OMERS recoups cost on Xanadu investment after trimming stake in quantum company

Ontario Municipal Employees’ Retirement System’s venture capital arm has trimmed its stake in Xanadu Quantum Technologies Ltd., selling enough stock to recoup its original investment, while remaining one of its largest investors.

OMERS Ventures sold 3.13 million class B subordinate voting shares on Sept. 22 and 23, it said in a regulatory filing this month. Those were the first two days it could do so after a lockup lifted for holders of most of the Toronto quantum computing developer’s stock. OMERS Ventures received gross proceeds of at least US$16.6-million for those shares, based on the stock’s trading range on those days.

Xanadu is one of three Canadian companies in a global race to develop the world’s first commercially relevant quantum computer, a machine that derives its computational power from subatomic particles. The machines are expected to someday vastly outperform the world’s most powerful super computers, opening up the potential for more advances in finance, drug discovery and other areas.

OMERS Ventures also sold 500,000 class B shares in July, according to another filing. They were not subject to the same lockup, which went into place after Xanadu went public in March by merging with a publicly traded special purpose acquisition company. OMERS had received the 500,000 shares by participating in a sidecar financing to the go-public transaction. OMERS generated proceeds of at least US$4.9-million from that sale.

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After the dispositions, OMERS controls 36.6 million class B shares through three funds, representing 38 per cent of that class of stock.

Xanadu chief executive officer Christian Weedbrook sold nearly 10 per cent of his personal holdings after the lockup lifted, while the venture capital arm of Business Development Bank of Canada sold 900 of its 6.7 million shares, according to another regulatory filing.

OMERS Ventures managing partner Laura Lenz noted the sale by the funds she oversees amounted to less than 10 per cent of the pension giant’s Xanadu stake. “It was a strategy: We thought it was important to take our invested capital off the table and that’s what we did,” she said in an interview. OMERS was one of the earliest backers of the company.

Ms. Lenz declined to comment on OMERS Ventures’ future plans for its Xanadu stock, but added: “We believe quantum will be a reality in 2030 and we’d like to have exposure to it. When you’ve got someone like Christian in your portfolio of CEOs, he sends us deal flow and diligence. That’s a strategic asset that we wouldn’t want to lose.”

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Xanadu stock went on a wild ride after it went public, quadrupling in value in its first few weeks then crashing just as quickly. OMERS Ventures’ stake was worth US$1.6-billion at its peak, or twice the value of the pension giant’s holding in Santa Clara, Calif.-based chip giant Nvidia Corp. on June 30.

But the earlier gains were illusory as just 13 million of Xanadu’s 300 million shares were freely tradeable until the lockup lifted. The stock, which closed at US$7.37 on Nasdaq on Sept. 21, the last day before the lockup lifted, has shed more than half its value since then. It closed Tuesday at US$2.94.

Xanadu, along with quantum startups Nord Quantique of Sherbrooke and Photonic Inc. of Coquitlam, B.C., could find out this fall if they have advanced to the third and final stage of a high-profile U.S. Defence Advanced Research Projects Agency competition challenging developers to show that they can build a commercial-grade quantum computer by 2033. Several companies, including Xanadu, think they can do so earlier than that. Those that prevail in the DARPA competition could qualify for US$300-million each in U.S. government funding and become front-runners in the global quantum race.

The Canadian government has agreed to match the DARPA funds that Canadian participants have received so far; Ottawa also recently committed US$195-million in repayable funding to Xanadu to help build an advanced manufacturing facility in Toronto.

Canada is a leader in the nascent field thanks to early support from governments, universities and tech pioneer Mike Lazaridis dating back more than 25 years.