op-ed

AI’s Real Revolution Is Just Beginning

Thank you to The Globe for publishing my op-ed about AI last week. In it, I draw parallels between the dot-com crash and the current AI boom—keeping in mind the old saying, “History doesn’t repeat itself, but it often rhymes.” The piece also explores how the atomic unit of this transformation is the ever-declining “cost of intelligence.” AI is the first technology in human history capable of learning, reasoning, creativity, cross-domain thinking, and decision-making. This fundamental shift will impact every sector, without exception, spurring the rise of new tech giants and inevitable casualties in the process. The key is knowing which land to grab!

The piece is now available below.

In the past month, everyone I spoke to has been talking about DeepSeek and Nvidia. Is Nvidia facing extinction? Have certain tech giants overspent on AI? Are we seeing a bubble about to burst, or just another public market overreaction? And what about traditional sectors, like industrials, that haven’t yet felt AI’s impact?

Let’s step back. We’ll revisit companies that soared or collapsed during the dot-com crash – and the lessons we can learn. As Mark Twain reputedly said, “History doesn’t repeat itself, but it often rhymes.”

The answer is that the reports of Nvidia’s demise are greatly exaggerated, though other companies face greater danger. At the same time, new opportunities are vast because this AI-driven shift could dwarf past tech disruptions.

Before 2000, the dot-com mania hit full speed. High-flying infrastructure players such as Global Crossing – once worth US$47-billion – provided backbone networks. Cisco delivered networking equipment, and Sun Microsystems built servers. However, amid the crash, Global Crossing went bankrupt in January, 2002. Cisco plummeted from more than US$500-billion in market cap to about $100-billion. Sun Microsystems sank from a US$200-billion market cap to under US$10-billion.

They failed or shrank for different reasons. Global Crossing needed huge investments before real revenue arrived. Cisco had decent unit economics but lost pricing power when open networking standards commoditized its gear. Sun Microsystems suffered when cheaper hardware and free, open-source software (such as Linux and Apache) undercut it, and commodity hardware plus cloud computing made its servers irrelevant.

However, these companies did not decline because they were infrastructure providers. They declined because they failed to identify the right business model before their capital ran out or were disrupted by alternatives, including open or free systems, despite having the first-mover advantage.

Meanwhile, other infrastructure players thrived. Amazon, seen mostly as an e-commerce site, earned 70 per cent of its operating profit from Amazon Web Services – hosting startups and big players such as Netflix. AWS eliminated the need to buy hardware and continually cut prices, especially in its earlier years, catalyzing a new wave of businesses and ultimately driving demand while increasing AWS’s revenue.

In hindsight, the dot-com boom was real – it simply took time for usage to catch up to the hype. By the late 2000s, mobile, social and cloud surged. Internet-native giants (Netflix, Google, etc.) grew quickly with products that truly fit the medium. Early front-runners such as Yahoo! and eBay faded. Keep in mind that Facebook was founded in 2004, well after the crash, and Apple shifted from iPods to the revolutionary iPhone in 2007, which further catalyzed the internet explosion. A first-mover advantage might not always pay off.

The first lesson we learned is that open systems disrupt and commoditize infrastructure. At that time, and we are seeing it again, an army of contributors drove open systems for free, allowing them to out-innovate proprietary solutions.

Companies that compete directly against open systems – note that Nvidia does not – are particularly vulnerable at the infrastructure layer when many open and free alternatives (such as those solely building LLMs without any applications) exist. DeepSeek, for example, was inevitable – this is how technology evolves.

Open standards, open source and other open systems dramatically lower costs, reduce barriers to AI adoption and undermine incumbents’ pricing power by offering free, high-quality alternatives. This “creative destruction” drives technological progress.

In other words, OpenAI is in a vulnerable position, as it resembles the software side of Sun Microsystems – competing with free alternatives such as Linux. It also requires significant capital to build out, yet its infrastructure is rapidly becoming commoditized, much like Global Crossing’s situation. On the other hand, Nvidia has a strong portfolio of proprietary technologies with few commoditized alternatives, making its position relatively secure. Nvidia is not the new Sun Microsystems or Cisco.

