The days of tumbleweeds blowing across Canada’s parched venture capital landscape will soon be numbered, if John Ruffolo has anything to say about it.
And Ruffolo, one of six new members of Communitech’s board of directors, has plenty to say - not to mention $200 million to invest in companies on behalf of the Ontario Municipal Employees Retirement System (OMERS).
OMERS, which manages $55 billion in investments for 400,000 current and former municipal workers, set up the $200-million OMERS Ventures fund in October, with Ruffolo at the helm as the fund’s CEO.
Since then, he has been an outspoken advocate for an improved financing strategy for Canadian companies, not just during the startup stage, but throughout their life cycle.
With a large fund under his management, Ruffolo told Communitech that OMERS intends to do its part by investing long-term in promising ventures – including those in Waterloo Region that he will soon get to know through his board membership.
Q – What is the most pressing issue when it comes to financing tech innovation in Canada?
A – Having the availability of capital to actually finance those opportunities.
Q – OMERS is clearly doing a lot of work in that direction. How will you meet this challenge?
A – What we’ll bring to the table is the largest available capital pool, from a venture capital perspective, in the country. We hope to help fill some of the gaps that have been apparent in Canada over the last number of years.
Q – Why has no one in Canada jumped in to fill this gap before?
A – All of the pension funds have been, and continue to be, invested in many venture capital funds for many years. The difference is, we decided to go direct and build our own in-house venture capital fund.
The challenge in doing that from a pension-fund perspective is that, because the pension-fund capital pools are very, very large, and the allocation to venture capital is relatively small, it’s difficult to focus in on this asset class when you can deploy a lot larger amounts of capital on a more efficient basis.
For us, it required us to hire all new people into the organization, because OMERS did not have the individuals available in order to do direct investing. So it really requires completely out-of-the-box thinking.
Q – Why does it seem to be more difficult to raise capital in Canada than in the United States?
A – The biggest challenge in Canada is there are very few sources, as limited partners or as investors, to finance venture capital funds, whereas the availability of capital in the U.S., just generally speaking, is far more abundant. But they’re suffering a similar challenge as well in the U.S., in that capital being available for investors to invest in this asset class is actually shrinking there, as well.
We’ve just gone through a critical low point.
Q – Of the $1 billion in VC funding invested in Canada each year, roughly one-third comes from American investors. Does Canada need to rely on American investment to the extent that it does?
A – I’m okay with that. We’re not intending to replace the American portion; what we’re intending to do is supplement the lack of domestic capital.
With the U.S. capital coming in, they’ll look at selective deals, but it’s in no way a replacement for the number of quality deals that we see in this country, as venture capital still tends to be a very localized business.
Q – While startup activity is robust in Canada, reaching that next stage and becoming an established company remains a challenge for many. Will your efforts at OMERS be directed to helping to solve that issue?
A – Yes. The core of the strategy is to be a life-cycle investor, and what that means is, coming in very early at the seed stage and being there for all successive rounds of financing, right to ultimate profitability or a liquidity event.
Q – A lot of great tech companies have started in Canada but exited early through acquisition by better-known international firms. Does this not create a problem, in that the world might not appreciate the full potential of Canadian innovation?
A – That’s exactly right. So, the idea for us is, we’re here to build very long-term, sustainable companies, and we are very patient capital. So we’re here to build large, sustainable companies. We’re here to help build the next RIM.
We are certainly trying to help with a view that if you don’t have available long-term capital, your business model will perhaps push you towards selling out earlier than you would like to, because you can’t compete from a capital perspective.
So, what we would like to be doing is giving people the opportunity to actually want to build that long-term business, because we actually have the capital to compete against any VC in the U.S., for example, from a capital-size perspective.
Q – You said the same thing to the Senate committee this week, and it seemed a bold statement, that Canadian VCs can match any amount an American VC might invest.
A – The largest U.S. VC has $1 billion in capital. We (at OMERS) have $55 billion, so $1 billion in capital from a U.S. VC is not an intimidating amount of capital.
What I would like to see is Canadians seeking capital outside of Canada for strategic value reasons, not just because they can actually just cut a bigger cheque.
Q – What brought about your appointment to Communitech’s board?
A – First of all, Waterloo Region is in our backyard, and when you see what has happened with Waterloo Region and the quality of the talent, particularly around the University of Waterloo, Waterloo Region is one of our highest priority cities in the country.
With what we’ve seen Communitech do, I think they have perfected the model of truly supporting the community, and we (at OMERS) just want to be part of that.
Q – What role do you see Communitech playing on the Canadian and global tech landscapes going forward?
A – I think it’s going to be the source for a lot of new, young, entrepreneurial talent.
It already has a reputation outside of Canada as a place to focus in on.
Q – Does your appointment to our board mean more venture capital for Waterloo Region companies?
A – That’s what our intention is.
I want to be a part of it, and I actually want to see some of these very early companies, and hopefully, put some capital to work there.
Q – What is Canadian tech’s relationship with Silicon Valley now, and what do you think it should be?
A – I think that from the Silicon Valley perspective, Canada has a reputation for spawning some very great technologists, particularly from a technical and engineering perspective.
We’ve become a breeding ground for acquisitions of that technology. What we need to do to take it to the next level is to be viewed as a place where companies small, medium and large can actually be spawned, and be viewed as a large-scale partner for a lot of the technology innovation that’s going on around the world, as opposed to simply a breeding ground for acquisitions.
I think that’s really where we need to get to.