It’s time for us to double down on supporting Canada’s tech startups: comment

Canada has been doing a pretty good job of supporting its tech startups, but I’m calling on government, private investors, banks and pension funds to double down on that support to help make them the country’s engine of growth over the next decade. That’s especially important as our homegrown tech sector achieves critical mass.

Canada deserves good marks for investing in tech companies at the startup stage, but we need more money in the ready-to-scale category. Often, those tech startups that make it out of the gate are snapped up by foreign investors; too few Canadian sources were supplying follow-on capital.

A PwC Canada & CB Insights MoneyTree Canada report on venture capital activity in 2016 shows just that. Canadian VCs and government-backed capital played a more active funding role for tech companies at seed, early and expansion stages of growth. U.S. VCs started to eclipse Canadian investors as tech companies stretched their wings into international markets. 

There’s also been an absence of experienced upper-level tech management talent. That’s starting to change as we accumulate second- and third-time entrepreneurs who have exited their companies, are re-investing in Canadian companies and are offering their mentorship and expertise. 

At Round 13 Capital, where I’m a partner, we have 14 cheque-writing investors, who have grown and exited Canadian tech companies, and they’re all poised to mentor our investee companies. Canada is starting to get organized that way.

Governments have been doing a good job supplying investment capital and support. Ottawa’s Business Development Bank of Canada (BDC) is one of the most active funds in the country. The recently expired federal Venture Capital Action Plan (VCAP) used $400 million in government funds to attract $900 million in private capital into the business ecosystem. The good news is that the latest federal budget offers the similar Venture Capital Catalyst Initiative. Managed by BDC, the new initiative promises $400 million in late-stage venture capital to Canadian entrepreneurs over three years.

The budget also earmarks $950 million over five years to invest in Canadian “innovation superclusters” — tech hubs selected because they offer the greatest potential to accelerate economic growth.

Canada is currently in a position to attract more foreign talent as U.S. anti-immigration sentiment takes hold. On an anecdotal level, a disproportionate number of the people on our BNN TV show The Disruptors are immigrants or second-generation immigrants who exemplify a culture of entrepreneurship and are hungry to get ahead. Canada should put the pedal down to re-establish our brand as the go-to country to build a tech business or work for one. 

Canada’s recently announced Global Skills Strategy, designed to make it easier to attract highly educated and highly skilled workers from around the world, is a good start.

Meanwhile, the Canadian Business Growth Fund announced in March unites banks and insurance companies in a promise to invest $1 billion over 10 years in small and medium-sized Canadian companies. Banks, insurance companies and pension funds all have powerful potential to become more active in the tech sector and back Canadian entrepreneurs, who can hold their own with anyone in the world.

Prime Minister Wilfrid Laurier once said that “the 20th century belongs to Canada.” If we support our homegrown entrepreneurs in the tech sector with the right blend of funding and support, we can make that happen in the 21st. 

Bruce Croxon is co-host of BNN’s The Disruptors and partner at Round 13 Capital. On March 27, Bruce will be the moderator of an NP Talks event on how to disrupt your business.

Artificial Intelligence’s two-edged sword: better lives but fewer jobs

Bruce Croxon, Special to Financial Post | March 20, 2017 | Last Updated: Mar 20 8:38 AM ET

Artificial intelligence (AI) has promised to relieve us of our dullest tasks and improve almost every aspect of our lives, from transportation to health care. But, by their very nature, the best tech ideas lead to incredible efficiencies, and if those efficiencies touch on people’s jobs, it will take those jobs away.

The Industrial Revolution replaced entire job descriptions, but more highly skilled and better-paying jobs eventually followed. That may not necessarily end up the case with AI, as deep learning helps machines replace people further up the talent chain.

How many jobs could be affected? Tech billionaire Elon Musk recently estimated that AI could replace 12 to 15 per cent of the global workforce in 20 years. A report by U.K. think-tank Reform suggests AI could displace a quarter-million of the U.K.’s civil service positions at the administrative level by 2030.

It’s a bit of a clash just when we want to create new jobs. But the fact is, the fastest-growing and most vibrant part of the economy involves almost anything that adds efficiency. It’s even harder to oppose AI when such efficiencies are great for consumers, and directly create lower prices on a wide range of goods.

