OMERS Ventures ramps up with Howard Gwin & Derek Smyth

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It’s has been a long time since Canadians have seen the creation of a new 200MM+ venture capital fund. It was back in June 2010 that OMERS announced the creation of the INKEF fund. OMERS and ABP have since gone their separate ways with ABP running INKEF Capital focusing on high tech startups in the Netherlands. And OMERS creating OMERS Ventures focused on “investments in the Technology, Media, Telecommunications, Clean Technology and Life Sciences sectors in Canada and the US”.

A little more than a week ago, OMERS announced that they had hired Howard Gwin (LinkedIn, @howardgwin). Who I’ve been quoted as saying “he really is the best VC in Canada”, mind you Howard was buying the drinks at the time…

And it looks like they have added fellow Edgestone alumni Derek Smyth (LinkedIn, @derekjsmyth). ~~I’ve heard the announcement is due later today, but~~ OMERS Ventures announced Derek Smyth as part of the team today, Derek’s profile is already part fo the team at OMERS Ventures. Derek is another rockstar going to OMERS. Prior to joining OMERS Ventures, Derek co-managed two VC funds at Edgestone Capital Partners. He also has operational experience that includes his former roles as President and CEO of solutions provider Bridgewater Systems, and as COO of California-based Ironside Technologies Inc.

Derek and Howard were instrumental at Bridgescale in running the Digital Puck and Mentor Monday events that helped connect Canadian entrepreneurs. I’m hoping that these guys continue to invest in connecting, engaging and supporting all entrepreneurs (along with their portfolio). The ongoing support of the C100 and AccelerateTO already show that OMERS has a larger operational budget that allows them to support and sponsor community activities.

The future looks bright for OMERS Ventures.

The Changing Landscape of Venture Capital

Editor’s note: This is a guest post by Kevin Swan (LinkedIn, @kevin_swan). Kevin has cut his chops doing product management at Nexopia.com before becoming it’s CEO. He moved to the dark side with Cardinal Venture Partners and is now a Principal at iNovia Capital. Thankfully he is an MBA dropout and that’s why we like him. Follow him on Twitter @kevin_swan or OnceABeekeeper.com. This post was originally published on November 4, 2011 on OnceABeekeeper.com.

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There has been a lot of discussion recently on the changing landscape of venture funding and what it is leading to. I thought that it would be worth digging into this a bit and, as most of the discussion and data is from the United States, put a Canadian spin on it as well.

There are two driving factors that are shaping the current startup landscape – the extremely low barriers and costs to start a tech company and the availability of seed or angel funding. Now, I am the last one to think that there should be any barriers to starting a company, but you need to make sure you are not just starting a company because you can. You need to know what you are getting into and, if you plan to raise any capital, know what is lying ahead.

The number of new startups we are seeing has been increasing at an alarming rate over the past couple of years across North America. Did you see Paul Graham’s recent tweet that Y Combinator was receiving an application a minute? All that starting a legitimate company takes these days is a couple of smart people with computers. Getting to the next stage is a different story though.

The seed and angel funding market has exploded with many new “super angels” as well as emerging seed funds entering the space. It was joked that a Google engineer could quit, walk onto the street and get a $500K angel investment to start a company. This is not far from the truth as anyone in the upper echelons of web development and design talent has a good chance of getting seed money these days.

So, what is starting to happen to all these companies? Well, like most startups, they need more money. Some need money to fuel massive growth – these rounds have turned into highly competitive financings and are attracting crazy valuations. However, most (~99%) are going to run out of money while showing some progress, but not enough to have VCs scrambling to write checks. To make matters even more challenging, VC fundraising continues to drop to levels not seen since before the dotcom boom. This scenario is even more alarming in Canada.

Despite all these changes one thing still remains – it costs a lot of money to scale a company. Sure getting started is cheap, and that is great, but you are eventually going to need money to build a big business. If you are really fortunate you will be able to do this through sales, but few have that opportunity. The result is a large demand of startups needing Series A and bridge funding and a smaller supply of available funds. Many believe that this is a healthier environment as the returns of venture capital since the dotcom boom have been less than desirable as the industry became bloated. It is important to know that most VC funds have a 10-13 year life so all that money raised in the late 90s and early 2000s is just now starting to wind up.

