Lisa Melchior, a former managing director of OMERS Private Equity, has launched a new investment firm that targets a key capital gap faced by Canada’s late-stage tech companies.
Melchior, a 17-year OMERS veteran, founded VERTU Capital in November. She told PE Hub Canada the decision was inspired by her belief that many quality Canadian tech companies lack sufficient funding to leverage early commercial success.
“I spent over 20 years on Bay Street in an institutional environment, much of it leading OMERS North American technology group,” Melchior said. “When I left, I felt I wanted to work with entrepreneurial teams and tech companies seeking breakout growth and needing a partner to get there.”
VERTU will invest in innovative opportunities that have proven business models and $50 million-plus in revenue, and have “crossed the profitability threshold,” Melchior said. These will generally be B2B, non-cyclical companies executing scale strategies in a large marketplace.
It will focus “more on stage than sector,” Melchior said. Some preference will be given to opportunities in software, healthcare IT, industrial tech, tech-enabled services, medical tech and other areas.
Companies of interest to VERTU will be offered long-term partnership and the capacity to support organic and M&A-led growth through a range of deal types and capital structures.
While at OMERS, Melchior worked closely with several successful Canadian technology companies. They included Constellation Software, which became a tech giant by buying and building multiple rivals.
Melchior, who sat on Constellation’s board for five years, says its growth story shows what can be accomplished in Canada’s tech sector: “I come with the perspective that this can be done again. VERTU is looking for that next one, that next Constellation.”
Starting off with deals
Melchior is not planning to raise a fund right away. She will instead give priority to deal-making, sourcing late-stage opportunities in local pipelines, and deploying her own capital and capital secured from VERTU’s co-investors. The initial deal-size target will be $25 million to $50 million.
This approach will help validate VERTU’s thesis and lay the groundwork for assembling a team and raising a fund, she said.
VERTU’s asset-light operation will have access to considerable outside resources. Melchior says the firm will tap the global network of investors she developed at OMERS for advice and, when necessary, “to stretch a deal size” with additional capital.
Canada’s late-stage gap
Canada’s late-stage-funding gap has gained profile of late. A February report by a TMX-backed working group said under-investment in the growth-stage innovation space has resulted in “fewer large, mature companies.” The gap’s size was estimated at $4 billion, a sum that is expected to grow.
Conditions have not improved with robust venture capital trends. That’s because VC flows, reflected in the $3.7 billion invested in Canada in 2016, a 15-year high, have mostly benefited early-stage tech companies. Once startups enter the next stage of growth, the chances are good that they will run short of funds.
Melchior agrees this has been the pattern: “Without a late-stage capital solution, quality businesses often expand slowly or stagnate. Or they choose to go public or sell to a strategic buyer too soon.”
This suggests a major funding challenge awaits a number of Canadian startups emerging from 2016. Many of these companies can now be expected to focus on scaling further or exploring exit avenues, increasing demand for late-stage supply options.
Therein lies VERTU’s opportunity, Melchior said. In the months ahead, she aims to position the Toronto firm and its partners “to catch that wave.”
Last month, Melchior joined the board of real estate tech platform Real Matters.
Photo of Lisa Melchior, founder and president of VERTU Capital, courtesy of VERTU Capital