You only need to look to Uber to see how this efficiency can both improve service and lower costs. Every day, tech startups promise to make health care more affordable and more customized for each patient. Even robo investment advisors are doing a great job providing consumers with basic investment suggestions.

Canada happens to be a leader in the development of AI, so we really need to decide now what sort of economy we want. Will we embrace AI, knowing we can be leaders in this tech field? Or will we let other countries buy up our high-tech companies, cannibalizing us and our homegrown talent along with them?

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We talked to Yoshua Bengio on our BNN TV show, The Disruptors. He’s an AI pioneer and head of the Montreal Institute for Learning Algorithms at the University of Montreal.

Retaining talent is the key to a thriving tech sector, he says. While AI needs both public and private investment to thrive, he’d like to see government invest in academic centres that produce the required talent. With a critical mass of talent and infrastructure in such AI hubs as Toronto and Montreal, foreign investors would be convinced that moving the tech infrastructure wholesale would be a bad idea.

So what future is there for workers displaced by AI? We’re seeing a huge pickup in the part-time economy, where the new norm might be applying what you know to two or three situations.

We can also help promote the idea of being an entrepreneur, particularly among younger people. While working on an episode of The Disruptors, we ran into a kid at the MaRS Discovery District startup incubator in Toronto, who told us that being part of a startup today is like being a member of a garage band in his dad’s day 20 years ago.

Another public policy option would be to put up barriers to save jobs. That might work in the short term, but in the long term progress always wins. Instead, government may have to consider ideas like universal basic income to help people ease through the transition.

Bruce Croxon is co-host of BNN’s The Disruptors and partner at Round 13 Capital. On March 27, Bruce will be the moderator of an NP Talks event on how to disrupt your business.

Pitch perfect:

What one investor looks for before supporting a tech startup

As an investor in startups, people often ask me what I look for during a pitch for money from a tech startup. Here are a few questions I need answered before I’ll even consider investing:

  • Does the product or service serve a real need — or is it a company in search of a problem to fix?

One of the first things I need to hear during a pitch is that a product or service will solve a real problem. Convince me that the problem you’re going to solve is big enough that it will make a noticeable difference to people or business owners and will change their lives. If it takes more than a few minutes to explain why the market needs your product, I’ll probably be skeptical. 

  • Can the product or service be delivered cost-effectively?

The product or service needs to be priced appropriately for your market. I won’t invest in a startup if it appears that the cost of delivering the goods into that market will be more than buyers are willing to pay.

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  • Who’s the team behind the idea? 

Startups are like a rollercoaster ride. You need team members who will get up when they’re knocked down and who will be there for you when things get gritty, instead of leaving you behind in the trenches. Ideas will likely need to change as you approach product launch, especially if you’re a technology company in the early-to-growth stage. Your product development team needs to have the tools in place to accurately read emerging market trends and shifting consumer preferences and be able to adapt to them, sometimes over just a few weeks. In the fast-moving world of tech startups, teamwork is everything.

  • Can you attract customers to your platform cost-effectively?

One thing we spend a lot of time on at our venture capital company, Round 13, is finding out whether a company can affordably attract customers to its platform. For example, a lot of fintech companies have not been able to get the cost of customer acquisition down low enough for what the customer will return to them over a reasonable period of time. Unless you can do that, you can’t expect your gross margin to ever cover your operating expenses. One fintech that claims to have overcome that hurdle is Mogo Finance Technology. President Greg Feller says his agreement with Postmedia exchanges a fixed value of media promotion for a revenue-sharing deal. He credits that deal with lowering his cost of customer acquisition to a level that makes sense.

  • Does the startup make creative use of existing inventory?

Some of the most valuable and successful technology companies don’t make anything. They just connect unused assets with customers and make things more efficient. Two great examples are Airbnb and Uber. As an investor, that concept is exciting to me, because you eliminate the incredible amount of capital required to build things or stock inventory. Whether you’re leveraging unused warehouse space or idle equipment, building a business on existing inventory is an attractive proposition.

  • Is there an opportunity for recurring or subscription revenue?

I love all revenue, but a one-time sale interests me far less than recurring or subscription revenue, which paves the way to long-term business viability.

As an investor, I can’t predict the future. But I know what I want to see in a tech startup before I’ll give it a second look. 

