When Eva and I were on stage yesterday at Entrepreneurship Week at the University of Toronto, moderator Bianca Bharti from BetaKit asked us:
“Given we are celebrating women and raising awareness about related issues this week, what do you want to tell the audience here today?”
Here is what I said. When I was Wattpad’s CEO, we didn’t just talk about diversity or run flashy programs just to make us look good. Instead, we invested in it. We allocated real resources, dollars, and people’s time to create a truly diverse and inclusive culture at Wattpad.
The business reason was simple – half the world’s population is female. If we want to properly capture this market, do you really think a bunch of male guys in the room can figure this out?
The end result is that we achieved gender parity at BOTH the employee level and the leadership team level. However, the numbers don’t tell the whole story. Anyone who worked for Wattpad can testify that we have created a truly inclusive culture.
Personally, I would consider this one of our biggest achievements.
But that was only the first chapter of the story. At Two Small Fish Ventures, we carry the same DNA. It was mostly Eva’s work, as I only started to be more involved in recent years. Through inspiration, advocacy, and mentorship, we achieved 50% female founders in our portfolio. In fact, many of our rocket ships are female-led.
Our job is not done yet. Together, we can change how the world operates.
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 couple of months ago, I blogged about a report from the investment firm LetkoBrosseau, titled “Canada Has Cut Back on Investing in Its Greatest Asset—Itself.” This report highlights how minimally the Canadian pension system is investing in Canada. The blog post quickly became one of my most popular in recent times.
Shortly after, the founders of LetkoBrosseau reached out to me and asked if I would be interested in participating in an open letter addressed to our Minister of Finance of Canada and the Provincial Finance Ministers. After reading the draft, I replied with a resounding “yes” without much hesitation. Over 100 business leaders in Canada also agreed to participate. You can see the coverage on The Globe and Financial Post.
This is the slide from the original report that caught my attention and summarizes it well:
I believe that Canadian pension funds are among the best in the world. Our pension funds are adept at finding some of the best investment opportunities globally and generating the best “returns” for us. They are doing the job they were tasked with doing.
However, while they generate the best “returns” from their investments, they are not asked to consider the economic impact of the “feedback loop” highlighted in green. This feedback loop encompasses the second-order effects and its economic benefits from investing in Canada. In other words, “the best returns to Canadians (the pensioners)” are not necessarily the same as “the best investment returns.” More importantly, these two aren’t mutually exclusive. With some fine-tuning to the investment sourcing process, for instance, achieving the best returns for Canadians shouldn’t come at the expense of achieving the best investment returns.
To be clear, I am not in a position to tell pension funds where or what to invest in, let alone suggest they invest solely or primarily in Canada. They are the experts and have been performing outstandingly. However, we need to change how we evaluate investment returns to include the second-order effects of investing in Canada. This adjustment would encourage pension funds to seek out investments that serve pensioners best when these effects are considered in their evaluations. I believe no one would argue against this approach.
You can read the open letter here:
Dear Minister of Finance of Canada and Provincial Finance Ministers,
We are concerned with the decline in Canadian investments by pension funds and its impact on the Canadian economy. Millions of Canadians have contributed to their pensions with wages earned in Canada.
Pension funds represent approximately 37% of institutional savings in Canada, a size comparable to the banks. Contrary to the banks and insurance companies that focus mainly on debt, pension funds are unique in their ability to be patient long term equity investors, just what Canada needs to forge its future.
Canadian Pension Funds have reduced their holdings of publicly traded Canadian companies from 28% of total assets at the end of 2000 to less than 4% at the end of 2023. It is estimated that the eight largest pension funds in Canada have more invested in China (roughly $88B) than they do in Canadian public and private equities (roughly $81B). Their holdings of all Canadian based equity investments including public and private companies, real estate, and infrastructure is down to approximately 10% of total assets.
Why should we care?
Canada’s gross domestic product (GDP) per capita has fallen from 95% of US GDP per capita in 1980 to 75% in 2023. Non-residential investment per worker in Canada is less than half that of the United States. For every dollar Canadians invest in startups, the United States invests $40.
