The 7 Questions Interview Series: Angels and Venture Capitalists

The 7 Question Interview Series is an investigative content series where I seek out key leaders in a specific industry and/or subject matter expertise area and ask them 7 key questions that “enquiring minds want to know”. There is a twist however to these questions. I provide the interviewee with a hypothesis for each question to help frame and set context for their answer. This specific series of interviews is ideal for startup founders.

Series Objective

The objective of this series is to establish direct connections with VCs and Angel Investors across the globe and ask them the same set of 7 questions regarding investing in technology startups. I’d also like to know what their appetite is for investing in Canadian startups and why they do or don’t.

Interview with Jim Orlando from OMERS Ventures

Here’s my sixth interview with Jim Orlando who is the Managing Director of OMERS Ventures.  OMERS Ventures is the venture capital arm of OMERS, one of Canada’s largest pension funds with nearly $61 billion in net assets.

When would it be appropriate for a startup to seek investment from you?

OMERS Ventures invests across the “lifecycle” of technology companies. We are best known for our “later stage” investments where we invest $10M or more in companies that have other institutional investors, significant revenues and can benefit from further growth capital that we provide. These companies include well-known Canadian companies such as BuildDirect, HootSuite, Shopify, Vision Critical and WattPad.

But these companies only make up one third of our current portfolio of 19 companies. Another third of the portfolio were Series A / B investments – companies that had some initial angel and/or friends and family investment, where we came in to provide additional capital in the $5m range or so to help continue to build the team, the product or service and the customer traction. In these cases we are often the first “institutional investor” in the business. Our investment in PasswordBox last year fit this category; PasswordBox allows end-users to have a single sign-on and consistent capability for most of the websites that they visit from whatever device they visit them from.

The final third of our portfolio consist of companies that are first-round startups – with $1M or less as an initial investment from us – and so were essentially “seed” stage companies at the time of our investment.

So – long-story short – we are fortunate to have enough capital to participate in the startup ecosystem at any stage of company maturity, and to continue to support the companies with additional capital as they grow and succeed through successive stages.

What’s more important: the idea, the team or both?

This is a common question that people have, and there is no simple answer to it. Conventional logic is that if you invest in great people, they will figure their way around market bumps and find the biggest and best opportunities to exploit.  Likewise if a team is going after the right market, then conventional wisdom will be that there is less risk since a large and growing market makes management execution less important.

For OMERS Ventures we balance all of the areas to determine whether a team and a company is one that we want to invest behind. If a team has had plenty of “been there done that” and investing their own money behind the direction they are going, then we are less concerned about the size and/or timing of the market opportunity.  On the other hand, if a management team is perhaps less fully formed but we strongly believe in the market then we could also move forward with investment.  Much of this depends on balancing the capabilities of the team, along with the size of the market opportunity and assessing the sustainable differentiation that the team is creating to seize that market opportunity.

What are you looking for in a startup team? What does a winning team look like?

As described above, we are looking to make investments in teams that can bring a differentiated solution to address a large market opportunity. This generally requires strong technologists who can do something different that others in the world cannot. But it equally includes people who know how to bring this technology to market.  It is this balance of differentiated technology, market knowledge and passion that are important in building a successful venture-backed company.

What are you looking for in an idea? What does a winning idea look like?

OMERS Ventures has a relatively large base of capital – our first fund, raised 3 years ago, was $200m and we will soon announce our second fund. In order to meet the requirement for venture returns on a capital pool of that size, we seek companies that are going after very large market opportunities, and that by definition will require a relatively large amount of capital and time to address that market.

As an example, BuildDirect is a company we invested in a couple of years ago. To the North American end-consumer or homebuilder, BuildDirect looks like an online retailer of home building materials such as hardwood flooring and tiling; this in itself is a multi-billion dollar market opportunity. But behind the scenes BuildDirect is building an infrastructure and capability to deliver any heavyweight or bulky good to any consumer anywhere in North America – which opens up an even larger long-term market opportunity.

This dynamic of being able to profitably grow into addressing massive market opportunity is key for the types of investments that we seek to make. Stated more generally, good ideas are those that involve addressing a large market opportunity with a sustainably differentiated means.

Does a startup have only one shot?

Absolutely not.  It is not uncommon for startups to start in one direction, interact with investors and/or potential investors, and then pivot into a slightly different direction to address a different and larger market opportunity.  We support and encourage this kind of movement and welcome the opportunity to interact with management teams over long periods of time.

Can you describe your due diligence and investment process? What’s important for a startup to know about it?

The diligence process that we undertake depends greatly on the situation. Some important factors include the stage and size of investment that we are considering. Smaller investments in sectors that we are very knowledgeable about with a management team that we have known for some time can go quite quickly – often measured in weeks prior to issuing a term sheet outlining the terms under which we would be interested in investing.

On the other hand, larger investments in larger companies require further diligence as they are typically at higher valuations and hence require greater “proof” of their customer traction. As an example, in the case of our investment in Shopify in late 2013, we were able to undertake a third-party market study to help validate the customer interest in the Shopify product solution; this involved speaking with 100s of users of Shopify and Shopify competitors. The results of this study gave us great confidence in the differentiated product set and untapped market opportunity that Shopify has.

In your view, is Canada a fertile ground for tech startups? If so, why and in what ways is Canada unique and competitive in this regard? Are you investing in Canadian startups? If so,why? If not, why not?

OMERS Ventures is very active in the Canadian market place. There is no shortage of passionate and talented entrepreneurs in Canada, who want to build world-leading companies from here in Canada and we are fortunate to be active in this ecosystem.

As an example, Wattpad is an online platform used by writers to publish to and interact with their readers anywhere in the world. In early 2013, millions of readers spent 6 billion minutes reading on Wattpad each month. Given that it is based in Canada, that user metric means that it is not only Canada’s most visited website but the user community is one of the most engaged in the world. The founders of the company built up the company over the years from within Toronto and have successfully raised capital from Canadian sources, New York-based sources and SiliconValley-based sources.

As more and more Canadian companies grow and succeed, we expect that that success will feed on itself to continue to grow an even larger ecosystem of entrepreneurs, technology talent and risk capital, and OMERS Ventures is proud to be part of that success in whatever way we can.

About Jim Orlando

In his role as Managing Director of OMERS Ventures, Jim Orlando is responsible for leading investment activities in the North American market focusing on high-growth companies in the technology, media, and telecommunications sectors. With more than 14 years of experience in the venture capital and private equity sectors, Jim has a strong track record of finding deals, closing investments, and in working with strong founders, CEOs and management teams on the ongoing development and growth of their businesses. He is responsible for OMERS Ventures’ investments in BuildDirect.com, Ranovus, Shopify and Wattpad.

Prior to joining OMERS Ventures, Jim was a Managing Director at OMERS Private Equity, which directly owns and actively manages a diversified, multi-billion dollar portfolio of investments in North America and Europe. Jim was involved with direct investments in the software, mobile telephony and retail sectors.

Prior to that he held key roles with Bell Canada Capital and Battery Ventures in Silicon Valley, and also has ten years of operational experience in the telecom industry.

Jim holds Bachelor of Computer Engineering and Management, and Master of Electrical Engineering degrees from McMaster University.

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Chris HerbertChris Herbert is the founder of Mi6. Mi6 is a B2B (Business to Business) marketing and business development agency dedicated to helping companies build their brands and develop commercial relationships. He is the founder of ProductCamp Toronto and the Hi-tech community Silicon Halton. He tweets under the handle @B2Bspecialist.

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