Most importantly, the disruption and commoditization of infrastructure also democratize AI innovation. Until recently, starting an AI company often required raising millions – if not tens of millions – just to get off the ground. That is already changing, as numerous fast-growing companies have started and scaled with minimal initial capital. This is leading to an explosion of innovative startups and further accelerating the flywheel.

The next lesson we learned is that the internet was the first technology in human history that was borderless, connected, ubiquitous, real-time, and free. Its atomic unit is connectivity. During its rise, “the cost of connectivity” steadily declined, while productivity gains from increased connectivity continued to expand demand. The flywheel turned faster and faster, forming a virtuous cycle.

Similarly, AI is the first technology in human history capable of learning, reasoning, creativity, cross-domain functions and decision-making. Crucially, AI’s influence is no longer confined to preprogrammed software running on computing devices; it now extends into all types of machines. Hardware and software, combined with collective learning, enable autonomous cars and other systems like robots to adapt intelligently in real time with little or no predefined instructions.

These breakthroughs are reaching sectors scarcely touched by the internet revolution, including manufacturing and energy. This goes beyond simple digitization; we are entering an era of autonomous operations and, ultimately, autonomous businesses, allowing humans to focus on higher-value tasks.

As with connectivity costs in the internet era, in this AI era, “the cost of intelligence” has been steadily declining. Meanwhile, the value derived from increased intelligence continues to grow, driving further demand – this mirrors how the internet played out and is already happening again for AI. The parallels between these two platform shifts suggest that massive economic value will be created or shifted from incumbents, opening substantial investment opportunities across early-stage ventures, growth-stage private markets and public investments.

Just as the early internet boom heavily focused on infrastructure, a significant amount of capital has been invested in enabling AI technologies. However, over time, economic value shifts from infrastructure to applications – just as it did with the internet.

This doesn’t mean there are no opportunities in AI infrastructure – far from it. Remember, more than half of Amazon’s profits come from AWS. Services, such as AWS, that provide access to AI, will continue to benefit as demand soars. Similarly, Nvidia will continue to benefit from the rising demand. However, many of today’s most-valuable companies – both public and private – are in the application layer or operate full-stack models.

Despite these advancements, this transformation won’t happen overnight, but it will likely unfold more quickly than the internet disruption – which took more than a decade – because many core technologies for rapid innovation are already in place.

AI revenues might appear modest today and don’t yet show up in the public markets. However, if we look closer, some AI-native startups are already growing at an unprecedented pace. The disruption isn’t a prediction; it’s already happening.

As Bill Gates once said, “Most people overestimate what they can achieve in one year and underestimate what they can achieve in ten years.”

The AI revolution is just beginning. The next decade will bring enormous opportunities – and a new wave of tech giants, alongside inevitable casualties.

It’s a land grab – you just need to know which land to seize!

P.S. If you enjoyed this blog post, please take a minute to like, comment, subscribe and share. Thank you for reading!

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.

The depressing numbers of the venture-capital slump don’t tell the full story

Thank you to The Globe for publishing my second op-ed in as many weeks: The depressing numbers of the venture-capital slump don’t tell the full story.

The piece is now available in full here:

Bright spots in the current venture capital landscape exist. You just need to know where to look.

Recent reports are right. Amid high interest rates, venture capitalists have a shrinking pool of cash to dole out to hopeful startups, making it more challenging for those companies to raise funding. In the United States, for example, startup investors handed out US$ 170.6 billion in 2023, a decrease of nearly 30 percent from the year before.

But the headline numbers don’t tell the whole story.

There’s a night-and-day difference between the experience of raising funds for game-changing, deep-technology startups that specialize in artificial intelligence and related fields, such as semiconductors, and those who try to innovate with what’s referred to as shallow tech.

Remember the late 2000s? Apple’s App Store wasn’t groundbreaking in terms of technical innovation, but it nonetheless deserves praise because it revolutionized the smartphone. Then, the App Store’s charts were dominated by simplistic applications from infamous fart apps to iBeer, the app that let you pretend you were drinking from your iPhone.

