CalPERS) told CIO.
Meng said that interest is being spurred by increased opportunities in private markets.
“There are more and more companies staying private for longer and before they become public, so much wealth accumulation has already happened, and if you do not invest in private markets, you’re losing out the opportunity of capturing that,” Meng said.
CalPERS, the largest US pension plan with more than $345 billion in assets, is planning its own venture capital investment program. The pension plan, however, plans to limit its investment to late-stage companies in the tech, natural sciences, and healthcare sectors. Those investments are considered less risky because companies have already established themselves, though the opportunity for large-scale investment gains is more muted.