OTPP's New Venture Incubator Called Koru

The Ontario Teachers’ Pension Plan and BCG Digital Ventures are tackling technological disruption with a new venture incubator called Koru:
Ontario Teachers’ Pension Plan is launching a venture incubator with a twist – it’s focused exclusively on building novel ideas with the companies in its own portfolio. Koru is designed to create, test and build scalable new digital businesses.

“Koru is a clear demonstration of Ontario Teachers’ partnership model of investing. It provides us with an entirely new way to work alongside our portfolio companies and help protect them against disruption by finding opportunities to add significant mutual value along the way,” said Ziad Hindo, Chief Investment Officer, Ontario Teachers’.

Koru is already generating ideas in sectors including healthcare, utilities and transportation.

Its first venture, Elovee, has the ability to bring the comfort of a familiar face and voice to dementia sufferers in the middle of the night, or at other times when those closest to them cannot be physically present.

This advanced conversation software, which digitizes the voice and likeness of family members, was designed with Ontario Teachers’ portfolio company Amica Senior Lifestyles. It is currently being piloted in two of Amica’s Canadian locations.

“Amica is proud to be working with Koru on Elovee,” said Douglas MacLatchy, Chief Executive Officer, Amica Senior Lifestyles. “Drawing on innovative technologies and Amica’s in-house expertise in cognitive-wellbeing, this venture is well positioned to enrich the lives of people with dementia and their loved ones.”

Wholly-owned by Ontario Teachers’, Koru is a partnership with BCG Digital Ventures - the global corporate venture, investment, and incubation arm of Boston Consulting Group.

“Our collaboration with Ontario Teachers’ is inspiring because we are able to draw upon our unique methodology for corporate innovation and experience in launching more than 90 ventures to help them create this new capability for venture building. The potential it has for igniting innovation in—and accelerating the growth of—its portfolio companies is very exciting,” said Anthony Koithra, Managing Director and Partner, BCG Digital Ventures.

To spearhead operationalizing Koru, Bryan Marcovici, BCG Digital Ventures' Venture Architect Director, will officially join Koru as the incubator’s General Manager and Managing Partner.

“We are pleased to have Bryan on board, with his expertise including the industry know-how he has built during his time at BCG Digital Ventures” added Mr. Hindo.

Koru is headquartered in Toronto and plans to hire 35 people. It is currently recruiting a multi-disciplinary team of entrepreneurs, product managers, engineers, marketers, designers, and startup operators. The venture incubator already has three new ventures in the pipeline this year, with plans to launch four more in 2020.

About Ontario Teachers'

The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with $201.4 billion in net assets at June 30, 2019. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.7% since the plan's founding in 1990 (all figures as at Dec. 31, 2018 unless noted). Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 327,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About BCG Digital Ventures

BCG Digital Ventures is a corporate innovation, incubation, and investment firm. They invent, launch, scale, and invest in industry-changing new businesses with the world’s most influential companies. Their diverse, multidisciplinary team of entrepreneurs, operators, and investors work cross-functionally, rapidly moving from paper to product to business in less than 12 months. Founded in 2014 as a subsidiary of Boston Consulting Group, they have Innovation Centers and satellite locations in four continents and continue to expand their footprint across the globe.
I thank Lori McLeod, OTPP's Director of External Communications, for bringing this latest venture to my attention.

I asked Lori if this new venture is part of Teachers' Innovation Platform (TIP) headed up by Olivia Steedman and she responded:
TIP and Koru will be separate although there is potential for them to collaborate with one another.

Here’s a bit more by way of explanation:
  • Koru is an incubator that will partner exclusively with our infrastructure and private equity portfolio companies – it focuses on building and launching new ventures. Koru’s mandate is to build businesses leveraging the assets of our existing portfolio companies.
  • TIP is focused on deploying capital to external, late stage ventures and venture capital funds and growth equity opportunities that are not already in our existing portfolio of companies.
I thank Lori for clarifying this for me and my blog readers.

Late today, Lori and OTPP's CIO, Ziad Hindo, called me for a brief chat in between meetings. Ziad explained:
"OTPP has over 90 portfolio companies in private equity, infrastructure and natural resources across various sectors and geographies. Koru will help generate greater growth. It is a unique differentiator which we have experimented with over the last year. Basically, disruption is pervasive in traditional companies and rather than waiting for disruption to hit our portfolio companies, we are going on the offense with Koru, incubating new digital ideas along with our partner, BCG Digital Ventures."

I thank Ziad for taking a few minutes to talk to me and will refer my readers to an earlier conversation we had on TIP where he went into a lot more detail on how Teachers' is tackling the risks and opportunities of disruptive technologies.

The key thing to keep in mind is while Koru is OTPP's internally-focused incubator focusing exclusively on their private equity and infrastructure portfolio companies, TIP is a platform focusing on deploying capital to external, late stage ventures and venture capital funds and growth equity opportunities.

In this way, you should think of Koru and TIP as complementary initiatives to address the internal and external opportunities and risks of disruptive technologies.

