Those who know me well would tell you I am a pretty boring person. I don’t have many hobbies, but one thing I do love is gadgets. For instance, I’m a big fan of DIY home automation. Practically every electronic device in my house is voice-controlled, automated, and Wi-Fi-connected—if it can be, it probably is. Here’s a fun example:
I love robots doing things for me because, frankly, I’m too busy.
At this rate, I might run out of IP addresses! Sure, I could change my network’s subnet to enable more, but every time I tinker with my setup, I have to invest time getting everything right again—something I don’t have in abundance. Anyway, I digress.
One gadget I’ve wanted for years but hesitated to get is a home energy storage and backup system, like Tesla’s Powerwall. The Powerwall 2 has been around since 2016, but for years, the Powerwall 3 was “just around the corner,” with rumours of its launch “next month” seemingly every month. I didn’t want to invest in a device I planned to use for a decade only for it to become obsolete right after I bought it.
Finally, the wait is over. Powerwall 3 became available earlier this year, and I’m glad I waited. Its specs—peak power, continuous power, and efficiency—are significantly upgraded from Powerwall 2. That said, I was a little disappointed that its battery capacity remained unchanged.
I’m told this was the first Powerwall 3 installation in Canada, which is pretty exciting! It’s a beautiful piece of technology, though I don’t see much of it since it’s tucked away in the basement. Paired with solar panels, I hope to “off the grid” as much as possible.
As good as the Powerwall 3 is, it’s only part of the solution. While it handles storage and backup very well, it doesn’t provide fine-grained energy monitoring, let alone control. To address this, I also installed a Sense energy monitor. This device, connected to the electrical panel, collects real-time data from electrical currents to identify unique energy signatures for every appliance and device in the home. It’s a hack, a retrofit solution and imperfect, but it’s probably the best option for someone like me, who is entrenched in the Tesla ecosystem.
The energy space hasn’t changed much in the past half-century. Take the electric panel, for example—it’s still essentially the same analog system I remember from my childhood. However, with the rapid acceleration of the energy transition, smarter energy systems are becoming critical as hardware and software converge to enable new possibilities.
A big thanks to James and Dave from the Borealis Clean Energy team for helping me with this project —and for arriving in style with Canada’s first Cybertruck. The project has so many moving parts. Their expertise made this journey much smoother.
Unboxing PW3!Zooming in to the power electronics.The electricians are working hard. It is a big job!It is done!A big thank you to James.This is the Tesla Gateway, a separate box we need to install. It is a smaller box—roughly a quarter of the size of PW3—and where “the brain” is located. Adding Sense – the orange box – to my old-school electric panel to help me with device-level monitoring.First Cybertruck in Canada. This thing draws attention.
In previous blog posts (here and here), I’ve delved into the mathematical model for constructing an early-stage VC portfolio designed to achieve outsized returns. In short, investing early to build a concentrated portfolio of fewer than 20 moonshot companies, each with the potential for 100x returns or more, is the way to go.
The math is straightforward—it doesn’t lie. Not adhering to this model can significantly reduce the likelihood of achieving exceptional returns.
However, simply following this model is not enough to guarantee outsized results. Don’t mistake correlation for causation! The real challenge lies in identifying, evaluating, and supporting these “100x” opportunities to help turn their vision into reality.
At TSF, we use a simple framework to evaluate whether a potential investment can meet the 100x criteria:
10x (early stage) x 10x (transformative behaviour) = 100x conviction
The first “10x” is straightforward: We invest when companies are in their earliest stages. For instance, over the past two years, all but one of TSF’s investments have been pre-revenue. This made financial analysis simple—those spreadsheets were filled with zeros!
Many of these companies are also pre-traction. While having traction isn’t a bad thing, savvy investors shouldn’t rely on it for validation. The reason is simple: traction is visible to everyone. By the time it becomes apparent, the company is often already too expensive and out of reach.
