The first investment made by the late-stage VC arm of one of Canada’s biggest pension funds was SpaceX.
The next few — at least in Europe — will ideally be in climate tech, the team’s Europe head tells Sifted.
“Hopefully within the next 12 months, you’ll see some more stuff from us there,” says Avid Larizadeh Duggan, senior managing director of Teachers’ Venture Growth (TVG), which is part of the CN$247bn (€168bn) Ontario Teachers’ Pension Plan (OTPP). She added that the firm hired Kieran Mahanty last year in Europe to lead TVG’s work on research and sourcing deals in sustainability including climate.
Today, TVG has an over-$5bn portfolio which includes Kry, Alan, Taxfix and Beamery in Europe. Last year, TVG did three new deals (Lendable, Alan and Taxfix) and two follow-ons in Europe (Kry and Beamery); the European team is now eight strong.
Europe has long lacked capital for growth-stage companies, but TVG is one investor in the market that can both write hefty cheques and wants to lead deals and sit on boards. The firm usually invests $50m-250m, but can go as low as $25m for a Series B cheque in Europe if the opportunity is right.
Big on climate tech and AI
Larizadeh Duggan stresses that climate startups get access to potential corporate partners as part of the broader OTPP portfolio, which includes 70k acres of agricultural land (including cherries, apples and nuts), five airports in Europe, significant electricity transmission and distribution holdings and real estate interests.
“All of these give us massive knowledge and expertise but also companies in our portfolio. If we make an investment, we can roll out the technology into these companies, they can become customers of that, they can become partners in terms of testing.”
The consumer doesn't really care about the AI, they just care about their user experience
She says that the investor is also “building [its] view” on the new wave of generative AI innovation.
She says that the team believes large language models and even data itself will become commoditised and dominated by a few big providers given the significant cost of compute, which means the area most interesting for VCs is at the “application layer”.
“You have a whole new crop of companies that are being created that are purely built on this enablement through AI. But the consumer doesn't really care about the AI, they just care about their user experience,” she says.
“What are the use cases that you can come up with that are truly value-add for your customer that you can use this new technology for? That's the direction that we're going toward.”
Advice for tough times
TVG is looking to double the size of its assets over the next five to ten years, but Larizadeh Duggan says that the team isn’t investing at the same pace as before because “great companies” are not currently out looking to fundraise.
All else being equal", founders should look to have a "clean term sheet with the right valuation
And while there are outliers she has heard of, she says multiples for private software companies are “closer to 10x than [they] are to 20x” [of annual revenue as a valuation] given how much multiples have come down on public markets.
For the companies who are out there fundraising, however, she says that “all else being equal”, founders should look to have a “clean term sheet with the right valuation”, even if that means taking a downround, or raising a lower valuation than the last round.
When investors try and negotiate other downside protections that complicate a deal, “you're creating misalignment in incentives oftentimes between entrepreneur, investor, early-stage investor and later-stage investor, you’re setting a precedent for the new investor that may come a year or two from now.”
And so what should climate companies that want TVG cash be doing? Probably getting on the team’s radar.
Larizadeh Duggan says she likes to have a relationship with companies before investing. She gives the example of French healthtech Alan, a case when she knew founder Jean-Charles Samuelian-Werve already and TVG managing director Ara Yeromian had “spent time” with the team while he was at investor Temasek previously, which allowed TVG to move more quickly on the deal.