Bruce Croxon is co-host of BNN’s The Disruptors and partner at Round 13 Capital. On March 27, Bruce will be the moderator of an NP Talks event on how to disrupt your business.

The power of small:

High-tech takes root in smaller urban centres

Silicon Valley … Waterloo … Whitby? Some urban areas have earned a reputation as high-tech hubs, but smaller centres such as Whitby and Prince Edward County, both east of Toronto, are proving they have the right stuff for high-tech startups, too.

Some young tech companies have realized they don’t need to be in a downtown city setting to be successful. They’re building tech brands and innovation cultures in smaller population centres, which offer lower costs and a different quality of life.

I think 360insights is a good example. It’s located in Whitby — population 125,000 — on the eastern edge of the GTA. CEO Jason Atkins is an entrepreneur who created a disruptive business model to drive efficient incentive and rebate programs, for such clients as Samsung, Mitsubishi, Sony, GE, Sub-Zero and Wolf.

One of the beauties of tech is that the infrastructure is very portable. The challenge is to attract your own talent cluster to your desired locale.

Atkins established an office in a commercial space about a block from his home. He filled his talent requirements by convincing qualified people, who were spending three hours a day commuting to and from downtown Toronto, that they would be happier working within walking distance of their homes. And those homes could be much bigger and cheaper than a property in a big city.

That quality-of-life differential helped seal the deal for many of his 225 employees. Being surrounded by the right people not only drives his success, Atkins says, but helps create a culture they want to stay with as the company grows.

Clients of 360insights are interested in results, not the company’s location. Atkins can still easily connect to other tech hubs and world markets.

360insights is now helping build an east-GTA tech ecosystem. For example, it’s partnering with industry-led not-for-profit Spark Centre on an investment accelerator for the region.

Farther east yet, the Prince Edward/Lennox and Addington Community Futures Development program aims to achieve the same thing for Prince Edward County, by investing in startups. Conrad Guziewicz and Mauro Lollo, principals of First Stone Venture Partners, are matching those funds to help bring economic diversity to an area they value for its quality of life.

Nectar Desk is one company they’ve invested in. Located in the town of Picton and offering cloud-based call-centre software to more than 100 clients around the globe, Nectar Desk handles inbound and outbound calls, and provides clients with full reporting and analytics. Moving these functions to the cloud is the right idea.

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Both Nectar Desk and 360insights have attracted international clients to their businesses without being housed at an expensive address. Reduced costs go straight to the bottom line and help fund more innovation.

Small-centre startups can look to other benefits. Smaller governments often mean that decision-makers are easier to find and speak with one on one. Towns often work harder to find new businesses the right location, smooth the startup process and help access incentive programs.

Innovation builds on innovation. Successful tech startups can attract like-minded businesses and eventually achieve the critical mass required to form a self-supporting tech hub.

While I don’t see a mass movement away from big cities, as the search for talent heats up and lifestyle becomes more of a deciding factor for employees, startups may want to consider a smaller centre first, to see if it provides many of the same benefits at lower costs.

 

Bruce Croxon is co-host of BNN’s The Disruptors and partner at Round 13 Capital. On March 27, Bruce will be the moderator of an NP Talks event on how to disrupt your business.

New Ryerson council of business leaders aims to boost entrepreneurship in Canada

New Ryerson council of business leaders aims to boost entrepreneurship in Canada

Ryerson University’s DMZ startup incubator is launching a blue-chip advisory council with the lofty goal of solving Canada’s entrepreneurial problems.

The 20-member council is headed by Nadir Mohamed, chairman of ScaleUP Ventures and former chief executive of Rogers Communications, and is composed of a range of business leaders from across the country.

IBM Canada president Dino Trevisani, Round 13 Capital partner and former Dragons’ Den personality Bruce Croxon and Adidas Group Canada president Michael Rossi are among the members. David Walmsley, editor-in-chief of The Globe and Mail, is also a member.

Bruce Croxon Says, “We’re at an Incredible Period of Time for Technology Investing”

Round13 Capital Co-Founder Bruce Croxon took the time to talk with SmallCapPower at the recent Cantech Investment Conference in Toronto, asserting that this could be a turning point in which the IT revolution transforms Canada from a resource-based economy to one focused on innovation. He believes Canadian entrepreneurs can hold their own in this space, and describes the qualities he looks for in a tech startup.