A status check on OV 3.0

FundApr 23, 2024

Written by OMERS Ventures Senior Managing Partner Michael Yang.

Six months ago, I posted my initial thoughts on OV 3.0. Now that we’ve had some runtime in this new world order, I thought I would share what we’ve seen and what we’ve learned about the market.

The venture capital market ended 2023 with a whimper and the key question going into 2024 was whether things were going to finally turn around. Given that OMERS Ventures is very much open for business, our main focus was on priming the pump and looking at as many deals as possible to get a sense of whether the tide was turning. In Q1, we met with nearly 700 companies which led to approximately 140 investment opportunities of which we are investing in 1 (not yet disclosed). We hope that Q2 brings us more opportunities and yields us more than just one new check.

It’s been over a year since our investment team shifted from a geographic coverage model to a sector-centric model. In Q1, 38% of our deal flow was vertical software related, 19% horizontal software, 17% fintech, 13% infrastructure software and 14% in all other categories. These deals were dispersed across North America, with the top 3 markets being the Bay Area, NYC and Toronto. In many ways, that’s not surprising — every league table we’ve ever seen on where venture deals are getting done has the Bay Area at the top and NYC a solid #2. We only have one investment professional in NYC who just moved there over the holidays, so NYC being our #2 geo means our Toronto and Bay Area teams hustled hard to help cover it. Toronto as #3 speaks to our heritage and investment professionals from all offices sourcing deals there (most lists would have LA as the 3rd North American market for deals done and Toronto somewhere further down in the Top 10).

Where have we been spending time and looking to invest? Our Horizontal Software team has been pushing hard on all things HRtech. In March, we assembled Chief People leaders across our portfolio and beyond at the Transform conference in our inaugural HR Confidential event. If you’re a People/HR leader who is interested in joining our peer community here, drop us a line. If you’re a founder building something novel in talent acquisition, compensation, people analytics, global employment, or the learning cloud, let’s talk. Our Fintech team has recently spent time in financial wellness and the whole quote-to-cash billing cycle among other areas of interest. We’ve added more firepower with the addition of Ryan Zauk, and continue to foster community in the insurtech market with our weekly get-together, Insurtech Rap. If you are innovating in anything insurance related, you should check it out. We were at CIX Summit in March and will be out in full force at Money20/20 and InsurtechConnect in the fall. Our Vertical Software team has been pondering the impact of AI on industry-specific software applications and where to invest, while inviting founders to practice their pitches in The Green Room. We’ve spent time on software for the legal, dental, automotive industries to name a few. Be on the lookout for a landmark benchmark study on vertical software operating metrics that we are conducting and will look to publish around SaaStr.

HR TransformInsurtech Rappers

The only reason our investment team can spend so much time on the front foot is because we spent a lot of time last year in the trenches with our companies, and arrived at a place where we feel confident going into 2024 that they would be durable. We’re proud that our portfolio has seen the fruits of their labor with numerous financings and M&A: Foresight Risk and Insurance Services, the workers’ compensation insurtech, forged a strategic partnership and raised a round of financing from QBE, one of the world’s top 20 insurance and reinsurance companies. Flagstone, the cash deposit platform, raised one of Europe’s largest fintech financing rounds from financial services private equity firm Estancia Capital Partners. Altana Technologies (single source of truth for global supply chains), Container xChange (marketplace for container logistics), and Clearcover (personal auto insurtech) raised from insiders based on continued business progress. Our European portfolio had its first significant exit when Zendesk came calling to buy Ultimate.ai to drive its customer service AI agent strategy while in North America, Hootsuite acquired Talkwalker doubling down on social listening. Given the line of sight we have into other M&A conversations happening across our portfolio, it definitely feels like this portion of the market is turning around.

So what’s on deck for OV — adding more new faces in brand new roles. In March, we hired Darrell Etherington in a first-ever role at OMERS Ventures — Head of Network Development. He’ll be responsible for continuing to nurture and expand the OV network, especially through conversation and story telling. Right now, we are hiring a relatively new role in venture capital — at OV or elsewhere — Deal Operations. Think what Sales Ops or Rev Ops is in a B2B software environment, and transpose that function to venture investing. Over the last couple of years, we’ve built our own proprietary technology stack that runs our Monday deal meetings, manages our deal flow pipeline, warehouses everything we need to know about our investments, and provides insights across the 5 different venture funds that we manage here. Now we need someone who is going to work with the investment team and ensure we are seeing the right deals for our investment strategy, backed by solid and reliable data. Lastly, with all the exciting advancements in AI, a brand new technology stack is emerging. To that end, we have been conducting a search for a new Investing Partner to focus on Infrastructure Software who will stand up a new practice seeking investment opportunities lower in the stack in databases, middleware, AI infrastructure, developer tools and cybersecurity. We will announce these team members in due course.

Sitting here in mid-April, we are hopeful and optimistic for 2024. But the market is confusing — on one hand, lots of start-ups are struggling to get funded, while others are nabbing headlines that make you want to check that we didn’t time travel back to 2021. The IPO window is cracked ajar but we need to see movement with the backlog of companies that could go out. M&A is happening but not at blockbuster levels — just meat & potato exits in more rational consideration ranges. Macro-finance types are worried about the multitude of unfortunate global conflicts, the pending US elections, and the inflation-interest rate see-saw. All we can do here at OV is keep our heads down and look for great companies as we have dry powder that we’d love to put to work. If you’re a horizontal software, vertical software, infrastructure software or fintech business that is growing rapidly and could use a $5–20M lead/follow check in a Series A/B or occasional C, we’d love to chat.

Here’s to an equally busy next couple of quarters!

Team photo