How to breed Canadian unicorns
Leaders of tech darlings believe that encouraging a culture of risk would help new startups soar
Canada is becoming a better breeding ground for unicorns — startups that reach valuations of $1billion or more — as tech companies that make it big pay the success forward to a new generation of entrepreneurs.
Five Canadian tech companies have recently attained the status of “narwhal,” the term Brent Holliday, CEO of Garibaldi Capital, coined for the Canadian version of a unicorn.
“It has a horn and it has a purpose, which is to break through the ice, so if you can break through that billion-dollar barrier . . . that seemed a pretty apt metaphor to me,” he said.
Vancouver-based Hootsuite, an online platform that integrates various social media accounts, is one of Canada’s best-known unicorns.
As a private company, it does not disclose financials, but founder and CEO Ryan Holmes says it has reached the $1-billion milestone he set as a goal five years ago.
He’s focused on taking the company to the next stage, becoming a “decacorn,” or $10-billion company, and he believes he can do so without relocating to Silicon Valley.
Holmes and alumni from other successful Canadian tech companies, including Kik and Shopify, are building “the maple syrup mafia,” a virtuous cycle of homegrown tech success breeding more tech success.
He believes they have a responsibility to act as so-called angel investors in early-stage tech companies and pass their financial resources, expertise and networks on to the next generation.
“Economically, if we can create more large businesses, more startups more quickly, then the net outcome to the founders, but also to the economy in general, is going to be huge.”
There are about 50 unicorns in the U.S., meaning that Canada is doing pretty well proportionally, Holliday said, adding that there are about 15 other “emerging narwhals” — private companies such as Desire2Learn and Mogo with estimated values in the hundreds of millions of dollars.
Vidyard, a video marketing platform, is one of those up-and-coming tech darlings. It started as a thesis project at the University of Waterloo, but was so successful that it got picked up by Y Combinator, the famous Silicon Valley tech incubator.
Its 29-year-old co-founder Michael Litt said that he preferred to return to Canada, but has noticed stark cultural differences when it comes to risk and failure that have inhibited homegrown innovation.
In the Valley, failure is worn like a badge of honour, “a way of validating their existence in that world,” he said; but in Canada, an aversion to failure has actually led to funding failure.
“There’s this elephant graveyard of companies that should be considered failures, and their founders should wear that failure on their sleeve as a learning experience,” he said.
“If that founder was able to hang up their hat and admit failure, or move on to a new business idea, we might see more billion-dollar businesses.”
Vidyard secured $18 million of funding in January from venture capitalists including OMERS, the municipal employees’ pension fund, a pioneer in investing in early-stage Canadian companies, including Shopify and Desire2Learn.
“We do kiss a lot of frogs,” said Kent Thexton, a managing director at OMERS Ventures, adding that if it invests in 10 companies, five don’t make it, three are modestly successful, one “is a pretty good winner,” and one is a home run.
OMERS’s priority is to earn the maximum return for pension holders but, “we also feel pretty darn good about what we’re doing because it’s important for the country,” he added.
Holliday believes that the relative scarcity of investment dollars flowing into Canadian companies has forced them to prove they’re worth the hype before getting funded, helping to insulate them from what some observers have said could be a tech bubble.
“I think the Canadian companies are probably more robust unicorns because a lot of them bootstrapped it to get further in Canada with real metrics and real revenue.”
The only way for Canada to breed more unicorns is through fostering a very high rate of startup activity and more funding for mid-level companies such as Vidyard, said Iain Klugman, CEO of the Waterloo startup incubator Communitech.
One of the challenges is that while there is a lot of capital available for investment in Canada, “there’s not a lot of capital that is comfortable with risk.”
But there are early signs that things are shifting. A new generation of entrepreneurs is growing up in an era in which more investors are paying attention to Canadian startups, he said.
“Before, we had a few of them and they built remarkable things; now what’s exciting is we have an army of them and the best is yet to come.”