Venture Capital’s Nuclear Winter

nuclear winterVenture capital in Canada has been struggling to recover from the 2001 bust, an event that triggered a 10-year “nuclear winter” in the innovation space according to John Ruffolo, CEO of OMERS Ventures. He was a keynote speaker at the 2014 Investment Innovation Conference in Palm Beach, Florida, held from November 4th-6th.

As Ruffolo explained, between 2000 and 2010 venture capital invested in Canada dropped by over 80% from $5.9 billion to $1.1 billion as financial institutions, pension funds, and other sources of capital exited the space en masse.

To tap back into the innovation potential in Canada, OMERS launched its venture capital arm in 2011 because, said Ruffolo, the pension fund was convinced that the lack of capital in Canada had created an opportunity to achieve “super” alpha returns. Since then the pension fund has had some high profile investments like buying a stake in Vancouver-based social media company, HootSuite, and e-commerce platform, Shopify.

Importantly, OMERS’ venture capital arm has a different governance structure – investment decisions are made quickly, often in 24 to 48 hours. One of the big challenges for pension funds says Ruffolo is creating a nimble enough governance structure to be able to make the quick decisions that are often necessary in the venture capital space, where things move fast.

Governance a challenge in working to match pension funds –with their long-term patient capital — to the companies that really need it.

Said Ruffolo, OMERS has invested $250 million in 22 companies over three years with three exits. When asked if that level of investment moves the needle when it comes to the pension fund’s total investment portfolio, Ruffolo noted that its exits have paid for all the operating expenses of the venture capital arm to date.

However, the main impact will be on the overall competitiveness of the Canadian economy “when you create with little dollars massive social and economic impact on Canada,” he concluded.