Innovation really matters in the world of investing. Just ask Jim Orlando.
As a managing partner of OMERs Ventures, he should know. His investment fund, the Ontario Municipal Employees Retirement System is a direct investor across all its asset classes, but as it got bigger, it was missing a lot of growth opportunities below $100 million.
And that led to the establishment of its venture fund.
The fund, set up recently with locations in Toronto, New York and San Francisco as well as London and, more recently, Asia and Australia. It has the venture capital or early stage technology investment mandate from his company’s pension fund.
How does it work?
His business is to invest in disruption, explaining that at early stages, when there is not a lot of capital at risk, it makes more binary bets. That is its direct mandate.
And, when it comes to identifying new opportunities, he says it’s “more of an art than a science.” The goal is to stay on the cutting edge of technology.
With about $400 million at work in venture capital, OMERs has another $600 million allocated for further similar investments. Much of this is focused on early stage technology companies, quite literally startups, with as little of $70 million per company, going up to $100 million. Right now, most of the investments are in North America, but expansion has started into Western Europe.
Interestingly enough, the investments have involved “quite literally two smart people and a Powerpoint presentation with a good idea.”
“The focus of the investing is really on companies that can be real ground breakers,” he says. “So the returns that we need to think we can hit when we invest in an early stage technology startup is something like 10 times our money.”
“We think the disruptive technologies are here to stay.”
Then he showed a prime example. Fifteen years ago, there was only one company in the top five by market cap — Microsoft. At the end of the year, the top five companies — Apple, Amazon, Microsoft and so on — were all technology companies.
The key to this kind of investment? “Having that inside knowledge about what’s going on in technology and what the impacts are on the remaining 99% of the pension fund,.”
OMERs Ventures has put 40 companies under management within the venture portfolio; 30 or so of those are in Canada. The initial investment of around $400 million has drawn an additional $2 billion of investment into all the different startups.
The result? “From a marketing standpoint, our ability to drive the innovation economy within the country has been very positive.”
“The waves of innovation that we talk about are happening even more quickly than ever before.”
The technology waves have essentially uprooted specific industries — and will continue to do so. Example? Amazon, which started as an online retailer and grew to such an extent that it put bookstores, such as Barnes & Noble, out of business. Same with Netflix, whose technology caused companies such as Blockbuster to go bankrupt.
Same with Uber. Or Air BnB. And blockchain as well as Bitcoin.
“What we’re kind ion going is initially the short of high impact companies.”
Investments in artificial intelligence have played a large role in his thinking. He showed how Google, which stores every search you’ve ever made, can be used to find all sorts of items and stores that you’ve looked for in the past.
Even automobiles use massive AI data, giving updates on traffic, weather and technical problems — and when startup companies invest in those kinds of technology, OMERS becomes interested in investing in them.
Quantum computing is the wave of the future. Quantum computers are a totally different technology that isn’t commercially available yet, but predictions are that it will emerge within the next five – 10 years. And OMERs Ventures has invested in it — as well as in synthetic biology .
Where is this all going? Mr. Orlando says OMERs Ventures has a five to 10 year view and believes that it will be on the cutting-edge of encouraging, promoting and investing in technology — all leading to outstanding returns.