OTPP's Olivia Steedman on Investing in New Frontiers

Barbara Shecter of the National Post reports on how Olivia Steedman is leading OTPP to new frontiers of tech investing: 

Olivia Steedman chuckles when she thinks about the first tech investment she made for the Ontario Teachers’ Pension Plan.

Now the senior managing director of the pension’s ambitious innovation investment platform, in 2017 Steedman was still part of the team that had built Teachers’ into a major force in infrastructure. The field was getting crowded, though, as others had caught on to the value in the asset class, causing return compression and forcing them to adjust their strategy.

“What we decided to do was to take on earlier stage infrastructure risk, kind of like when you’re in equities and you go to venture, you just move a little bit earlier, which for infrastructure meant taking on construction risk and development risk,” Steedman recalled in a recent interview.

In early 2018, they invested in Stem Inc., an artificial intelligence-powered energy storage company based in Silicon Valley and backed by investors including the venture capital arms of General Electric and French energy giant Total SA.

“To be honest, looking back on it, I was initially so focused on the infrastructure element — the project finance piece — the interesting venture-growth element only sank in later,” Steedman said.

Still, it whet her appetite for a repeat of the early days of pushing the established pension plan into new areas like they had done with infrastructure. So, when a decision was made to create a new specialized department within the pension giant devoted to investing in later-stage companies using technology to disrupt incumbents and create new sectors, she threw her hat in the ring.

“Quite similar to our initial conversations around infrastructure, we realized the opportunity around direct investing in venture tech companies is a whole new world, a whole new way to get return. And we should be doing more of that,” she recalled.

“I was so excited about this idea, I put my hand up and said I can build this for you. I helped build infrastructure, (and) no I don’t have tons of venture tech experience, but I know the organization and I know how to build a team and together we’ll build something great here.”

These days, it’s impossible to miss the venture-growth aspect of Steedman’s investments. The Teachers’ Innovation Platform, known as TIP, made an immediate splash after launching in April 2019 with Steedman at the helm, choosing Elon Musk’s Space Exploration Technologies Inc. as its first investment. That financing round reportedly raised more than US$300 million for SpaceX (Teachers’ stake was not disclosed) and valued Musk’s company at more than US$33 billion, but it also signalled something important about TIP: Its goal was to be big and bold and put Teachers’ on the map when it came to late stage-venture companies looking for a serious partner.

It’s a bold course to bring a massive pension fund into the next frontier of investing. But it’s not entirely uncharted. A few decades ago, it was unusual to see a pension fund investing in real estate, yet pensions including Teachers’ are now among the largest players in the sector. Infrastructure investing, too, was in a nascent stage when Steedman joined the investment group in 2002. With an $880 million portfolio, it represented just one per cent of Teachers’ total portfolio. By 2019, it had ballooned to nearly $17 billion and represented eight per cent of the pension fund’s assets.

Already, TIP has $3.5 billion in investments and posted a 16.3 per cent return in 2020.

“It’s been such as amazing ride,” said Steedman, a civil engineer and chartered accountant by training who got into investing after working in project finance at a large accounting firm, and landed a job at Teachers’ in 2002 as an assistant portfolio manager.

Steedman sums up the common theme among companies in the TIP portfolio this way: they are taking a shot at “solving a profound problem or delivering an unmet need,” she said. It is that investment philosophy that drew her group to SpaceX.

Within six weeks of meeting with SpaceX officials, the investment was a go — before the full TIP team was even in place.

“It’s how we need to operate in this new space,” Steedman said, adding that it was immediately clear to the TIP team that the investment “could be the perfect emblem of what we want to do and where we want to play.”

The headline-worthy investment may be a calling card of sorts for Teachers’, but they were attracted to more than just the plans to ferry ordinary citizens on commercial flights into outer space.

SpaceX’s telecommunications satellite launch business was an equal draw, and the combination illustrates a key plank of the TIP investment strategy, Steedman said.

The pension fund is looking to invest in companies that have a platform or anchor business that can support the development of riskier “disruptive” technology and services.

