So what do we do?
We just have to keep beating the drum. I’ve been out on the road for nine months, meeting with institutions that have been in the space before and that are gun-shy, trying to convince them that this is as big a contrarian opportunity as they’ll see. Because unless you think technology is going away, the valuations are, in my view, at a 20-year low, and this is the time to be getting in, not when everybody else starts jumping in.
Even during the tech boom, so many of these players came to the table late. Why are we just so much more risk-averse as a people?
I don’t know – and I don’t have a theory on it. There are pockets of us that are not like that. Maybe it’s smaller egos. If you get to a certain stage, something needs to drive you beyond the making of money. I’m being driven by the fact that there’s a gaping hole in the Canadian ecosystem. We lie awake at night when RIM goes down, because RIM’s all we’ve got, right? And the reason RIM’s all we’ve got is because we’ve sold all the other promising companies, because there hasn’t been enough capital to go the distance.
What are you doing differently at Round13?
One of the typical things that VCs say is that we’re not just about the capital, we’re helping to actually grow your business. And I think that’s a very difficult thing to execute on. So as a lifelong operator – this is my first time on the other side of the table – I said, how can we make that claim and actually have a chance of making good on it? We got 12 tech entrepreneurs who have started, run and exited tech companies in Canada to say, “Yes, I will write a cheque to the fund and, since I get approached all the time because of what I’ve done, I will send the deal flow over to you guys, and I’d be willing to help you on diligence and to help coach and mentor these companies.” Part of our motivation is, look, we’ve got entrepreneurs here who don’t need to move to Silicon Valley. Why do the Yanks have to get the returns on our brains? Why can’t we keep the returns in this country?
How do you convince entrepreneurs to stay here? Because some of these guys are going to be pretty attracted to Silicon Valley, because they know there’s so much opportunity down there.
They’ve gotta be convinced that they’ve got the support here, not only in terms of money, but connections. There are some great things being done at the early stage – MaRS, Ryerson University’s got the DMZ, Grow Labs out in Vancouver. There’s a lot going on with Waterloo angels, where entrepreneurs are starting to give back. They’re looking for the next big win. People starting out have got a lot of second-generation experience to say, “Here’s my cheque, but here are some of the mistakes that I’ve made – try to avoid them.”
Is there anything the government should be doing?
Yeah! I think they’re doing okay. The BDC and the EDC are very supportive. And the government is putting a $400-million injection into the ecosystem. Now, that’s not enough money, but it’s better than nothing.
How do you get people to commit larger chunks of money to later-stage firms?
I think you have to convince groups that venture should be able to hold its own versus other asset classes. Venture, by its definition, is a high-risk category, relative to buying bonds, GICs or late-late-late-stage private equity. But if you look back over 25 years, venture has been one of the best-performing classes; it’s just that the past 10 years have been brutal. But the good news about venture, especially today, is that you don’t need a huge chunk of what some of these pension funds have under management. You just need a small chunk to get going.
Especially in tech, companies aren’t looking for $90-million in funding any more.