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How Canadian tech startups could become multibillion-dollar companies

How Canadian tech startups could become multibillion-dollar companies

Posted by PanamericanWorld on September 12, 2016

Alex Kolicich has spent the eight years since he graduated from the University of Waterloo working in California, first for Google and Palantir Technologies, and later with billionaire venture capitalist Peter Thiel at Mithril Capital Management.

Those eight years, Kolicich says, have delivered a “new renaissance” in the Waterloo and Toronto startup scenes — with students, graduates and dropouts pursuing new companies with a vigour not previously seen.

Now a partner with San Francisco venture capital firm 8VC, Kolicich hopes to capitalize on the startup activity in his home country. Last year, 8VC — which focuses largely on enterprise software, data and software-as-a-service companies — invested in five Canadian startups. Kolicich, who grew up in Hamilton, Ont., says the firm is hunting for more Canadian investments, particularly in the Waterloo-Toronto area.

“We want to be more active in the region,” he said in an interview from California. “We don’t (predetermine) what percentage of the fund is going to Canada, but there’s no limit to it. It could be all of it. It could be none of it. It really depends on what opportunities we find.”

Though bullish on the potential for Canadian investments, Kolicich argues there are two deficiencies in the Canadian startup scene.

The Waterloo-Toronto corridor has a density of “technical talent” — including software engineers — that trails only San Francisco and Boston, he says. But there’s less executive talent, and local entrepreneurs often lack aggression in recruiting executives from outside the region and outside Canada.

“There’s a lack of understanding that recruiting is the second priority of a startup (behind business development),” he said. “It might even be the number one priority.”

Many Canadian startups simply seek the best local candidates, Kolicich says, but they should be recruiting the best global candidates.

“Find the best person and convince them to work with you. Don’t just give up and say ‘Oh he’s not going to move to Toronto.’ Try and make it work,” he said, suggesting reaching out to senior Canadian executives in Silicon Valley. “A lot of Canadians would be open to the idea of moving back, and executive roles don’t come up very often.”

Kolicich points to Hootsuite and Shopify as examples of Canadian companies that have succeeded in recruiting strong executives, as well as Toronto-based Street Contxt. 8VC led Street Contxt’s US$8 million Series A funding round in 2015.

Blair Livingston, Street Contxt’s founder and CEO, said he has recruited experienced executives by emphasizing his company’s growth potential in the institutional finance sector. Street Contxt helps analysts track the reports their clients are reading. As well, brokerages that subscribe to Street Contxt can see what research is being most read, and get reports from small firms they might not otherwise have access to. Livingston calls it a “content ecosystem for Wall Street.”

“We’re attacking a massive industry. And we’re building something global,” he said. “People want to work on something big — something that could actually become a massive business one day. If you’re in Toronto and want to work on something big, your choices are pretty slim.”

Livingston said his recruitment push is also aided by Street Contxt’s link to 8VC. Many Canadian investors strive for billion-dollar exits, and yet prevent their investment companies from reaching that goal by insisting on short-term benchmarks, such as early revenue targets, he said.

“That forces companies to monetize very early and focus on the short term, which inherently prevents people from building massive companies. What would Facebook have looked like if, at 1,000 users, they started monetizing and putting ads in and driving users away?” Livingston said. “Canadian companies end up getting outpaced by companies elsewhere in the world, which is why there are no billion-dollar exits up here.”

8VC is not interested in small milestones. “They are here for big wins,” Livingston said. “They’re not here to hit singles and doubles. They want a home run.”

The second issue Kolicich sees in Canada is low salaries in the Canadian tech industry.

“People view salary as an input to be minimized … but you’re competing with startups in the Valley,” he said. “The key to capturing people and retaining people is to pay people more.”

When Kolicich graduated from Waterloo in 2008 with a degree in software engineering, Google was offering salaries twice that of Waterloo-based BlackBerry. He left Canada to work on Google Checkout and Google Street View. Canadian technology workers can still earn significantly more by leaving Canada for Silicon Valley, Kolicich said. It’s a fact that hurts Canadian companies.

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