“What was perhaps interesting to SpaceX was that … they know we’re a long-term investor, we follow on (with subsequent investments) in companies,” Steedman said.

“Where we have conviction around something we’re going to be there to support the company.”

Since that initial investment, Steedman has built a team of close to 20 people who work in three TIP offices: Hong Kong, London and Toronto.

Last October, Kelvin Yu, a private equity and venture veteran of Sequoia Capital, Fosun Group and Partners Group, was hired to lead the team in Asia.

Then in January, Rick Prostko, a veteran Silicon Valley venture capitalist who worked at Comcast Ventures and was an early investor in grocery delivery app Instacart Inc., was hired to build a presence in San Francisco and head up TIP’s direct investing business in North America.

Before joining the Canadian pension firm, Prostko had made an investment in Calgary-based Attabotics Inc., a 3D robotics warehouse and supply chain company that caught the attention of Steedman last year. In August, TIP led a US$50 million series C financing round for the company whose logistics, Steedman said, were inspired by an ant colony.

“(It’s) vertical, with robots travelling up, down and around in three dimensions to pick up the goods and deliver them to humans on the edge,” she said. “All of a sudden you can fit really dense large-scale warehouses into a much smaller footprint and therefore you can put them in places closer to the customers.”

Teachers’ hasn’t disclosed a target for the ultimate size of its disruptive tech platform, which accounted for around two per cent of the pension fund’s $221.2 billion in net assets at the end of 2020. In the short term, according to an advertisement for a managing director in London, TIP aims to deploy up to $2 billion each year in markets around the globe, with about three-quarters of that capital destined for direct investments and the rest invested through funds.

Steedman’s goal is to have Teachers’ be the first call when companies that fit the profile are looking for funding and an ongoing relationship. To do this, she is leaning heavily on the pension fund’s reputation as long-term investor with global expertise and connections.

So far, TIP’s investments have come from a mix of referrals and knocking on doors. Steedman said a “funds book” of earlier stage financings that Teachers’ tucked into TIP is part of the pipeline of referrals — providing access both to companies to invest in and potential investment partners among Silicon Valley’s leading venture capital firms. Company founders are also starting to spread the word.

“It’s a whole cocktail of different sources. The vision, and we’ll get there, is to be a known brand in this ecosystem,” she said.

“What we’re trying to do is build our relationships, not just with the founders, but other players in the ecosystem, and in many cases we are partnering with them as well.”

When it comes to targets, TIP’s team is thinking globally, making investments in Asia, Europe and North America.

“What we’re focused on is later stage venture. There may be one or two exceptions but generally you’re not going to see us investing in brand new companies,” Steedman said. “We like to see revenues, we like to see a certain kind of scaling happening before we come in, so typically we’ll invest at the Series B and beyond stages.”

The platform’s  “target cheque size” for initial investments is between $25 million to $250 million.

Among its early investments, TIP led the series B financing for Kry, a Sweden-based healthcare company that matches doctors to patients. Already growing when the COVID-19 pandemic hit, the company doubled its customer count and expanded to more than 30 countries, with TIP participating in another round of funding.

Last November, TIP led the series C financing for Pony.ai, an autonomous vehicle company whose earlier investors included Toyota and Sequoia Capital. It obtained licences and permits in California and Beijing, and its competitors include Waymo, established under Google’s parent Alphabet, and China’s Alibaba.

“The reality is, we’re two years into this journey and I think we’ve had a lovely debut,” she said. “But we need to continue to build our brand and have us be top of mind for founders. I think that will come, we can see it coming already, (but) until we are the first name that pops into their head, we need to focus on how we can help these companies scale and grow.”

As happened with infrastructure a few years ago, the tech sector has heated up, leading to some lofty valuations, which can make the investment game tougher.

“On the one hand, the valuation and what’s happened with businesses … have been great but you need to be very careful and very disciplined, Steedman said. “If we see something that’s beyond our risk appetite, we’ll walk away.”

She acknowledged that such choices aren’t always easy — or obvious.

The current environment, she said, is a time to be “super selective” and to come to the table with “well-researched views” on different sectors and situations, something that is a common philosophy across the Teachers’ pension plan. While every investment at TIP is made with a view to making money, there is also a recognition that there will be losers.