That’s the difference – those building game-changing tools and those whose products are simply trying to ride the wave.

Tons of startups are pitching themselves as AI or deep-tech companies, but few actually are. This is why many are having trouble raising funds in the current climate.

It’s also why the era of shallow tech is over, and why deep-tech innovations will reshape our world from here on out.

Toronto-based Ideogram, a deep-tech startup, was the first in the industry to integrate text and typography into AI-generated images. (Disclosure: This is a company that is part of my Two Small Fish Ventures portfolio. But I’m not mentioning it just because I have a stake in it. The company’s track record speaks for itself.)

Barely one year old, the startup has fostered a community of more than seven million creators who have generated more than 600 million images. It went on to close a substantial US$80-million Series A funding round.

As a comparison, Wattpad, the company I founded, which later sold for US$660-million, had raised roughly US$120-million in total. Wattpad’s Series A in 2011, five years since inception, was US$3.5-million.

The speed at which Ideogram achieved so much in such a short period of time is eye-popping.

The “platform shifts” over recent decades have largely played out in the same way. From the personal-computer revolution in the late 20th century to the widespread adoption of the internet and cloud computing in the 2000s, and then the mobile era in the 2010s, there’s a clear pattern.

Each shift unleashed a wave of innovation to create new opportunities and fundamentally reshape user behaviour, democratize access and unlock tremendous value. These shifts benefited the billions of internet users and related businesses, but they also paved the way for “shallow tech.”

The late 2000s marked the beginning of a trend where ease of creation and user experience overshadowed the depth of innovation.

When Instagram launched, it was a straightforward photo-sharing app with just a few attractive filters. Over time, driven by the massive amounts of data it collected, it evolved into one of the leading social media platforms.

This time is different. The AI platform shift makes it harder for simplistic, shallow-tech startups to succeed. Gone are the days of building a minimally viable product, accumulating vast data and then establishing a defensible market position.

We’re entering the golden age of deep-tech innovation, and in order to be successful, startups have to embrace the latest platform shift – AI. And this doesn’t happen by tacking on “AI” to a startup’s name the way many companies did with the “mobile-first” rebrand of the 2010s.

In this new era, technological depth is not just a competitive advantage but also a fundamental pillar for building successful companies that have the potential to redefine our world.

For example, OpenAI and Canada’s very own Cohere are truly game-changing AI companies that have far more technical depth than startups from the previous generation. They’ve received massive funding partly because the development of these kinds of products is very capital-intensive but also because their game-changing approach will revolutionize how we live, work and play.

Companies like these are the bright spots in an otherwise gloomy venture-capital landscape.

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.

Canada risks losing out on the GREATEST prize: ownership of industry-disrupting companies and technologies

Thank you to The Globe for publishing my op-ed about the recent capital gains tax increase last week. The piece is now available here.

Once again, to summarize, as the world shifts to intangible assets, the consequences go far beyond brain drain and job loss. We risk losing out on the GREATEST prize: ownership of industry-disrupting, IP-based companies and technologies. This aspect, often overlooked, is illustrated with real-world numbers.

Not having significant ownership of these assets in the information age is equivalent to not having electricity and oil in the industrial age. This would have a devastating and long-term impact on our economy and reputation on the world stage. Canada would be left behind with digital breadcrumbs, selling our next generation short.

The policy change clearly didn’t take this into consideration. Saying that it impacts only 0.13% of the population is so wrong on many fronts. It is abundantly clear that it will impact EVERYONE.

Don’t forget to tell them.

Here is the full copy of my op-ed:

The Liberal government is increasing taxes on investment. Anyone experienced in entrepreneurship and investment knows this will stifle growth. We are at tremendous risk of losing our brightest entrepreneurs – along with the high-skilled jobs they create – to other countries.

This is evidenced by a new survey conducted after the capital-gains tax changes: Just 5.3 per cent of Canadian founders believe Canada is the best place to grow a company.

