Interview: OpenText waits on VCAP to close $100m fund

Canada-based enterprise software company OpenText is relying on delays in the country’s Venture Capital Action Plan to be straightened out before it closes its C$100m (US$86m) corporate venturing fund, Luc Filiatreault, OpenText vice president for venture development, told Global Corporate Venturing.

Filiatreault is one of the general partners of the OpenText Enterprise Applications Fund, which is targeting a $100m fundraise. Of that sum, 20% will come from OpenText.

Fund-of-funds Teralys Capital and the state-backed Business Development Bank of Canada are also set to commit capital to the fund. OpenText is also open to compatible corporate partners, but the company plans to secure support from the government’s C$400m VCAP funding initiative, which is still yet to be implemented, before it closes the fund.

“We have been working on it for quite a while,” Filiatreault said. “Obviously, it is related to the VCAP, and VCAP has had quite a few delays so we are following the VCAP stuff. Until the VCAP programme has completed, it is going to be hard for us to complete our fundraising.”

The fund has a significant strategic basis as OpenText seeks to secure access to technologies that are not yet a big part of the enterprise software world, but which could be crucial in three to five years time. Healthcare technology will also be considered but in general, it will have a fairly tight focus in terms of investments.

“The fund has an investment thesis to invest in enterprise applications,” Filiatreault explained. “So we are in the business-to-business space, in enterprise apps that are being disseminated today, as more and more people within companies are working on mobile on various systems and need access to these technologies almost as if they were in the office.

“That is our main focus; we will also look at health, but always in the business-to-business space, especially for large types of systems and large corporations. We are not a business-to-customer investor. We are not looking for video games or a Facebook-type application but really looking to invest in technologies that increase productivity for larger corporations.”

OpenText will look to centre its investments around the late-series A, early-series B mark, primarily targeting companies that can demonstrate a product and a customer base, but which are looking to scale their businesses rapidly.

“That is where OpenText could use one of its strong assets,” Filiatreault said. “The fact it has a little over 100,000 customers around the world right now in 140 countries, and we have some 3,000 salespeople to sell to that base, which obviously could be leveraged by the OpenText fund, where some of the companies we might invest in might be able to access that distribution network to sell products.”

Although the fund will look to invest worldwide, its location and limited partners mean in practice it will be working with a good deal of Canada-based start-ups.

Filiatreault described the country’s venture capital scene as “very hot,” and talked up the early-stage support available for start-ups, but warned that there is also a funding gap at commercialisation stage where OpenText’s fund will operate, meaning that Canadian companies often move south in order to grow, or are acquired by US-based companies.

“We are good at funding companies for research and development, and we have lots of accelerator and incubators, lots of universities, so we are good at putting in initial, relatively low amounts of money,” he said.

“We are also good at the other end of the spectrum. We have large companies and large funds like [private equity firm] NovaCap, and if you are looking to build another plant we have that. But in the middle where you might be a $2m to $5m business looking to scale from 20 or 30 customers to 1,000 or 10,000 and looking to raise $30m, $40m or $50m, the VC system in Canada is just not there.”

– Photo of Luc Filiatreault courtesy of LinkedIn