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We’re scaredy-cats: Venture capital is crucial for getting unproven start-ups off the ground, but Canada’s VC industry has been going downhill for a decade. Thomson Reuters reports a mere $1.1-billion in venture capital was invested in 354 Canadian start-ups in 2010.

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After Yen Lee sold his latest Silicon Valley start-up to Groupon last year, the Vancouver native began thinking about building his next company back in his hometown, using a "two towers approach," with engineers and designers in Vancouver, and a marketing team in the Valley. To his dismay, he concluded that Canada wasn't ready.

What happened? What's the problem with Vancouver?

I spent a little bit of time there last August and September, and I realized, talking to a bunch of entrepreneurs and investors, that the attitude just isn't there with the folks I knew.

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Those are strong words. What's wrong with the city's attitude?

Let's take a step back and talk about what's happening in Silicon Valley today. The pace of innovation is increasing, and there's a surplus of capital chasing start-ups. There's a shortage of people building products—designers and engineers. In Canada, we have the talent: We have an abundance of good designers and good engineers. We have logistical advantages—the time zone, the language.

In Vancouver, the food. We also have supportive government, as well as a really good immigration policy, which is more than the U.S. can say. And the third thing about Canada is, we have generally humble and loyal employees. I've built engineering teams in India and China. There, when you have attrition around 10 to 15%, that's considered exceptionally low. Most teams have massive churn.

It sounds like Canada is a no-brainer.

Here's the big "BUT." Canadians in general are looking for safe day jobs. Because Vancouver and Canada in general have not had the history of the home runs, like the Googles and the Yahoos and the Facebooks. And so, because they don't see the upside, all they see is the risk involved with a start-up—because start-ups in Canada are sub-scale and don't end up being big enough to exit. And that leaves the folks who are willing, that have a desire to be disruptive, the folks with an appetite for risk; those folks in Canada usually end up in the U.S.

How do we change that?

It's really about a cultural mind-shift similar to the Olympic program Own the Podium. Remember when that came out? It was controversial, right? "That's not the Canadian way." Hockey players aside, we don't like to celebrate our big winners. I think we need to establish role models. And I think we need to communicate that a bunch of these role models failed en route. It's a rare case when somebody succeeds without having had some big disasters along the way.

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As you've pointed out, we don't have a long history of winners making a big splash.

We often kid around about something called the "hot chick test," but it's true: If you're a young, single engineer, do you want to work at a company where, when you tell that hot chick at a bar about your company, she goes, 'Wow, you work at Facebook?' 'Wow, you work at Yelp?' As opposed to, 'You work at Telus?' You could call it the "hot dude" test, too, because it also applies to women engineers.

And you've got to convince the general public that it's okay to be working 60 hours a week.

As a member of C100, the Silicon Valley group of Canadians that provides mentorship, you've advised a number of Canadian start-ups.We've got to accelerate the winners, because we need some home runs to both create real-time heroes, as well as have folks with the experience and the capital to invest, and to advise the next round of companies.

It's one thing to convince entrepreneurs that failure can be good. How do you convince investors?

That's often the difference between a Canadian and a U.S. investor in Silicon Valley. The U.S. investor usually looks at failure, if it happens fast and with integrity, as an invaluable lesson. They also get that they're effectively investing in a portfolio, and they know that one out of every 10 is going to be a massive hit, and one out of every three is going to be a good hit, and the other six are going to fail.

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Your last company, Uptake, a travel site, was a hit. When you sold it to Groupon, did you take stock or cash?Thank God, we took cash.

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