As the world shifts to intangible assets, the consequences go beyond brain drain and job loss. We will lose out on the greatest prize of the innovation economy: ownership of industry-disrupting companies and technologies. This would have a devastating and long-term impact on our economy and reputation on the world stage.

I will admit that this latest change to taxation has an immaterial impact on me personally. Wattpad, the company I co-founded, was acquired by Korean internet giant Naver for $840-million in 2021 so I’ve already paid my dues as stipulated under the budget at the time. But my experience illustrates how this tax change is detrimental to Canada and future generations.

Because I raised most of the capital from outside of Canada, only half of the company was owned by Canadians, including founders, employees and investors. In other words, when Wattpad was acquired, $420-million of the economic value left our country.

Before the tax hike, it was reported that when our tech startups become scaleups, about 75 cents out of every invested dollar comes from outside of Canada. This means many of these fast-growing companies are already majority-owned by foreigners.

As a venture capitalist, I see this trend play out all the time. The firm I co-founded, Two Small Fish Ventures, has a portfolio of 50 early-stage tech companies. We are the only Canadian investor in many of our recent investments. Foreign investors, especially U.S. investors, are aggressively writing cheques to own a significant portion of these early promising Canadian startups when they are relatively inexpensive.

The tax increase will only exacerbate this problem.

When a company’s assets are purely intangible, and its biggest investors and markets exist outside Canada, it’s natural and far easier for the company to move outside Canada or be acquired by foreigners, such as Wattpad. Needless to say, the economic value creation postacquisition is also captured outside of Canada.

One might argue that these companies create many jobs in Canada, so we still captured some value, right? Well, again, when a company’s assets are mostly intangible, the majority of the economic value created is captured by its IP, not the jobs created. As an example, Wattpad’s payroll was about $30-million per year, not small, but it is a minuscule number compared to the nearly billion dollars that the company was valued at.

There’s also a tectonic shift under way across the innovation economy. The rise of AI and related fields such as semiconductors in particular is an order of magnitude more capital-intensive than previous generations of tech companies. Canada has produced some of the best AI researchers in the world, but when 40 of Forbes’ 2024 AI 50 List are in the U.S. (and more than 30 of them in Silicon Valley) while only two are in Canada, we could have and should have owned a much bigger piece of the pie.

The best example is OpenAI, which was co-founded by Ilya Sutskever, a Canadian. The company is based in San Francisco. The majority of its employees are not in Canada. All the major investors are U.S.-based. Canada only has the bragging rights.

And, do I have to remind everyone that Elon Musk is also Canadian?

In the post-pandemic world, capital and talent are more mobile than ever. The pull to move to other countries is also stronger than ever. Canada is already becoming the best training ground for other countries to capture the value created by these companies outside of Canada.

I want Canada to win. I really do. What motivates me now as an investor is to help create more homegrown Canadian tech giants – and to keep them in Canada. My job just got much harder.

Higher taxes mean less capital, reduced investment, diminished ownership and fewer economic benefits. Period.

At a time when we need more capital to own a meaningful piece of the IP-based economy, our country is going backward. As the economy increasingly shifts toward intangible assets, we will be left behind with digital bread crumbs, selling our next generation short.

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.

Fear of AI?

Just shared my thoughts, titled “We’re wrong to fear artificial intelligence – real life is not science fiction“, on AI’s transformative impact in The Globe and Mail. Here is the full article:

As an engineer-turned-CEO-turned-investor, I’ve been involved in the AI space long enough that I can anticipate where the technology is headed and witnessed AI’s immense potential and its challenges. But remember, tech often solves its own hurdles. With AI, I see a future of superhuman abilities and new job horizons. Let’s embrace this future.

The piece is now available in full here:

Artificial intelligence has been dominating the headlines lately, and with good reason – AI is a transformative technology that can dramatically change how we live, work and play. Although many of the news stories focus on the potential risks and threats of AI, my intent is to present an alternative perspective.

