Growth Equity Investing in Canadian Technology

Lisa Melchior:

Thanks for having me.

Elana Margulies-Snyderman:

Absolutely. So, to kick off the conversation, tell us a little about Vertu Capital and how you got to where you are today.

Lisa Melchior:

Sure. Well, Vertu is a Toronto-based private equity firm focused on the tech sector. I've been a tech private equity investor for just over 25 years now and about 20 of those years were spent at a couple of very large global financial institutions in Toronto, based in Toronto, but I'm always investing globally. I started my career at a merchant bank called CIBC Capital in the '90s and spent most of the 20 years at OMERS, which is a large pension fund where we built an in-house GP, and I was responsible for investing in the tech sector across North America. So, with that as background, as I was investing all over the world, I am observing that the Canadian tech market was growing and flourishing and there was really an absence of local private equity, experienced private equity investors addressing our market. I was seeing all of the competitors that I was used to competing with in the U.S. market come up to Canada and really acquire our best businesses. And so, I thought that really struck me as an opportunity that should be addressed. And I left OMERS in 2016 and I launched Vertu in 2017. Did the independent sponsor thing for a couple of years and then launched my first Fund I. So, it's been a journey and I'm excited about where we're at and where we're going.

Elana Margulies-Snyderman:

Well, congrats on your journey, Lisa. Given your focus on growth equity investing in Canadian technology businesses, I'd love to hear your high-level outlook for the space.

Lisa Melchior:

The thesis behind Vertu to start with was that Canadian tech was running about 10 to 15 years behind the U.S., in terms of maturity of the ecosystem. And what that meant was we were really seeing the establishment of some really strong venture capital investors who were, I call them planting seeds. They were planting seeds in tech companies across the country and those seeds were growing and I was really observing a lot of exciting tech companies scaling and growing. And the exciting thing is that, and that was really the thesis behind Vertu, the exciting thing is to see it all play out. So, fast-forward to today and we have hundreds if not thousands of targets in our pipeline, which exist across the country. So, we have had interesting tech companies from coast to coast with the real concentration of them being in the largest financial markets in and around Toronto, Montreal and Vancouver. But the exciting thing is that Canada's great at building and starting technology businesses. So, with that, our pipeline continues to grow, and we have more and more opportunities in the future.

Elana Margulies-Snyderman:

Lisa, as a follow-up, I'd love for you to specify some of the greatest opportunities you see in this space.

Lisa Melchior:

Sure. Well, and I should also clarify that we are B2B, or enterprise software and software enabled business investors. So, with that lens, Canada tends to punch above its weight in terms of fintech. Maybe it has to do with the strength of our banking industry, but we have quite a bit of fintech opportunities in our pipeline. With that, comes payments, general B2B SaaS companies really exist all over the place. What your listeners actually may or may not know is that Canada was funding AI research at three of our core universities for well over a decade. So, we have real talent in the AI space in Canada naturally based on that fundamental research. And with that, means that there are many more AI businesses being started and scaling, which ultimately will become opportunities for us.

Elana Margulies-Snyderman:

Great. Lisa, on the other hand, what are some of the greatest challenges you face in your investing space and why?

Lisa Melchior:

The biggest challenge we face is scale. Canadian companies have historically been acquired very early, disproportionately early relative to the U.S. market. So, we don't have a ton of Canadian companies and management teams who have scaled businesses to $50 or $100 million dollars of revenue. And that is the biggest challenge because that's the journey that we like to take our businesses on. We like to invest in them when they're in and around $20 million of ARR, recurring revenue, and bring them on that journey to $50 or $100. And really just finding the talent and growing the talent that can do that is one of our bigger challenges right now.

Elana Margulies-Snyderman:

Lisa, to shift gears a bit, ESG has been top of mind and I would love to hear how Vertu is addressing us.

Lisa Melchior:

Yeah, it's an interesting question because ESG is really woven a lot into the fabric of our business. I'd start just by saying that E, environmental footprint of a software investor is just naturally really small with the one caveat being that AI is a very energy consumptive alert model. So, the energy requirements of AI businesses is growing and we are starting to measure that within our portfolio. On the governance side, it is also a core part of our thesis when we invest in our businesses to really up level their governance posture. So, that's really inherent in what we do. And then on the S part, on social, being who I am, I guess, meant that I was really focused on building a firm that I always wanted to work at, which means one where diverse perspectives were encouraged. And diversity, for me, it means people from all kinds of backgrounds and learned experiences, which has meant that we have a very diverse team just by definition. And that's again, inherent in what the kind of firm I wanted to build. I do think it leads to better decision making. If you can have a really honest and open culture and listen to each other and have high levels of trust, then I think that leads to the best decision making. All of that trickles down to our portfolio companies in a way. I call it self-selecting. So, a portfolio management team or founder who wants to partner with Vertu, it's typically because they share the same view of the world. So, all of it is, as I said, very much in woven into the fabric of Vertu and who we are.

Elana Margulies-Snyderman:

Lisa, being a woman money manager in the business in Canada is quite rare and love to hear your thoughts on what you're doing to inspire others to follow in your footsteps.

Lisa Melchior:

It's unfortunate that it's rare. Having been in this business for over 25 years and not see the needle move very far has been tough, but it was one of the big motivators for me to start Vertu and to be very visible. So, one of the things I'm doing is getting out there and being visible and encouraging women to choose this as a career, but more so stay in it as a career. I think like many careers, we have a fair amount of attrition at the mid-level, which is a problem. We're not going to get more women running firms if we don't keep women at the mid-level. So, that is my real focus, is women at the mid-level in our industry. In addition to doing kind of official and unofficial mentoring with women across the country, I am involved in an organization, PEWIN, that you may know that's launching a program that's really targeted at that mid-level. It's called the Ascend Program, and it's meant really to help those women through that part of their journey. And I'm leading that initiative in Canada.

Elana Margulies-Snyderman:

Very inspiring, Lisa. We've covered a lot of ground today and wanted to see if there are any final thoughts you would like to share with us.

Lisa Melchior:

Well, thank you for having me and for shining a light on Vertu. I appreciate the opportunity and look forward to maybe more stories in the future as we grow our business.

Elana Margulies-Snyderman:

Absolutely. Lisa, I want to thank you so much for sharing your perspective with our listeners.

Lisa Melchior:

You're very welcome. Thanks.

Elana Margulies-Snyderman:

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

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