At TSF, we have a unique advantage. Before transitioning to investing, all TSF partners were engineers, product experts, successful entrepreneurs, and operators—including a “recovering CEO”—that’s me! Each partner brings distinct domain expertise, collectively creating a broad and deep perspective. This allows us to invest only when we possess the domain knowledge needed to fully evaluate an opportunity. We “open the hood” to determine whether the technology is genuinely unique, defensible, and disruptive, or whether it is easily replicable. If it’s the latter, we pass quickly. A strong, defensible tech moat is a key criterion for us. This approach means we might pass on some promising “shallow-tech” opportunities, but we’re very comfortable with that. After all, we believe the best days of shallow tech are behind us.
Maintaining a concentrated portfolio allows us to commit only to investments where we have unwavering conviction. In contrast, a large portfolio would require us to find a large number of 100x opportunities and pursue those we might not fully believe in. Frankly, I wouldn’t sleep well if we took that route. This route would also make it difficult to provide the meaningful, tailored support we’ve promised our entrepreneurs (more on that in a future post).
When evaluating product potential, we look beyond the present. At TSF, we assess how a technology might reshape the landscape over the next decade or more. We start by understanding the intrinsic needs of the user and envision how a product could fundamentally change customer or end-user behaviour. This is crucial: if a product that addresses a massive opportunity has a strong tech moat, first-mover advantages, and the ability to change behaviour while facing few viable alternatives, it can unlock significant new value and create a defensible, category-defining business.
This often translates into substantial commercialization potential. If we can foresee how the product might evolve into adjacent markets (its second, third, or even fourth act) with almost uncapped possibilities, we achieve the “holy trinity” of tech-product-commercialization potential—forming the second 10x of our conviction.
Here’s how we describe it:
Two Small Fish Ventures invests in early-stage products, platforms, and protocols that transform user behaviour and empower businesses and individuals to unlock new, impactful value.
This thesis underpins our investment decisions and ensures that each choice we make aligns with our long-term vision for transformative innovation.
While this framework may sound simple, executing it well is extremely difficult. It requires what I call a “crystal ball” skill set that spans the full spectrum of entrepreneurial, technical, product, and operational backgrounds.
Over the past decade, we’ve built a portfolio of more than 50 companies across three funds. By employing this approach, the entrepreneurs we’ve supported have achieved numerous breakout successes. This post outlines our “secret sauce,” and we will continue to leverage it.
As you can see, early-stage VC is more art than science. To do it well requires thoughtfulness, insight, and the ability to envision the future as a superpower. It’s challenging but incredibly rewarding. I wouldn’t trade it for anything.
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.
More than two decades ago, before I started my first company, I was involved with an internet startup. Back then, the internet was still in its infancy, and most companies had to host their own servers. The upfront costs were daunting—our startup’s first major purchase was hundreds of thousands of dollars in Sun Microsystems boxes that sat in our office. This significant investment was essential for operations but created a massive barrier to entry for startups.
Fast forward to 2006 when we started Wattpad. We initially used a shared hosting service that cost just $5 per month. This shift was game-changing, enabling us to bootstrap for several years before raising any capital. We also didn’t have to worry about maintaining the machines. It dramatically lowered the barrier to entry, democratizing access to the resources needed to build a tech startup because the upfront cost of starting a software company was virtually zero.
Eventually, as we scaled, we moved to AWS, which was more scalable and reliable. Apparently, we were AWS’s first customer in Canada at the time! It became more expensive as our traffic grew, but we still didn’t have to worry about maintaining our own server farm. This significantly simplified our operations.
A similar evolution has been happening in the semiconductor industry for more than two decades, thanks to the fabless model. Fabless chip manufacturing allows companies—large or small—to design their semiconductors while outsourcing fabrication to specialized foundries. Startups like Blumind leverage this model, focusing solely on designing groundbreaking technology and scaling production when necessary.
But fabrication is not the only capital-intensive aspect. There is also the need for other equipment once the chips are manufactured.
During my recent visit to ventureLAB, where Blumind is based, I saw firsthand how these startups utilize shared resources for this additional equipment. Not only is Blumind fabless, but they can also access various hardware equipment at ventureLAB without the heavy capital expenditure of owning it.
Let’s see how the chip performs at -40C!