For context, I was the chief executive officer for more than 15 years at Wattpad, an AI-driven storytelling company that was acquired by Naver in 2021. Now at Two Small Fish Ventures, I invest in many established AI companies, such as Ada and BenchSci, as well as emerging generative AI startups, such as Ideogram.

As an engineer-turned-CEO-turned-investor, I’ve been involved in the AI space long enough that I can anticipate where the technology is headed.

Yes, the technology will also create issues. Broadly, they cluster into three categories:

  • Security – from misinformation to autonomous weapons.
  • Job displacement – the replacement of human workers with machines.
  • Singularity – the point where AI might outwit and elude human control.

But I am confident that AI is a transformational technology that will be a net positive for society. Imposing heavy regulation or a pause today seems an unenforceable overreaction and even stifles creativity for potential solutions.

It’s a truism that novel technologies pose new challenges. Yet the remedy for these challenges is typically found within technology itself.

Take security. We’ve seen the narrative play out many times over. In the early days of the internet, people were (rightfully) very concerned about digitally sharing their credit card information. Over time, the widespread adoption of chip/PIN technology, stronger encryption and, ultimately, the birth of an entire cybersecurity industry addressed most of these challenges. Today, there are several technologies that can detect deep fake videos that would otherwise escape authentication systems. It is not hard to imagine that an uber-advanced cybersecurity industry can nullify emerging AI-related threats.

When it comes to the risk of job displacement, this is also something society has been challenged with time and time again. The Industrial Revolution ushered in both job elimination and creation. Yes, automation erases specific roles, but it concurrently births new ones. There is frictional pain and dislocation in the process, and sometimes, the new jobs go to different people in different places, but over time, the total number of jobs actually goes up substantially. Over all, society has thrived, and we’ve all become more prosperous.

AI will help turn humans into superhumans. Just like electronic spreadsheets didn’t sideline accountants but enhanced their efficiency, AI will supercharge worker productivity and output – a key element for economic growth. Plus, the fast pace of innovation will create new jobs that didn’t exist previously, like AI-prompt engineers – a job title that is less than a year old.

Among the outlined concerns, singularity looms largest, primarily because it’s an unknown frontier. But we’ve tread similar paths and crafted tools and innovations surpassing human abilities. And while some of these innovations had complete destructive potential for humanity (think missiles to bioweapons to nuclear arms), their potential for that has been mostly unrealized. In examining any threats from AI, we should be guided by evidence, not irrational fears born out of science fiction.

There will always be opposing forces and bad actors, but we can assume that humans, ironically with the help of AI, can come up with unprecedented solutions to unprecedented problems, just as we have done before.

From the agrarian age to the industrial age to the information age, society has always thrived and flourished amid disruptions. We shouldn’t expect anything different this time.

The Dot-com Bubble, Sept 11, SARS and the Financial Crisis

Note: This blog post was originally shared with Wattpad employees in early April. The following is the modified version for external consumption.

Quite a few people asked me what these previous crises looked like. I am fortunate enough to experience all four crises as a leader. I say I am fortunate because these experiences will help Wattpad navigate through the rough sea this time. Yes, this COVID-19 crisis is different because of its astonishing speed and magnitude. That said, crises always have an end date. This post will tell you how it was in previous crises and the lessons learned.

TLDR:

Don’t panic, but we need to be vigilant. We will get through this, but I need your full cooperation.

In late 1999, I was about to leave my job at Symantec. At that time, I was a young engineering leader building Windows products. But I was fascinated by the potential of internet products. In 1999, the most trafficked internet company was Yahoo. Amazon was a startup. Google was one year old. It would take another 2 years before Wikipedia was born. 5 more years before Facebook was born. That’s how early it was.

In March 2000, I joined Brightspark Labs, an internet incubator (somewhat similar to today’s Techstars and Y-Combinator). At any given point in time, there were about 10 different internet companies under the same roof, and I would be assigned to a couple of companies at a time to help them start or scale. It was fun. It also gave me the visibility of multiple companies.

