Building the FRV Mafia — Part I
Our Commitment to Skyrocketing Canada’s Tech Ecosystem
Front Row Ventures (FRV) is expanding across Canada with the goal of building the strongest community of ambitious young entrepreneurial tech talent.
This is Part 1 of a three-part series covering (1) Our views of the Canadian’s tech ecosystem from our generation’s perspective (2) What is needed to fill the current market gaps (3) Our impact on the ecosystem.
PART I — WHY
FRV was built by Canadian students, for Canadian students. Risk-taking, resolute, ambitious Canadian students. Personally, I embarked on the FRV journey after spending a summer at Stanford University and coming back shocked by the gap between the Valley’s ecosystem and our own.
My co-founders and I surveyed the Canadian university landscape, trying to understand what we could do to bridge it better with the tech industry. We realized that our country is sitting on massive untapped potential emerging from our universities.
It isn’t random luck that the majority of today’s tech giants were initiated by college students in the US. Seeing the imbalance between the potential of Canadian post-secondary students and the few tangible entrepreneurial successes founded in universities here — it is crystal clear that critical pieces are missing for Canada to rise as a leading technology hub.
What Makes Strong Technology Hubs
Paul Graham’s essays on Silicon Valley are at the heart of FRV’s thesis. To build strong technology hubs, we need the right people above all else: nerds (Graham’s words) to found companies and rich people to fund their ambitions.
Young Nerds
“What nerds like is other nerds. Smart people will go wherever other smart people are. And in particular, to great universities.” — Paul Graham
A tech hub needs at least one great university with competitive research labs and a computer science department to attract nerds. It also requires to be in a city where smart students, nerds, and rich people want to live. A city with personality and quality of life.
So far, so good. Montreal, Toronto, Vancouver should be poised to be worldwide leading entrepreneurial tech hubs. In 2018, Montreal ranked #4, Toronto #13 (ex æquo with Boston), and Vancouver #17 in the best cities for students around the world. We have creative, young-feeling, charming cities, open immigration policies, and lots of space. As a country, we rank #8 in the World’s happiness report, 10 ranks above the United States.
Nonetheless, in 2017, Vancouver ranked #16, Toronto #17 and Montreal fell out of the top 20 global ecosystems in the Startup Genome Global Startup Ecosystem report. Why the gap then?
Rich People and Smart Money
Furthermore, no tech hub can thrive if there is no one to invest in the companies coming out from it. Capital to support innovation isn’t usually hard to find, but not all funding sources are created equal. You need smart money (i.e. investors that know how to select and support tech companies). The best people to fill these shoes are previous entrepreneurs who’ve built successful tech companies before and turned into angels or VCs.
Hence it takes time for a new tech hub to get established. Pioneer companies have to emerge, breakthrough the initial lack of funding, grow into a significant size and value without having to move to a larger hub, and exit at a sufficiently high price to create a wealth of startup investors and new entrepreneurs. It can take multiple generations of successful companies to create a true startup hub.
“People who work for startups start their own. People who get rich from startups fund new ones. I suspect this kind of organic growth is the only way to produce a startup hub, because it’s the only way to grow the expertise you need.” — Paul Graham
Canada has been through a few tech cycles, and while the funding for startups coming from public sources is ample, the shortage of smart private capital is still significant — mostly because we haven’t seen that many large exits yet (more on that below).
O Canada, The True North Strong and Free
Multiple factors explain the dilemmas we face today, but FRV identified three root causes to tackle:
Our Talent Churn is Alarming
“More than 300,000 of our best and brightest now work in Silicon Valley, creating lots of jobs, wealth tax revenue — for the United States. To ensure Canada’s future prosperity, we need to hang on to our most talented and innovative people[…]’’ — Anthony Lacavera
Canadian universities attract some of the best talent worldwide. Faculties, with the support of our government, have done tremendous work at hosting world-class education and research in our institutions, and making it known worldwide.
The issue is that the brightest minds studying in Canadian universities leave our country after getting their diploma. Statistic Canada found that only 25% of international students actually gained permanent residency after their studies. That’s partly due to immigration policies (that are getting way better), and mostly an unfavorable perception of the opportunities available here.
We don’t have an acquisition problem, we have a retention problem.
We Don’t Aim High Enough
It’s a widespread opinion that Canadians aren’t ambitious enough, and data confirms it.
Over the past five years, the Canadian median exit was a tenth of the US median exit. Outside of Shopify’s IPO in 2015, BDC reports no other billion-dollar exit in Canada between 2013 and 2016. In 2013, 2014, and 2015, our biggest national exit was 50 TIMES SMALLER than our Southern neighbours.
Statistics show that entrepreneurs in Canada tend to sell at earlier stages and lower valuations that in the US. Many of the acquisitions are IP or talent driven and happen before significant commercial value is created.
Canadian role models of giant tech successes and audacious tech entrepreneurs are too sparse. We need to spark and fuel the next generation’s crazy ambitions and show them that their wildest dreams can happen here in Canada.
We are Failing the Visionaries
The most dreaded realization we had is that the tech industry often fails to spot and support our own national wunderkinds. While building FRV, we found too many cases of Canadian student founders who couldn’t get the proper funding to build their company here.
Atomwise and Embark Trucks are two recent examples of companies that were founded by Canadians right out of university, that are now headquartered in the US, that have raised north of $50M each from top-tier VCs, and has no Canadian investors as significant shareholders.
Even Shopify, our biggest Canadian exit ever, was entirely funded by American VCs at the early-stage, until Georgian Partners jumped in for their Series B.
As Lacavera puts it, the US is more hospitable to first-time entrepreneurs with big, bold, disruptive ideas. Unlike in the US, not all players driving the Canadian venture capital industry come from an entrepreneurial or deep technical background and do not connect with this type of founders.
FRV strives to change that by being a catalyst for a strong industry-wide belief in young first-time entrepreneurs building real transformational technologies. Early-stage VCs have to step-up their game when it comes to investing in technological and scientific breakthroughs before they reach customer traction — it’s too late by the time they do. We aim to put some of these companies on the map by taking the necessary leap of faith and writing them their initial funding cheque.
This post is Part I of three-part series.
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Many thanks to Kat Svik, Makoto Rheault-Kihara, Nicolas Synnott and Raphael Christian-Roy for reviewing drafts of this.