Jackpine (first tapeout)
Wolf (second tapeout)
BM110 (third tapeout)
The common perception that semiconductor startups are inherently capital-intensive couldn’t be more wrong. The fabless model—in conjunction with organizations like ventureLAB—functions much like cloud computing does for software startups, enabling semiconductor companies to build and grow with minimal upfront investment. For the most part, all they need initially are engineers’ computers to create their designs until they reach a scale that requires owning their own equipment.
Fabless chip design combined with shared resources at facilities like ventureLAB is democratizing the semiconductor space, lowering the barriers to innovation, and empowering startups to make significant advancements without the financial burden of owning fabrication facilities. Labour costs aside, the upfront cost of starting a semiconductor company like Blumind could be virtually zero too.
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.
When it comes to watches, my go-to is a Fitbit. It may not be the most common choice, but I value practicality, especially when not having to recharge daily is a necessity to me. My Fitbit lasts about 4 to 5 days—decent, but still not perfect.
Now, imagine if we could extend that battery life to a month or even a year. The freedom and convenience would be incredible. Considering the immense computing demands of modern smartwatches, this might sound far-fetched. But that’s where our portfolio company, Blumind, comes into play.
Blumind’s ultra-low power, always-on, real-time, offline AI chip holds the potential to redefine how we think about battery life and device efficiency. This advancement enables edge computing with extended battery life, potentially lasting years – not a typo – instead of days. Products powered by Blumind can transform user behaviours and empower businesses and individuals to unlock new and impactful value (see our thesis).
Blumind’s secret lies in its brain-inspired, all-analog chip design. The human brain is renowned for its energy-efficient computing abilities. Unlike most modern chips that rely on digital systems and require continuous digital-to-analog and analog-to-digital conversions (which drain power), Blumind’s approach emulates the brain’s seamless analog processing. This unique architecture makes it perfect for power-sensitive AI applications, resulting in chips that could be up to 1000 times more energy-efficient than conventional chips, making them ideal for edge computing.
Blumind’s breakthrough technology has practical and wide-ranging applications. Here are just a few use cases:
• Always-on Keyword Detection: Integrates into various devices for continuous voice activation without excessive power usage.
• Rapid Image Recognition: Supports always-on visual wake word detection for applications such as access control, enhancing human-device interaction with real-time responses.
• Time-Series Data Processing: Processes data streams with exceptional speed for real-time analysis in areas like predictive maintenance, health monitoring, and weather forecasting.
These capabilities unlock new possibilities across multiple industries, including wearables, smart home technology, security, agriculture, medical, smart mobility, and even military and aerospace.
A few weeks ago, I visited Blumind’s team at their ventureLAB office and got an up-close look at their BM110 chip, now in its third tapeout. Blumind exemplifies the future of semiconductor startups through its fabless model, which significantly lowers the initial infrastructure costs associated with traditional semiconductor companies. With resources like ventureLAB supporting them, Blumind has managed to innovate with remarkable efficiency and sustainability. (I’ll share more about the fabless model in an upcoming post.)
I’m thrilled to see where Blumind’s journey leads and how its groundbreaking technology will transform daily life and reshape multiple industries. When devices can go years without needing a recharge instead of mere hours, that’s nothing short of game-changing.
Image: Close-up view of BM110. It is a piece of art!
Image: Qualification in action. Note that BM110 (lower-left corner) is tiny and space-efficient.
Image: The Blumind team is working hard at their ventureLAB office. More on this in a separate blog post here.
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.
We’re thrilled to share that Printify, a company we have proudly backed since its first funding round, has entered into a merger with Printful (see report by TechCrunch). As long-time supporters of the Printify team, we at Two Small Fish Ventures are incredibly happy with this outcome, which marks a significant milestone in the production-on-demand industry and an exciting moment for everyone involved.
Printify and Printful are both leading platforms that empower entrepreneurs and businesses to create and sell custom products worldwide without the need to hold inventory, thanks to their advanced production-on-demand fulfillment networks. Printify has been growing rapidly, now boasting a team of over 700 employees. Combined with Printful’s team, the newly merged company will have well over 2,000 employees, making it by far the number one player in the production-on-demand market.