March 2000 was also the peak of the dot-com bubble. Look at the peak in 2000 in the following chart. That was me standing there! It took another 15 years before NASDAQ to reach this level again.

You might also notice that the market didn't crash overnight

You might also notice that the market didn’t crash overnight. Nasdaq lost about 80% of its value over a period of two years. When Nasdaq started to fall in April 2000, most companies actually kept hiring people. One of the Brightspark portfolio companies that I worked closely with (as their acting Head of Engineering) grew from 3 co-founders in March to over 50 people by summer. It was wild!

As the tech-laden NASDAQ continued the downward trend, investors started to panic. Funding started to dry up. All of a sudden, companies that were heavily relied on raising more capital to fund their operation discovered that the well had gone dry. When high profile companies like Webvan (the largest online grocery company, the Instacart at the time) and Excite@Home (the largest broadband internet portal and service provider in North America at the time) went bankrupt, the negative sentiment started to snowball.

Lesson 1: Never assume you can find investors to fund you.

As NASDAQ continued to fall, the negative sentiment started to spill over to other sectors. More and more consumer targeted dot-com companies started to lay off people or shut down. The aforementioned company that I worked for shrank from 50 to 3 in multiple rounds of layoffs (also within just a few short months). It was even wilder! When there was no investor and the revenue or profit couldn’t support the operation, layoffs were the only option.

Lesson 2: Revenue and profit do matter. A lot.

Initially, many of the backend focused tech companies, such as Nortel – at one point the most valuable Canadian company that employed 100,000 people – believed that they could be immune from the meltdown because they were suppliers to dot-coms but not one of the dot-coms. Wrong.

Then two planes flew into the World Trade Center in NYC on Sept 11, 2001. Good luck if you are hoping for a speedy recovery.

Lesson 3: If your customers are in trouble, you are in trouble too.

Exodus (the AWS before AWS) was another high profile causality. The following was quoted from Ben Horowitz’s The Hard Thing About Hard Things. I can’t say it better than him:

I got another sign when our largest competitor, Exodus, filed for bankruptcy on September 26, 2011. It was a truly incredible bankruptcy in that the company had been valued at $50 billion a little more than a year earlier. It was also remarkable because Exodus had raised $800 million on a “fully funded plan” just nine months earlier. An Exodus executive later joked to me: “When we drove off a cliff, we left no skid marks.” If Exodus could lose $50 billion in market capitalization and $800 million in cash that fast, I needed a backup plan.

Lesson 4: When your expenses are out of control, no one can save you. Don’t run out of cash. Just don’t. (note: this lesson may sound obvious but history is telling us that it is not that obvious to many people) 

Even Amazon was reportedly close to running out of cash.

Lesson 5: If you could stay alive during the darkest moment, you would come out on the other end much stronger because your competitors are battered and bruised.

There were numerous high profile bankruptcies in the Silicon Valley and outside of the Valley. In the Valley, the office vacancy rate was sky high – rising to 20% from 0.6% percent only 18 months earlier – because so many companies disappeared. Unemployment rate in the Valley hit 10% (note: as a comparison in Feb 2020, US unemployment rate was 3.5%). I have a friend in the Valley who spent over a year looking for a job without success. He eventually decided to change career and moved elsewhere. He was not alone.

It is worth mentioning that despite these major shocks, the collapse was mainly contained in the tech sector. Yes, the spillover caused a recession in the broader market but it was relatively brief and shallow.

Around that time, I co-founded my first company Tira Wireless within Brightspark. Fortunately, Brightspark seeded the company so we didn’t have to worry too much about fundraising initially. My Wattpad co-founder Ivan joined Tira as one of the early employees after his last employer Delano turned off the light. Delano was another high profile bankruptcy in Toronto. It employed hundreds of people at one point but it went from boom (went public in early 2000) to bust in exactly 2 years.

Anyway, Tira was nimble, scrappy and resourceful. With just a handful of people in the company (I think seven), we moved fast, found a clear opportunity in the rapidly evolving market and built something that was good enough to attract an investor in late 2002. It was really tough to raise money at the bottom of the market. Terms were crappy. But at least we could continue to build the company.