Canada benefits from enormous advantages. It is one of the most developed economies in the world and has been a wonderful place to invest. Over the last 25 years Canadian equity markets have topped the G7 countries and have consistently delivered very competitive returns.
Investment opportunities exist in many countries, and we believe pension funds should be able to invest anywhere in the world. However, investments made in Canada do not impact just pension portfolios; they also have a considerable impact on the country’s economy: generating jobs, improving incomes, and increasing contributions to retirement plans. Less investment in Canadian businesses increases their cost of capital, discounts their value, reduces their ability to grow, and makes Canada less attractive.
Pension funds should not fear but rather embrace with enthusiasm the challenge of investing in Canada. The positive impact these investments have on their member’s incomes and development should not be ignored.
Without government sponsorship and considerable tax assistance, pension funds would not exist. Government has the right, responsibility, and obligation to regulate how this savings regime operates.
Canada has great companies, true global champions These competitive businesses deserve our support, and we must create many more. Increasing investments in Canada should be a national priority.
Given their importance to the Canadian economy we, the undersigned, would support an effort by the Minister Finance of Canada and the Provincial Ministers of Finance to amend the rules governing pension funds to encourage them to invest in Canada. Consideration should also be given to incentivize other investors to allocate more capital to domestic investment.
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.
Most of Two Small Fish Ventures’ portfolio companies are based in North America. However, we also invest globally, as we firmly believe that global companies can be built anywhere. To us, where founders and their teams sleep at night is irrelevant to their potential for greatness.
Consequently, we actively engage with many tech ecosystems, regardless of their size. A pervasive issue we’ve encountered across these ecosystems is the challenge entrepreneurs face in finding investors who provide not just capital but the right kind of support. This problem is more acute in less developed ecosystems, but even those that are more established are not exempt.
An investor from another ecosystem eloquently discussed this issue in an article. I couldn’t have said it better myself, so with her permission, I’m sharing her insights here, albeit anonymized to avoid casting any ecosystem in a negative light. After all, this challenge is universal:
There are plenty of rich people and “wantrepreneur” investors in our community, but most of them have made their fortune in real estate, finance, or other traditional sectors. They have great intentions, but unfortunately they do not have experience in investing in technology and innovations. Some of them would take too much equity ownership. Some of them have conflicts of interest pursuing their own agendas and push their founders to work on products or customers that they want. Some are so risk averse that they structure their startup investment as if it is a personal loan. We have seen our startup founders take money from these investors and almost always end in disaster.
What our community really needs are the startup investors who have “been there and done that.” Or we will continue to be stuck in this vortex of wrong investors investing in the wrong companies. We need investors who truly understand the startup founders’ blood, sweat and tears approach. Someone who knows how to be a guide and a coach. Someone who knows how to provide advice, connections, and funding only when the founder really needs it.
To achieve this goal, we need to invite investors from established ecosystems to teach local investors the best practices in venture investing. And we do believe these skills can be learned. The local investor community needs the knowledge and skills to make investment decisions that maximize the founders’ success therefore their chances of success.
Investing in innovation significantly differs from other forms of investment. For instance, real estate investments have established methods to evaluate rental yields, and traditional businesses use EBITDA to estimate enterprise values. However, early-stage startups, particularly those disrupting the status quo, cannot be evaluated using these metrics because of their lack of yields or EBITDA, or even clear business models!
Often, experienced investors from other sectors mistakenly apply the same approach when they invest in tech startups, leading to almost certain failures. This can result in many problems, such as a messy cap table, ensuring the startup unfundable in future funding rounds and potentially “die young” despite its potential. We’ve regrettably had to pass on numerous investment opportunities due to such issues.
As the quoted investor highlighted, learning the skills and best practices in tech investing is possible. Needless to say, the best way to do this is to learn from people who have “been there and done that.” It’s crucial to acknowledge that investing in tech startups – and innovations in general – is a different sport than other sectors.
After all, bringing a tennis racket to a hockey game is a recipe for disaster.
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.