“That sort of goes with the territory with earlier stage investing. You are taking more risk so you should expect more bumps in the road and some losses,” Steedman said.

“We do every single deal with an expectation that it’s going to be a very successful outcome but we’re prepared for that.”

She is also focused on finding ways for TIP to participate in upside without overspending by playing up commitments other than cash.

“We see this quite bit with some of our founders … it’s not just money and valuation that they’re looking for. They’re watching the markets as well and they’re seeing things pop and maybe get a bit peaky, and you know, generally speaking they want someone in their cap table who’s going to help them scale and navigate highs as well as possible lows,” she said.

“They want people who are going to be there for the long term and help them deliver on their own ambitions. And that’s what we offer when we’re speaking with founders. We’re here for the long term and we’ll follow on as your business grows and things go well, we’ll be here for you.”

This is a great article and I give Barbara Shecter all the credit for an in-depth interview with Olivia Steedman who leads Teachers' Innovation Platform (TIP) which has a global mandate to invest in late-stage venture and growth equity in companies that use technology to disrupt incumbents and create new sectors.

Olivia's roots are in infrastructure. She worked with Andrew Claerhout, the former head of Infrastructure & Natural Resources at OTPP who is now a partner at Searchlight Capital Partners and then Dale Burgess, the current head of Infrastructure and Natural Resources at OTPP, before moving on to lead TIP.

Andrew always spoke highly to me about Olivia and Dale.

Recall, two years ago, I had a conversation with Ziad Hindo, OTPP's CIO, to discuss TIP and get more insights on why they started this activity:

Ziad began by saying "disruptive technology is everywhere" and OTPP built this innovation platform for three main reasons:

  1. Defensive: OTPP has over 100 portfolio companies and they want to understand how disruptive technology will impact them. This is part of Teachers' rigorous risk management approach.
  2. Offensive: OTPP is seeking high risk-adjusted returns and this platform will allow them to capitalize on new opportunities in disruptive technologies that will shape the world for years to come.
  3. Access to innovative partnerships: The platform will alow OTPP to build on its existing partnerhips but also to build new partnerships with technology leaders.

On that third point, Ziad mentioned OTPP's recent deal with Verily, an Alphabet (Google) company, on a $1 billion investment round led by Silver Lake, as it advances plans on business strategies that are additive and complementary to its current life sciences portfolio.

Later that summer, I also spoke to Olivia Steedman, OTPP's Senior Managing Director, TIP, about their investment in SpaceX where she shared this:

[she] began by explaining the genesis and purpose of Teachers' Innovation Platform (TIP):

TIP focuses on late-stage venture and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.

It seeks to capitalize on significant global opportunities for investment in the new businesses and sectors that are emerging as a result of unprecedented technological change.

Based in Toronto, London and Hong Kong, the TIP team seeks equity investments – through partnerships, platforms, funds or directly – in companies from around the world that have a proven business model and a known path to market.
Olivia emphasized that Teachers' has had great success investing in venture capital funds but they realized there are many late-stage technology companies that need patient capital and that is where this new platform comes in, either by co-investing with existing funds, building a new partnership or platform or by taking a direct equity stake as they did in SpaceX.

She said three things differentiate TIP:
  1. Global platform: They are looking all over the world to for opportunities in late-stage venture and she told me she visited Hong Kong, Beijing and London recently to meet with her colleagues and discuss strategy.
  2. Cultivating strong relationships with corporations: She told me the Teachers' brand is strong which is how they were able to invest in SpaceX and she said they have built on their relationships with Alibaba, Tencet and Google (the Verily deal) to leverage off these relationships.
  3. Patient capital: Their asset management approach strikes the right balance between "helping and letting them do the right thing". It's a targeted and flexible approach that centers around patient capital.
In terms of where TIP heads going forward, she said they are not focused on one technology and are looking to cover a few areas such as:
  • Fintech
  • Health related platforms
  • Smart cities 
  • B2C space 
They are currently working on their strategy and it covers a few sectors and geographies but again, the emphasis is on late-stage growth, they are not going to invest in early stage and will build on their venture fund program.

