Our view on Canada.
Our two preferred investment stages
We want to be the first or one of the first investors in a Company or we want to be the first growth capital. We want to invest up to $500k for between 10-15% ownership and fully own the risk of ideation. We believe that $500k is sufficient capital in Canada to achieve product/market fit and demonstrate the beginnings of a repeatable, scaleable system of growth. We lead these rounds and prefer to be the sole investor or partner with a very trusted colleague and expect to spend a lot of time with the Founders and early team. As such, we can only take on a few such opportunities at any one time until our existing portfolio matures. Our goal is to introduce these founders to our favorite early growth investors (institutional seed funds) and for every successful transition or quick failure, we make room for another similar opportunity. Current representative investments at this stage from include Hypercare, Faber, Feroot, ProteinQure and GenM.
We believe growth capital needs to be redefined as we too often see entrepreneurs asking investors to value companies who aren't yet actual companies but rather ideas in some late stage of ideation. While we will always make some exceptions here, our strong preference is to invest growth capital. That is to say, that we have strong conviction that there is an existing system of growth that can efficiently ingest our capital to grow the key value outputs of the business. This doesn't mean that there aren't experiments being actively conducted to test new parts of the business. But we must have faith that the core engine is in place.
Here, our initial ownership is less a specific target and we are happy to "fit in" to a round and we specifically do not want to lead. The board matters a lot to us in this type of round. A leader that doesn't want the oversight of their plan checked by a board isn't one we want to work with. Our goal is to prove our value to the entrepreneur sufficiently such that we have the opportunity to invest more than our pro-rata in the next round, including being able to lead or co-lead the next round. Current representative investments include Unito, thisopenspace, Delphia and NorthOne.
While we are happy to invest at the early stage anywhere in our great country, our strong preference for growth equity is to invest in Toronto-based companies. We will always make a few exceptions but our view is that Toronto and Montreal are currently the two cities that have somewhat sufficient talent pools capable of staffing a Company's needs to get to $10m in annual revenue.
For other types of companies in other industries, other cities have great talent pools as well, but as our investing is highly concentrated on SaaS and marketplaces with some DTC, this Thesis is driven primarily from the perspective of investing in Canadian software companies.
Talent Pools matter
Don't get us wrong. We think a Company can be started anywhere, but when it comes to even the first stage of scaling, Toronto and Montreal quickly become the preferred place to build a Company, if the entrepreneur is focused on attracting the best available talent to their Company.
While the first thing we need is deep conviction in the Founder(s) and our belief in the size of the opportunity being a good use of our time and money, an incredible founder and a worthy mission isn't enough. We must believe that the CEO has the potential to be an incredible leader. And for us, we evaluate leadership ability largely based on the CEO's choices of the people they have around them.
Our experience has taught us that the single greatest determinant to success or failure of any venture is the experience, commitment and hard work of the team.
If we have seen evidence that a leader has been able to attract experienced people to their city from other cities, we will gladly consider an exception, but to the extent that recruiting is not yet a highly refined operation within a potential investment company, we want to know that the Company is operating in a community that is already sufficiently large to allow for our team's to literally bump into talent.
Who's on the cap table?
There are unfortunately a lot of bad investors in Canada.
We have a very strong bias for founders that believe in themselves and their own companies and so we look back at the decisions and deals they have made up to the point of our potential investment.
While we've always been disappointed that we have had to pass because of who's already on the cap table or how much has already been given away, we've never once regretted the decision.
What does success look like?
It's here more than anywhere else that we find ourselves passing more than any other reason. We routinely find great Canadian entrepreneurs with great teams but whose ambitions just don't align with ours.
We want our CEO's to want to win first place. We want to back competitive athletes who train every day to be the most legendary player in their game. We find that many Canadian entrepreneurs don't demonstrate in their actions nor often can articulate a desire to level-up to win 1st place.
We feel like many Canadian entrepreneurs and their team members are too often content just to be "in the majors" drawing a good salary, playing the game, but where the wins are good, and the losses "oh well."
Nothing moves us faster from excitement to disappointment than seeing entrepreneurs and their teams be "ok with ok."
Rate of Learning
The vast majority of the Founders we have backed are first-time founders. We love working with first-time founders and nothing is more rewarding to us than seeing first-time founders succeed.
What we test for more than anything else is what do they already know without us? With such a treasure-trove of content online written by so many incredibly experienced, articulate and successful people on every aspect of building a product, growing a user-base and building a team and company, we want to know that the first-time CEO's we're backing are constantly educating themselves and consuming as much relevant advice as they can get.
When we find ourselves having to educate Founders on what we feel is already available at their fingertips, it's a good indicator to us that they're not yet ready for our involvement.
How many miles have you logged?
We really believe that Canadian entrepreneurs need to spend more time in the Valley, and in other geographic areas of excellence wherever there is high concentration of experience and success that the leader wishes to emulate. Because there aren't enough truly extraordinary successes in Canada (yet), we have seen a high propensity to benchmark to other Canadian companies, and we believe that this is one of the greatest impairments to greatness.
We expect all our CEO's to spend at least a trip a quarter to the Bay Area and have a reputation for helping ensuring that these trips are productive and successful.
We encourage our Canadian companies to be proactively recruiting from the Bay Area and other centers of excellence to relocate to Canada. Every migration of an experienced and successful Director level or above hire will make an outsized contribution to our economy.