Month: January 2024

The Second Act, the Third Act and the Fourth Act

One of the three things that CEOs only do is to “make sure there is enough cash in the bank” (see job #3 here). Although CFOs may be responsible for much of the heavy lifting, keep in mind that CEOs’ job #1 is to communicate vision and strategies to all stakeholders, which certainly includes potential and existing investors. It is very hard to raise capital to build a great company without great storytelling skills, something almost all great CEOs possess.

Clearly communicating a bold vision is especially important for early-stage venture-backed companies. These companies are usually pre-revenue, pre-product-market-fit, and definitely pre-scaling. From the VCs’ perspective, they invest not only in where the company is today, but also where the company would be, could be, and should be. In many cases, investors buy into the company’s second, third, and fourth acts in the future, as very few great companies are one-trick ponies.

SRTX is the perfect example. Last week, we went to the grand opening of their mega-factory in Montreal. To my knowledge, it is now the largest textile factory in Canada. The pictures and videos don’t do justice to the massive scale of this facility.

This is especially impressive when you know that 180 days ago, when they took over the facility, the roof was leaking, there were no walls, and there was no electricity. The SRTX team moved mountains, rock by rock and at lightning speed, to get the factory ready for production. 

I wish I could share some pictures inside the factory. Unfortunately, I can’t share their secret sauce. If you really want to have an insider view, you have to become an investor 😉

It took 7 years from its inception for SRTX to begin evolving into a fully verticalized behemoth through innovations in advanced material, hardware, and software to deliver traceability, sustainability, durability, and cost advantages, which is now giving them an “unbreakable” advantage – pun fully intended!

Today, millions of Sheertex unbreakable pantyhose are sold. They became THE best-selling pantyhose, unbreakable or otherwise, in North America, not bad for a 15-person company based in Bracebridge, Ontario, a town with a 15,000 population and a 2-hour drive north of Toronto when Two Small Fish Ventures invested!

Now, they are ready to license the IPs of their rip-resistant technology to other textile companies. That’s their second act. Watertex, one of the world’s most hydrophobic polymers that is engineered for unparalleled water resistance for use in, say, swimwear, is their third act. There are other IPs that are in the works. I would call them their fourth act.

But please don’t use the word pivot here. Pivot implies ‘nothing works, let’s try something else.’  Since the early days, Katherine was very clear that selling pantyhose online was the necessary first act to give her the economy of scale before she could begin her second act, third act, and fourth act. What we see today is exactly how she articulated her bold vision when we invested in the seed round five years ago. We bought into her vision, joined the journey, and now, what she told us is becoming a reality. We wouldn’t have invested in a company that was merely selling pantyhose online, even if millions were being sold.

The power couple, Katherine Homuth and Zak Homuth, are not your typical founders. SRTX is rewriting the rules of textiles through innovations. I can’t wait to watch the second, third, and fourth acts unfold right before our eyes from my front-row seat.

P.S. This blog is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, redistribute, remix, transform, and build upon the material for any purpose, even commercially, as long as appropriate credit is given.

Founding CEOs vs. Professional CEOs

Silicon Valley’s founder CEO worship definitely has its merits. As a CEO backed by many valley VCs, I have immersed myself in that view for decades (e.g., Ben Horowitz’s Why We Prefer Founding CEOs). I get it, I understand where it comes from, and I do mostly agree. That’s why TSFV backs founding CEOs almost 100% exclusively.

Great founding CEOs tend to have all three traits: 1) Comprehensive knowledge of the entire company (including knowledge of every employee, product, technology decision, customer data, and the strengths and weaknesses of both the code base and the organization), 2) moral authority, and 3) total commitment to the long-term, while professional CEOs often don’t.

On the other hand, being a great CEO is more than just starting a company. It’s a super stressful job that nobody can learn overnight, and running a company with hundreds or thousands of employees is definitely a different ball game than being a founding CEO of a five-person company. However, founders who can’t scale with the company can’t stay in the captain’s chair forever.

If the two jobs are so different, why do we still prefer founding CEOs, even though many are learning on the job? Because it gives the company the best chance to become ultra-successful.

Typically, a company goes through four stages of growth. I call it the “4S’s”:

  • Start: where everything begins, with just the co-founders and a tiny team.
  • Sprout: achieving product-market fit, with the CEO calling most of the shots in a mostly informal setting.
  • Scale: rapid growth, hiring functional leaders, building depth, and starting to establish business processes. This is often where founder CEOs, especially first-time founder CEOs, stumble as they might lack experience in hiring and leading large teams.
  • Success: achieving a major milestone like an IPO or a massive liquidity event.

But the growth of a company isn’t a waterfall. An innovation company can’t stop innovating once its (first!) product has achieved product-market fit and cannot simply switch gears overnight to focus on business optimization. The most successful companies aren’t one-trick ponies; they need second and third acts long after their first product takes off.

Based on my own experience and my observation of hundreds of CEOs’ personal growth, I can confidently say that it’s far easier for a founding CEO to learn leadership than for a professional hire to become innovative and visionary. When the company hits scale-up mode, a founding CEO’s leadership needs to be solid, but any gaps can be filled by hiring strong leaders. Most founders can successfully make this jump.

On the flip side, pushing someone to be innovative and visionary is much harder, as is finding a team of leaders who can fill that gap for a professional CEO. That’s why it’s tougher for professional CEOs to succeed, though it’s not impossible. It is also possible to hire an “entrepreneurial” professional CEO, although they are rare gems.

However, this is all pretty generalized. Generalization tends to default to pattern recognition without thoughtful consideration of the specificity of the company’s situation. The ideal scenario is a founding CEO leading all the way, but sometimes, if a professional CEO is the only option, that’s what we have to work with.