Also worth noting from OTPP's press release above: "Koru is designed to create, test and build scalable new digital businesses."

The operative word is scalable, if it isn't scalable, it won't move the needle and isn't worth pursuing.

Wholly-owned by Ontario Teachers’, Koru is a partnership with BCG Digital Ventures - the global corporate venture, investment, and incubation arm of Boston Consulting Group.

First, I had no idea the Boston Consulting Group had an incubation arm. News to me. At the Caisse and PSP, BCG or McKinsey was typically hired to produce a study right before some major restructuring was going down so management can justify their actions to the board  (I'm dead serious, when BCG or McKinsey showed up, it was typically bad news!).

Anyway,  I looked at BCG Digital Ventures's portfolio of companies here and it looks very interesting indeed (operates independently of BCG). The website states: "At BCG Digital Ventures, we build revolutionary new ventures with the world’s most influential corporations. By fusing the corporate and startup worlds, we are able to rapidly move from paper to product to business in less than 12 months."

This tells me BCG Digital ventures has a successful track record with large corporations in incubating portfolio companies from existing business lines.

Stated another way, Koru will fully leverage Ontario Teachers' existing infrastructure and private equity portfolio to incubate scalable new digital businesses.

And that's the way it should be, not just at Teachers' but at the Caisse, CPPIB, AIMCo, OMERS, PSP, and elsewhere.

Of course, someone should be tracking the success of Koru as incubation initiatives sound great and promising but typically don't deliver anything meaningful.

I'm not trying to sound cynical or cheeky, just being brutally honest. I applaud Teachers' for starting Koru and TIP but the long-term results are what count the most and these initiatives are not easy by any stretch of the imagination.

Still, as Ziad Hindo stated so eloquently, disruptive technologies are pervasive and organizations like Teachers' have no choice but to address them head on.

Another problem Ontario Teachers' and all these massive pensions face is we live in a low-rate, low-return world and they need to come up with alpha generation ideas anywhere they can. This is where Koru and TIP come into play.

Earlier today, I had a conversation with a hedge fund manager based in New York City who specializes in the Greek market (he previously worked at large NYC multi-strategy hedge fund). He and his partner have generated significant alpha over MSCI Greece investing in a more concentrated portfolio and they have very senior contacts in the new Greek government and at major Greek corporations.

He's looking for $100 million from external investors but is first circling his existing investors. I told him flat out: "Even if you produce great alpha, $100 million doesn't move the needle at the pensions I know". But I added: "If you can put them in touch with the right people to find scalable renewable or other infrastructure projects in Greece, then you're going to pique their interest."

Everything now at Canada's large pensions is about finding scalable alpha all over the world over the long run, but as I noted last week when I covered the CAIP Quebec & Atlantic conference, PSP Investments does have a complementary portfolio run by the Office of the CIO which takes smaller positions in investments that fall in between the cracks (in between asset classes -- think of it like an alpha vacuum cleaner portfolio which the OCIO oversees).

The other thing I noted at the CAIP conference in Mont-Tremblant last week was that in 2005 when I was a senior investment analyst at PSP, I circulated a CNN article on why the then king of real estate, Colony Capital's Tom Barrack, was cashing out stating: "There's too much money chasing too few good deals, with too much debt and too few brains."

Nowadays, I feel like there's too much money with a little more brains chasing too many unicorns like WeWork and I'm afraid the end result will be the same.

Anyway, I don't want to start a cynical discussion on startups and why I think many of them are way overvalued. I'll leave that for another post.

Below, watch a clip from Koru's website on innovation at Teachers'. Great stuff.

I wish OTPP much success with Koru and TIP and even told Ziad Hindo I have a great person to lead Koru but he's based in San Francisco right now and I'm not sure he's interested in moving his family back to Canada (grew up in Montreal, he's a leading expert in disruptive technologies and has a big position at a major tech company).

Also, BDC Digital Ventures explains how we have entered an age of inherent disruption, as powerful technology and agile operating structures shift the business landscape at an unprecedented speed. “We believe that the world’s most influential companies need equally disruptive ideas to be fit for the future. That’s why we help them think and behave like startups, with profound results.”

I also embedded a primer on BCG Digital Ventures, a new subsidiary that focuses on helping clients implement digital initiatives.

Lastly, BCG Digital Ventures CEO Jeff Schumacher explains how the company's strategy differs from other venture firms to Editor-At-Large Mike Butcher at TC Davos 2016.

Update: Aaron Vale, Vice President at CBRE Caledon Capital Management, wanted me to tell my readers of an upcoming CFA Toronto event focusing on VC / Tech investment from a Canadian lens. You can view details of this upcoming event here.

Also, Caroline Cakebread of the Canadian Leadership Congress tweeted about the Pension Investment Technology Summit taking place October 10, 2019 at the Globe and Mail Centre in Toronto. This summit is Canada’s most important investment tech event for top-level pension executives. It brings together CEOs, CIOs and strategic leaders from Canada’s largest pension funds to discuss how technology can enable better investment decision-making and how technological innovation is transforming the investment universe. You can view details here.