As far as the SpaceX deal, Olivia told me the company is working to launch Starlink, a next-generation satellite network capable of connecting the globe with reliable and affordable broadband internet services. She said this will offer access to broadband in remote areas of the world.

Interestingly, I asked her if this is completely different from "5G" and whether it will potentially disrupt it and she said "yes".

She also told me SpaceX has pioneered a rapidly reusable rocket which is a pivotal breakthrough needed to substantially reduce the cost of space access. With over 75 successful launches, SpaceX is the world’s leading private launch provider, and the first to successfully reuse an orbital class rocket.

She told me they did an intense due diligence on the company and got investment approvals on the deal. The key is this:
SpaceX was identified as a compelling investment opportunity for TIP due to its proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market. TIP focuses on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.

If SpaceX does disrupt broadband and makes traveling to space accessible, it will grow by leaps and bounds in the coming decades and Teachers' will reap the gains of its equity stake over the long run.

To be honest, I'm not a huge fan of Tesla, think the company is way overvalued, but SpaceX is where I believe Elon Musk will leave his biggest mark.

Today, I read SpaceX is “in talks with several” airlines to use its Starlink satellite internet network to provide travelers with inflight Wi-Fi:

“We have our own aviation product in development ... we’ve already done some demonstrations to date and [are] looking to get that product finalized to be put on aircraft in the very near future,” SpaceX vice president Jonathan Hofeller said during a panel at the Connected Aviation Intelligence Summit.

Hofeller did not give a timeline for when Starlink will begin inflight services, saying that an announcement is coming “hopefully sooner rather than later.” The Verge first reported Hofeller’s comments on Wednesday.

Still, the competition for space is fierce and there's a rivalry brewing between the two wealthiest Americans.

A controversial amendment pushed by Jeff Bezos’ space firm Blue Origin passed the Senate Wednesday night, inching closer to becoming law:

Crammed inside a mammoth science and technology bill designed primarily to counter competition from China, the amendment would allow NASA to spend up to $10 billion on its embattled Moon lander program. Aside from countering China, it also marks the latest development on Bezos’ warpath to counter competition from Elon Musk’s SpaceX.

For Blue Origin, the $10 billion boost is a key weapon in an enduring rivalry between the country’s two richest people — one way or another, the company hopes parts of the funding could help give it a better chance to compete with SpaceX. It’s just one front in a wide-ranging effort to change the outcome of NASA’s watershed Human Landing System competition: the space agency gave SpaceX, and only SpaceX, a $2.9 billion contract in April to launch its first two missions to the Moon by 2024, upsetting expectations that two companies would be picked.

NASA says it picked SpaceX because it had the best and most affordable proposal, and only SpaceX because it didn’t have enough funds to pick a second company. Last year, Congress gave NASA a quarter of what it requested to fund two separate lunar landers. Blue Origin and Dynetics, the two losing companies, filed protests with the country’s top watchdog agency, the Government Accountability Office, triggering a pause on SpaceX’s award that could last until August 4th. Among dozens of counterarguments, Blue Origin says NASA unfairly gave SpaceX a chance to negotiate its contract that other bidders didn’t get and unfairly snubbed its roughly $6 billion proposal.

The stakes are high: If the GAO supports Blue Origin’s arguments, it could reset the whole lunar lander competition and delay NASA’s goal to put humans on the Moon by 2024 — the main deadline in the agency’s Artemis program. If the GAO rejects the company’s protest, things proceed as planned and SpaceX resumes — or begins — its Moon lander work. 

I let you read the rest of the comment here, but it's extremely unlikely NASA will reverse its decision:

Formally responding to Blue Origin’s protest late last month, the agency fiercely defended its award decision in a lengthy rebuttal filed with the GAO, according to people familiar with the process. Agency staff involved in the NASA effort worry that a reversal could set a bad precedent and are concerned that adding another company might jumble the terms of SpaceX’s current award and potentially spawn another legal nightmare.

This isn't over, there's big money at stake which is why Bezos is desperately trying to gain a seat at the table.