Lesson 6: Keep hustling and be nimble. Crisis and market disruption always create new opportunities. Always.

With some additional capital in the bank, we had an ambitious plan ahead of us.

Then a new virus called SARS arrived in early 2003.

Fortunately, the virus disappeared quickly. It was mostly contained in Asia. That said, the recovery momentum was slowed substantially but there was no major shock. The US didn’t even enter a recession.

Between 2004 to 2007, a new crop of internet companies – collectively called Web 2.0 companies – started to emerge. These companies include many household names such as YouTube and Facebook. Of course, Wattpad started during this era as well. It was a great time to start a company because the competition wasn’t as fierce. Tech investors became active again. Tech experienced a Renaissance. Towards the end of this era, great and not-so-great companies all get funded. Valuation became a bit out of control (in the last decade’s standard). By the end of 2007 the unemployment rate in the Valley fell back to the dot-com bubble level.

At the same time, trouble signs began to emerge in the financial sector. Multiple financial giants faced liquidity problems. Lehman Brothers collapsed in Sept 2008 and the world officially entered the Great Recession. Tech unemployment rate went up to the post-dot-com record level as many tech companies went through rounds of layoffs or bankruptcies. Consider this as the dot-com bubble 2.0. Fortunately, other ailing financial giants were all bailed out by the governments. There was a spill over to many other sectors, like auto manufacturing, which the governments promptly bailed out as well. Thanks to the bailouts, the 18-month recession was deep but given the magnitude of the problem, it wasn’t painfully long. Around that time, Apple App Store emerged. Together with Android, the smartphone era officially began. After bootstrapping Wattpad for more than three years, we raised our first round of seed funding towards the end of 2009. 2009 also marked the beginning of the longest bull run of tech and the broader market in history until it ended abruptly last month.

This COVID-19 crisis is different in so many ways. It arrived at astonishing speed – in early March most of the world was still business as usual. Four weeks later, more than half the world is now locked down. COVID-19 is a pandemic while SARS was not. The magnitude of this current crisis is also unprecedented – it is a global, extremely severe, cross-sector recession. The following two charts clearly illustrate the magnitude of the fallout. According to NY Times, the weekly unemployment number was only capped at 6.6 million because the unemployment offices have been overwhelmed by the volume and couldn’t keep up! BTW, I now know the negative impact can be more than 100%. Please read the fine print on the second chart. I never knew it’s even mathematically possible!

6 million because the unemployment offices have been overwhelmed by the volume and couldn't keep up!
Based on these numbers, it is not wrong to say:

Based on these numbers, it is not wrong to say:

dot-com bubble + Sept 11 + SAR + the Great Recession = COVID-19 x 10%

Therefore, we have to assume that this recession is going to be prolonged and severe. If it bounced back quickly, that’s great! But there is a good chance that it is not going to be a speedy recovery.

When things look black, there’s always a silver lining that we can learn from the survivors and the casualties. The former has cash. The latter ran out of cash. As simple as that.

And there are only two ways to improve the cash position: earn more and spend less. And we have to play both offense (i.e. seize the new opportunities) and defense (i.e. conserve cash) simultaneously.

To recap: these are the six lessons I learned from previous crises that are also applicable now:

Lesson 1: Never assume you can find investors to fund you.

Lesson 2: Revenue and profit do matter. A lot.

Lesson 3: If your customers are in trouble, you are in trouble too.

Lesson 4: When your expenses are out of control, no one can save you. Don’t run out of cash. Just don’t.

Lesson 5: If you could stay alive during the darkest moment, you would come out on the other end much stronger because your competitors are battered and bruised.

Lesson 6: Keep hustling and be nimble. Crisis and market disruption always create new opportunities. Always.

Allow me to drive home the point one more time: earn more, spend less and we will survive the storm stronger than ever.

Canada’s Economy Needs a Second Act

Note: This blog post was originally shared on BetaKit, Canada’s startup and tech innovation publication of record.

