No more limits for Canadian Tech

Screen Shot 2015-05-22 at 6.25.14 AMYesterday was a huge day for the Canadian tech scene with Shopify‘s long-awaited IPO finally happening. In its first day of trading the company that began as Tobi’s little rails app gained 51% in market value and is now worth approx. ~ $1.8B.

Having been involved in the Canadian startup scene since the 90s the big thing for me here is that there are no more limits. It was accepted wisdom for many years that we just couldn’t build big technology leaders here in Canada. Yes, we had some exceptions (Blackberry, Nortel, etc.). But by and large our tech companies have been smaller and sold early.

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Can this be a $B Startup???

billion

How often have you sat in front of VCs or advisors and been asked ‘Can this be a billion $ business?’. I have. I find it to be an incredibly frustrating question. When you’re at the start of your business, if you’re spending time thinking about how to be a billion $ business, you’re wasting time.

Here are some stats: There are 100s of venture firms investing in many 1,000s of startups. Out of all of that activity there are 80 privately held technology companies worth $1B (source: CBinsights) in the US. In Canada, there are two (Shopify and Hootsuite).

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Closing the gap in Canadian exits

Techvibes reposted some extensive research from the folks at MaRS on exit outcomes in Canada along with a long list of observations and recommendations for all of us building startups in Canada. There’s much I dislike about this research. For one thing, it’s all very backwards-looking. Also, seeking the insights of a fund that has long since run out of capital and stopped making investments (in Canada or anywhere) just because they have the historical high water mark in terms of number of US investments seems silly. Finally, the conclusion that we need to go move (in whole or in part) to the US is just downright annoying.

But lets park those concerns and focus on one issue: Exit sizes.

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When Valuation Doesn’t Matter

Most of the time, the price an investor is willing to pay to invest in your company is a hotly debated topic. Valuation is always important to founders. But for investors there are some rare times when it (almost) doesn’t matter.

When Kleiner Perkins invested in Twitter in 2010, they were criticized for completely missing web 2.0 and having to buy their way back in. No less an authority than Om Malik had this say:

“There was a time when venture capital firm Kleiner Perkins Caufield & Byers, was the first money in hot, new start-ups. These days, it seems the best KPCB can do is edge its way into hot start-ups at a massive premium like with the funding for Twitter”.

Kleiner invested in Twitter at what at the same time seemed like a very lofty $ 3.7B valuation. Three years later, Twitter is now public and worth $ 23B. So in three years that investment has generated over a 6x return (on paper). i.e. it has doubled every year. Not too shabby.

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