Lisa Melchior, founder and managing partner at Vertu Capital, joins BNN Bloomberg to discuss her outlook for investing in the Canadian tech sector following the SVB banking saga. Melchior says that macro economic factors have had a cooling effect in private equity over the past year, culling excess companies after a 10-year bull run. She discusses her criteria for tech investments and her hopeful outlook for private equity investments in Canadian tech this year.
See the interview here.
Mar. 08, 2023 by CVCA Staff
Toronto, ON – March 8, 2023 – The Canadian Venture Capital and Private Equity Association (CVCA) is pleased to announce the winners of the inaugural Canadian Women in Private Capital Awards, which celebrates exceptional women who have shown a dedication to professional excellence in the Canadian private capital industry.
The Canadian Women in Private Capital Awards are separate from CVCA’s general awards program and aim to identify, recognize, and celebrate the achievements and contributions of exemplary women in the industry. Winners will be recognized during a sold-out morning reception event, sponsored by CIBC Innovation Banking, in celebration of International Women’s Day.
CVCA’s Woman of Achievement Award recognizes outstanding Canadian GPs and their dedication to elevating the performance and leadership of women in the Canadian private capital industry. The winners of the Woman of Achievement Award have shown dedication to raising the bar for performance by women in the industry, have had a significant impact on innovation and value creation and have contributed meaningfully to improving gender diversity in the industry and beyond.
The 2023 winners of the CVCA’s Woman of Achievement Award are Whitney Rockley from McRock Capital, who won the award for venture capital (VC), and Lisa Melchior from Vertu Capital, who won the award for private equity (PE).
Whitney Rockley is a Co-Founder and Managing Partner at McRock Capital. With over 20 years of experience in the industry, Rockley has been instrumental in building McRock Capital into a leading investor in the digital industrial sector. She is also passionate about supporting women in entrepreneurship and as the first woman to serve as Chair of CVCA since its inception in 1974, she spearheaded the establishment of the inaugural taskforce on diversity and inclusion. This initiative was instrumental in creating CVCA’s Diversity and Inclusion committee that she skillfully led for many years. With a fervent conviction that diverse teams deliver superior performance, she is a powerful advocate for these initiatives within the technology and private capital communities.
Rockley has achieved several notable accomplishments in recent years. Rockley was instrumental in raising two oversubscribed funds for a total of CAD $200M. McRock has also made successful investments, with one of its portfolio companies, ThoughtTrace Inc., being acquired by Thomson Reuters in Q1 2022. Additionally, mnubo was successfully acquired by AspenTech in 2019 and Decisive Farming was acquired by Telus later that same year. Rockley was the Chair of the Board of Directors of Decisive Farming and a member of mnubo’s Board of Directors.
Lisa Melchior is a trailblazing Founder and Managing Partner at Vertu Capital, where she is the first woman in Canada to start a private equity fund. With over 20 years of experience in the industry, Melchior has invested more than $1.5 billion in 25 technology companies over the course of her career, becoming a well-respected figure in the private capital ecosystem. She is also a staunch advocate for promoting diversity in the industry, having built a highly diverse team, and having mentored many women in private equity over the past two decades.
Melchior has achieved several notable accomplishments in recent years. In 2021, Melchior and her team launched Vertu Partners Fund I, targeting growth to lower mid-market technology companies, a previously underserved market in Canada. Under Melchior’s leadership Vertu has grown quickly, having led several successful investments, with one of its portfolio companies, Firmex Inc, sold to strategic buyer Datasite in Q3 2021.
Read the full announcement here.
LISA MELCHIOR
CONTRIBUTED TO THE GLOBE AND MAIL
As pandemic-fuelled tech valuations drop down to earth and headlines warn of the “coming storm,” now is precisely when we need to step back and level set. It’s at times like these that, with a little perspective, fundamental value breaks through the fog of frothy markets, and that’s good news for Canada’s tech ecosystem and the broader economy.
As a 25-year veteran of private equity tech investing, I can tell you a few things with near certainty: that the window on aggressive fundraising for private companies has closed; that we can expect near-term write downs of recent high-growth venture and private equity-backed tech deals of 50 per cent or more; and that there will be a culling of the herd when it comes to unprofitable companies with a high cash-burn rate and a flavour-of-the-month value proposition.
I can also tell you that while the current situation has the markings of a typical boom-and-bust cycle, the macro reality is different. We all know that the pandemic supercharged technology adoption, but the underlying fundamentals and trend line remain the same; tech will continue to drive growth as the economy is increasingly digitized.
And as we stare down the barrel of rising interest rates, inflation and weakened growth, the business case becomes more compelling, particularly for certain kinds of technology. In a high-cost, competitive world, the efficiencies that can be gleaned from digitization and software automation will be essential for many organizations.
A tech company that epitomizes the intersection of innovation and fundamental value is Constellation Software (CSU-T), a $40-billion enterprise software provider that most Canadians have probably never heard of. (Full disclosure: I personally own Constellation shares.) I first met chief executive officer and founder Mark Leonard when I was part of the private equity team at OMERS, the Ontario pension fund, which invested in Constellation in 1995, just as the dot-com bubble was heating up.
Early on, Mr. Leonard saw the potential of acquiring and managing a stable of industry-specific, mission-critical software businesses, and when the tech bubble burst in 2000, we doubled down on our investment, providing Constellation with the firepower to grow quickly through down-cycle acquisitions. It was a spectacular investment, not only because of Mr. Leonard’s ability to execute and allocate capital, but because of the simple beauty of what some might deem a boring business.
Enterprise, or business-to-business (B2B), software is the backbone of our modern economy – its systems running everything from credit cards, cars and utilities to corporate payroll, insurance claims and supply chains. While it may not be sexy, its predictable revenue, low capital costs and high profit margins have translated into the best risk-adjusted returns of any tech asset class.
The good news is there is a healthy pipeline of these kinds of companies in Canada. According to Vertu Capital’s proprietary database, of the 40,000 software businesses in the country, we are actively tracking almost 600 enterprise software firms, up from fewer than 70 in 2017. And that pipeline is expected to expand significantly as the exponential growth we have seen in venture capital fundraising in Canada since 2018, not to mention foreign VC investing and bootstrapped startups, translates into solid, cash-flow-generating businesses.
Add in the deep talent pool – according to real estate services group CBRE, Toronto, Montreal and Vancouver are among the top five fastest-growing tech talent cities in North America (Edmonton and Ottawa rank sixth and eighth) – and Canada is well-positioned to weather the current tech storm.
Some of the best, most enduring tech companies were built in a down market. Think Google, PayPal, Salesforce and Shopify. Why? Because scarcity forces discipline and focus, investors become more discerning, and talent becomes easier to find.
So, for founders and CEOs who are building great Canadian tech businesses, my advice is to stick to your knitting. Make sure you have enough capital to support your business for the next 24 to 36 months and focus on profitability. Have a clear and well-articulated five-year plan and execute against it. The companies with strong business models and solid management teams will survive and thrive, and there are plenty of investors out there with the dry powder to support you.
Lisa Melchior is the founder and managing partner of Vertu Capital, a Toronto-based private equity firm specializing in Canadian B2B enterprise software companies.