This weekend, while celebrating Canada Day with family and friends, and in the midst of a constant stream of news about a growing trade war with the US, I had a chance to reflect on the future of this country and our economy.

Canada’s economy is the 10th largest in the world, of which a massive 70.7 percent comes from services. We are unusual among developed countries in that some of our largest industries are oil and forestry, natural—and finite—resources that contribute huge amounts to Canada’s economy. Canada has the world’s third-largest proven petroleum reserves and is the fourth largest exporter of petroleum. We are also the fourth largest exporter of natural gas.

While the oil industry helped propel Canada to the top 10 in the world, the good times won’t last forever. Why? This price history of solar cells says it all: since the 1970s the per-watt cost of solar energy has fallen from more than $76 to less than 74 cents.

The genie is already out of the bottle. Renewable energy will create a dramatic shift in demand for oil and gas. In the next decade, the energy sector will see more change than it has in the past century.

Canada also has a sizable manufacturing sector, particularly in the automobile industry. However, more often than not, Canadian plants are merely branches to foreign companies. Unfortunately, Canada has no ownership in the brands and the intellectual properties that are very valuable and have lasting value.

Entertainment is another major sector for Canada, employing hundreds of thousands of people and representing close to 2.8 percent of our GDP. While many Hollywood TV and movies projects are produced in Canada, we capture few of the upsides; even if a locally-produced project is a mega-hit, we’re still providing a service to the Hollywood studios. Studios based in Los Angeles can easily choose to make their next movie somewhere else if Canadian locations aren’t price-competitive. Unlike Hollywood, Canada’s rich and creative entertainment industry heavily relies on government subsidies and remains transactional.

Energy and entertainment create many jobs in Canada, but we all know that industries can turn on a dime. Case in point: the ongoing trade war with the US. Canada can’t solely rely on oil and providing services to foreign companies to sustain our growth in the future.

Canada’s economy needs a second act. Fast.

The good news is that we have all the raw material to pull it off. How? Canada has already emerged as one of the world’s leaders in artificial intelligence and blockchain. Ethereum-one of the most important blockchain-based technologies-was born in Toronto. As such, the city has a disproportionate number of blockchain experts. AI and blockchain are two great examples of why Canada is leading the pack in the new data-driven economies. At the moment, the top 10 most valuable companies in the world are data-driven tech companies. This includes the likes of Amazon, Apple, Microsoft, Tencent, Alibaba, Alphabet and Facebook. Data is clearly the new oil.

With a thriving tech ecosystem and abundance of experts in leading fields like AI and blockchain, Canada has the potential to create the next generation of tech giants.

Canada’s leadership has led to many foreign companies to set up their AI research labs here. But you’d be right to point out that this just recycles a problematic model, in which foreign companies control these important jobs and retain intellectual properties generated by publicly funded research.

These are valid concerns. At the same time, we see a virtuous cycle emerge from this situation, in which (often) foreign companies help attract and retaining talent in Canada, benefiting the country in the long term. That said, if all of the new jobs created by these data-driven companies are all foreign-owned, it will be a missed opportunity for Canada. We’ll be reproducing what we now see in the auto and the entertainment industries. Canada could have created a Ford or a Warner Brothers decades ago.

The solution is not to prevent foreign companies from setting up shops here. Tariffs and walls are not the solutions. Just look at the Valley. Many foreign companies open up branch offices there, but the domestic firms are all thriving at the same time. If Canada produces many billion dollar companies, who cares if Amazon opens up an office here or not?

What Canada really needs is an environment where many—not just one or two—domestic world-class tech giants can emerge. The kind of companies that make a lasting impact on the Canadian economy. Fortunately, the seed has been sowed. For the first time, the environment has been created for domestic data-driven tech firms to thrive and succeed. I know because I’m the CEO & co-founder of Wattpad, one such company. In Canada’s technology sector, the wind is at our back. It is up to us to pull this off.

I am absolutely grateful for the opportunity to lead one of the rocket ships that is helping Canada pull off its second act.

#HappyCanadaDay.