So what about Canada?

Well, whether you believe it or not the border is becoming much less relevant when it comes to venture funding so Canadian startups (and VCs) are all in pretty much the same boat. The complaint most commonly heard in Canada is that there is not enough early-stage funding. I disagree. Great companies in Canada are getting funded and acquired. However, with the increased competition for Series A funding there are a lot of good companies that won’t be able to raise money. This does not mean that they won’t be successful, but they are going to have to take a path that doesn’t rely on venture funding. Unfortunately many don’t plan for this reality.

With all that said I, like many, are concerned with the direction venture capital fundraising is going in Canada. While it is great that US funds are now starting to ramp up investing in Canada they usually do it alongside Canadian funds – such as the recent case of Union Square’s investment in Wattpad alongside Golden and W Media. Also, Canadian funds are valuable in actively recruiting US funds into local companies. While it is great having talented investors from the US active up here it does not replace the feet on the ground that are needed and Canadian investors fill.

Summer’s over, but it feels a little like Spring

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Editor’s note: This is a cross post from Let the Sparks Fly! written by Mark Skapinker. It is a delightfully positive outlook on the prospects for the Canadian startup union. Mark is Cofounder and Managing Partner at Brightspark, which earlier this week was awarded CVCA’s deal of the year award.

Normally this is the time of the year that really stresses me out. It is late September in Ontario, summer is over, the leaves are starting to change colour, and while it is still pretty nice out, it’s real clear that it is downhill from here to winter, with warm days more than seven months away.

But something in the local tech industry feels a little different, and it feels like things are getting better. Some of us have been lamenting the state of the Canadian VC industry for years now, and Rim’s woes should by all rights make the local scene seem even bleaker – but people in the industry don’t seem to be listening. A whole lot of activities that are happening seem to signal an awakening spring and everyone seems just a little more optimistic.

Of note are more entrepreneurs pitching really interesting offerings. I keep meeting Canadian entrepreneurs with great ideas, great opportunities and a yearning for success.

Surrounding that are a number of exits from local companies – most notably (for the industry and especially for us at Brightspark, where we saw more than a 23X return on our investment) is the Radian6 sale to Salesforce.com. This exit proved that great, money-making businesses can be hatched in Canada with local talent, local VCs and a positive outcome for the local economy. Add to that a series of other small acquisitions along with some interesting exits.

And then there are the new micro-funds which are growing despite the stalling of the traditional industry, with experienced and talented managers helping a new series of companies – I am referring to our colleagues – Duncan and Robin at Mantella; Matt at GoldenVP; the teams at Xtreme, bnotions and Real Ventures; Daniel at Klass Capital; Bill Dinardo; and Joel at Trilogy; all who are making a very meaningful difference to our industry. MaRS is expanding, IAF is investing, I hear some traditional Canadian VCs may be finalizing new funds, and the government funds continue their part in providing capital.

We aren’t out of the woods yet, but it definitely feels like now is a great time to be part of the Internet, software, mobile, Cloud, and payment industries. Markets are growing, and these industries are creating value while the rest of the economy questions itself. If this really is a marathon, now is a great time to be heading out.

If we can keep up this momentum and deliver a few more winners, we may look back at this time as the period when the new Canadian industry started thriving.

At Brightspark, we remain thrilled with our VC fund’s performance. Our multiple exits puts our performance way ahead of top quartile funds anywhere in the world. And we think the remaining companies in our portfolio have the potential of taking our fund to new levels. Our focus on investing in great teams, markets we understand, and with an early stage fund of entrepreneurs helping entrepreneurs is paying off really well.

To those people who have written off our participation in the industry, we continue to focus on remaining a significant part of this industry, and we think the next few years could be very exciting for our funds and the Canadian industry.