The good news for TSFV’s portfolio CEOs is that you’ve got a founding CEO who’s been through it all – me! These days, I spend a lot of time helping founding CEOs fast-track their learning to operate more effectively on the job. For our professional CEOs, I offer guidance to help them think and act more like founders. Helping our portfolio CEOs is the best use of my time to ensure our portfolio companies’ success. It is also extremely high-leveraged because sometimes, even a 30-minute conversation with me can help change the trajectory of a company. After all, if our CEOs aren’t successful, it’s nearly impossible for our portfolio companies to be successful, isn’t it?

P.S. This blog is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, redistribute, remix, transform, and build upon the material for any purpose, even commercially, as long as appropriate credit is given.

Goodbye Shallow Tech; The Golden Age of Deep Tech is Upon Us

Last September, I had the honour of being the keynote speaker at the Lab2Market Deeptech Expo, where I discussed the current state of deep tech investments and commercialization. A key theme I emphasized is our growing excitement about deep tech. In fact, I would even argue that we are entering the golden age of deep tech.

Why this belief? Reflecting on the significant “platform shifts” over recent decades reveals a pattern: each shift has unleashed waves of innovation. Consider the PC revolution in the late 20th century, the widespread adoption of the internet and cloud computing in the 2000s, and the mobile era in the 2010s. These shifts didn’t just create new opportunities; they fundamentally altered user behaviour, democratized access, and unlocked unprecedented value.

It goes without saying that the primary beneficiaries of these shifts are the 5 billion internet users and relevant businesses. However, these shifts have also been the biggest enablers of what I term “shallow tech.”

Take, for example, the late 2000s. The App Store’s top charts were dominated by simplistic applications — remember those infamous fart apps?

This era marked the beginning of a trend where ease of creation and user experience overshadowed the depth of innovation. Recall Instagram’s initial release as a straightforward photo-sharing app with just a few attractive filters. Similarly, the first iteration of Wattpad on the Motorola RAZR was a simple Java app, supported by a basic LAMP stack backend.

Subsequent early iPhone, Android, and Blackberry versions were only marginally more complex. Over time, both Instagram and Wattpad evolved into deep tech companies, driven by the massive amounts of data they amassed. However, in both cases, it only took months from concept to launch, despite taking years to become substantial businesses.

In contrast, building deep tech companies from the ground up was far more challenging. Years could be spent developing the technology alone, even before considering market readiness or commercialization. This long cycle made it very hard to build companies and secure funding.

In recent years, however, the landscape has begun to shift. The playbook of developing minimal tech, amassing vast data pools, and then creating a defensible moat through network effects is becoming increasingly difficult. The entrenched network effects of incumbents in both consumer and enterprise spaces make it harder for “shallow tech” startups to achieve escape velocity.

Conversely, as we find ourselves in the midst of another significant platform shift – this time centred around AI – AI is revolutionizing how deep tech companies are started and scaled. For instance, robotic designs can now be developed through a few AI prompts. AI is also transforming chip development, allowing for significant acceleration before tape-out. In drug discovery, AI-assisted processes have condensed timelines from years to mere weeks. These are just a few examples. What once seemed like science fiction is now our reality.

While deep domain expertise in fields like robotics, chips, biotech, and other areas remains crucial, AI is now democratizing deep tech. It’s making it more accessible and is accelerating innovation across numerous sectors. We are on the cusp of a new era, one where the depth of technology plays a far bigger role in building successful companies that reshape our world.

The golden age of shallow tech is over. The golden age of deep tech is upon us!

P.S. This blog is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, redistribute, remix, transform, and build upon the material for any purpose, even commercially, as long as appropriate credit is given.

A New Year Begins: Chasing More Olympic Gold Medals

It has been three years this month since Wattpad was at the centre of one of the largest tech acquisitions in Canadian history. At that time, as team captain, I celebrated an Olympic gold medal win along with the amazing Wattpad team.

Today, a year and a half has passed since I stepped aside from my CEO role, a position I held for 15 years since founding the company. Even a few years before the acquisition, I had already decided it would be my last stint as a CEO. As much as I loved my role, the idea of starting another company from scratch is not appealing to me, as I didn’t want to repeat the same journey over and over again. That’s why I said it’s the final curtain call of my career as a CEO. There was no ‘never say never’ in my decision.

But if you think I would simply sail into the sunset, you are mistaken. That is simply not who I am.

I am naturally a very curious person, always eager to understand how things work. My interests span a wide range of science and technology, from software to semiconductors, quantum to telecom, and everything in between. That’s my obsession.

To me, being ‘the coach’ of a winning team is far more fulfilling than being ‘the captain’ one more time. It is a different challenge, yet it fully utilizes my knowledge, skill, and experience in scaling from 0 to 100. Moreover, the timing couldn’t be better as we are experiencing a once-in-a-decade ‘platform shift’ in the midst of global AI disruption across all industries. Having pioneered AI-driven storytelling at Wattpad, AI is in fact one of my superpowers!

But why limit myself to just one team? Supporting multiple amazing teams simultaneously in building world-class, iconic tech giants and category creators is even better!

It’s a long-winded way of saying that after a year and a half in my post-CEO life, I can 110% confirm that being a venture capitalist is my dream vocation. I can do this forever!

The beast is now fully awakened. My burning desire for more wins has never been stronger. I feel like I am going to the Olympics again, only this time as an investor. Look forward to an amazing 2024, when TSFV and our portfolio companies bring home more gold medals.

Happy New Year, everyone!

P.S. This blog is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, redistribute, remix, transform, and build upon the material for any purpose, even commercially, as long as appropriate credit is given.