Anyway, the good news for Ontario's teachers is their pension plan is invested in SpaceX and this early investment will pay huge dividends over the long run. 

Olivia Steedman and her team are scouring the world to find innovative companies to invest in.

It's not as easy as it sounds. Innovation is everywhere but risks are rising too and the long VC cycle might be coming to an abrupt end. 

One thing is for sure, valuations are already frothy but the TIP team is disciplined and needs to keep investing or risk losing out on the next disruptive companies.

With interest rates at record lows and disruption so pervasive, they need to stay ahead of the curve to seize opportunities and to make sure their own portfolio companies are adopting the latest technologies.

As Ziad Hindo stated, it's about offense and defense. 

But for Teachers', it's more than that, the plan is more mature and needs to take risks in new disruptive tech companies in order to keep paying out pensions over the long run:

I have the utmost confidence in Olivia Steedman and her team. They really are building their relationships, focusing on late stage venture and providing long-term capital to companies that are trying to solve unmet needs.

Of course, OTPP isn't the only one doing this. Every major Canadian pension is investing in late stage venture, including OMERS Ventures which led a USD $235 million series B financing to wefox Group, the Berlin-based insurtech. 

I can give you many other examples where large Canadian pensions are leading financing to late stage venture companies. 

The Canada Pension Plan Investment Board and partners recently closed a $27 million series B funding round for Clir Renewables, a software start-up developing cloud-based renewable energy asset management and reporting software.

And the Caisse de Dépôt et Placement du Québec participated in a series B funding for Poka, a worker platform built specifically for manufacturers. The funding round raised $25 million, bringing the company’s total funding to more than $45 million.

There is intense competition, no doubt about it, and everyone is looking to get the first call.

But Olivia Steedman and her team are doing an outstanding job and they aren't just providing long-term capital, they're also providing Teachers' immense network, scale and expertise to help businesses grow over the long run. 

By the way, I get a lot of people contacting me with proposals so let me set the record straight: I'm not a middleman, have zero interest in capital introduction, sometimes I see funds and companies that are interesting and I may introduce them, but I've learned it's not worth my time and effort.

Lastly, I bring this OTPP tweet to your attention:

I highly commend Jane Rowe for sharing her personal struggle with coming out and shared my thoughts on Linkedin earlier today:

Kudos to Jane Rowe for taking part in this panel organized by Out Investors and sharing her personal thoughts. She's not alone in these struggles and it's important that everyone feels comfortable being their true self no matter their sexual orientation, gender, religion, color of their skin or disability. Life is full of struggles, we don't need to add more on the list and make it harder for people to come to work and not be their true self. Embracing diversity and inclusiveness really starts by embracing a mindset of empathy and openness, so it's nice to hear from leaders like Jane who have faced their own struggles.

We live in a world which is full of hate, intolerance and discrimination. Every day we are reminded of this, the London Ontario attack on a Muslim family being the latest event to shock our national consciousness.

People ask me all the time, why am I such a stickler on diversity and inclusion. 

In short, because it's the right thing. I've also lived through a lot in my life, more than most of you will hopefully ever experience, and I will always fight for the most vulnerable in our society and call out things which aren't right or just.

This post is about disruptive technologies but we need disruptive actions and outcomes when it comes to diversity and inclusion and there's a tremendous amount of work that remains to get done on this front.

Alright, let me wrap it up there.

Below, earlier this month, SpaceX launched the SXM-8 spacecraft for SiriusXM to a geostationary transfer orbit. The one-hour and 59-minute launch window took place at SLC-40, Cape Canaveral Space Force Station, Florida. 

Also, in this episode of Disruptors, an RBC podcast, guest host Trinh Theresa Do speaks with three Canadian entrepreneurs who are working to reimagine how Canadian healthcare is delivered: Dr. Brett Belchetz, co-founder and CEO of virtual health app Maple; Hamed Shahbazi, founder and CEO of Well Health Technologies; and Anna Chif, co-founder and chief strategy and product officer for telemedicine company Dialogue.

The world is changing fast, 30 years from now, we won't recognize it. 

Let's just hope it changes for the better.