Lightspeed’s Series D and venture capital’s new pension power

Photo courtesy of cjp/E+/Getty Images

Canada has long had both cash-hungry startups and pension funds with an appetite for direct deals, but only recently have those two things come together.

Last week, Lightspeed, a point-of-sale solution for retailers and restaurants, raised $207 million (US$166 million) in a Series D financing to fuel its global growth. The round is the largest for a Canadian IT company in 25 years, according to Thomson Reuters data.

Caisse de dépôt et placement du Québec, a $287 billion pension system, led. The Caisse invested an outsized $170 million, buying out Accel Partners, a Lightspeed backer since 2012, and anchoring follow-on funding from iNovia Capital and other venture firms.

Within days of Lightspeed’s Series D, the Caisse again syndicated with iNovia in a $7 million investment in TrackTik, a provider of security management software.

Lightspeed and TrackTik are the latest in a series of large and small bets made by the Caisse on local innovative companies. They also mark a growing interest among formerly standoffish Canadian pension funds to invest directly in tech opportunities at home.

In fact, there are more examples of the trend in 2017 than at any time since the dot-com era.

In May, the $136 billion Public Sector Pension Investment Board made an initial foray into the ecosystem. PSP Investments agreed to supply D-Wave Systems, a quantum computing company, with up to $68 million (US$50 million) in convertible notes.

In the same month, Ontario Municipal Employees Retirement System, a pioneer of direct VC investing, upped its game with the $300 million close of its third fund. OMERS, which oversees $85 billion in assets, committed two-thirds of the capital.

Since the closing, OMERS Ventures has accelerated its deal-making, leading the $5 million financing of Klue, a provider of intelligence for enterprise sales, as well as the $18.4 million (US$15 million) Series A round of Manifold, a developer services platform.

More to come?

Canadian pension systems have a global reputation for their aggressive pursuit of solo deals and co-investments to support big deployments and high returns. Where such activity is VC-related, it is selective and conducted mostly overseas.

Chris Arsenault, Managing Partner, iNovia Capital
Chris Arsenault, Managing Partner, iNovia Capital

INovia Managing Partner Chris Arsenault says financings like Lightspeed’s indicate these investors are coming off the sidelines and leveraging their experience abroad in local venture deals.

“I think Canadian pension funds are starting to realize there are great, high-growth companies in their own back yard,” he told PE Hub Canada.

Arsenault points to evidence among his own limited partners, such as the Caisse, which have gained confidence from close observation of portfolio metrics and underlying startups. As a result, LP co-investments with iNovia expanded over the past 24 months to $365 million, including the Lightspeed round.

“It’s a domino effect,” Arsenault said. “A one-off investment can lead to something more. With growth in large rounds and secondary opportunities in Canada, we may see a very different landscape five years from now.”

For Canadian tech companies, access to the deep pockets of investors like the Caisse can be transformative, Arsenault said. It lends CEOs “greater optionality” and an ability to be single-minded about executing scale-up strategies and product road maps.

In Lightspeed’s case, “optionality” meant resisting acquisition offers and instead holding to its long-term goals, such as an eventual IPO. The Caisse’s role in the Series D was the “difference between selling now and building longer,” Arsenault said.

The OMERS model

Canadian pension systems steered clear of VC after the dot-com crash, when many racked up major losses. Things began to change in 2011 when OMERS Ventures launched as a life-cycle partner to local startups able to become world-class players and anchors to ecosystems.

Since then, the investor has deployed nearly $400 million to 36 companies, including big wins like Shopify, an e-commerce software provider that went public in 2015.

OMERS Ventures offers a model to other pension funds looking to participate directly. CEO John Ruffolo told PE Hub Canada in July he often fields queries from peers about strategies for creating tech exposure.

An alternative is the LP route where co-investments are on tap. Ottawa’s Venture Capital Catalyst Initiative, unveiled in March, should enable opportunities if it follows the example of its predecessor, which helped bring $900 million-plus of private money into the market.

Photo of piggy bank and coins courtesy of cjp/E+/Getty Images

Photo of Chris Arsenault courtesy of iNovia Capital