Printful, with over $130 million raised and a valuation exceeding $1 billion, and Printify, backed by $54.1 million in funding, have established themselves as the top two global leaders in this field. This merger solidifies their position as the dominant force in the industry, setting new standards and driving innovation in production-on-demand services worldwide. We’re proud to have supported Printify from the very beginning and look forward to witnessing the next chapter in their remarkable journey.
P.S. In true spirit of unity, founders Lauris Liberts and James Berdigans have sealed the deal by swapping T-shirts with each other’s logos—because nothing says “teamwork” like wearing the competition’s brand!
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.
In 2006, Wattpad started as a simple mobile reading app, mainly for classic books. Fifteen years later, it evolved into a global, AI-powered, multi-platform entertainment company with numerous blockbusters before being acquired.
As you can imagine, my role as CEO at the start of Wattpad—when it was just the co-founders and a few hundred users—was drastically different from leading a team of hundreds of employees and overseeing a platform with 100 million users.
A Typical Entrepreneur’s Evolution
In the early years, the founders focused solely on building a product and finding product-market fit, with little thought given to the business side. At this stage, the CEO is the engineer writing code, the product manager, and the product visionary, all rolled into one.
As traction builds and product-market-fit comes into sight, the CEO’s role begins to shift. Suddenly, hiring becomes a priority, and managing people and operations takes center stage. The CEO goes from being a product builder to a hiring and people manager who leads a small, close-knit team and handles the operations that come with it.
Fast forward another phase, and the company is growing even faster. Now, the CEO is no longer just a manager but the manager of managers, responsible for hiring leaders who can build and lead their own teams. Communication becomes an even more critical skill, as the CEO now leads a much larger team—many of whom don’t frequently interact with the CEO. Business models become increasingly crucial, and new tasks, like fundraising, take on greater importance.
As growth continues, the CEO’s role shifts yet again, this time to hiring leaders of leaders—or even leaders of leaders of leaders. Now, the CEO is juggling closing million-dollar sales with key customers, navigating strategic partnerships, working with the CFO to manage finances at scale, media interviews, building the brand, international expansion, raising capital from large institutional investors, and, of course, leading hundreds or thousands of employees. The skill set required here is worlds apart from that of the early days of coding and prototyping.
Entrepreneurship Is Constant Reinvention
Each phase of a company’s growth requires a radically different skill set: moving from building the idea to scaling a product, building the team, leading a large organization, and eventually creating a profitable business. The entrepreneur evolves from crafting the “secret sauce” to building a factory to mass-produce it.
I have yet to meet an entrepreneur who possessed all these skills from the start. The journey demands constant learning—whether it’s coding, product design, finances, fundraising, marketing, sales, or leadership.
I can testify to this: there were numerous times when I thought the company was a well-oiled machine. Six months later, things would feel like they were falling apart. It wasn’t because I had messed up, but because the environment had changed drastically in such a short time. I had to keep upping my game to keep pace with the company. I am completely different from—and better than—the version of myself a decade ago—and not just once, but many times over.
As an entrepreneur, be prepared. As your company scales, you’re effectively getting a new job every few months. This journey is thrilling and challenging, and filled with lifelong learning and self-improvement.
The Biggest Takeaway
And yet, the most important product you’re building isn’t your company’s product. It isn’t even the company—it’s yourself.
If, every two years, you’re not almost unrecognizable from your former self, you’re not growing fast enough, and you will be left behind by your own fast-growing company.
This takeaway isn’t just for CEOs. It applies to anyone working at a fast-scaling company and to anyone with a growth mindset. If you get this right, everything else will follow, and you’ll be in good shape. From my experience, this is one of the most crucial mindset-building tools you can have.
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.
More than two decades ago, I co-founded my first company, Tira Wireless. The business went through several iterations, and eventually, we landed on building a mobile content delivery product. We raised roughly $30M in funding, which was a significant amount at the time. We even ranked as Canada’s Third Fastest Growing Technology Company in the Deloitte Technology Fast 50.
We had a good run, but eventually, Tira had to shut its doors.
We made numerous strategic mistakes, and I learned a lot—lessons that, quite frankly, helped me make far better decisions when I later started Wattpad.
One of the most important mistakes we made was falling into the “bridge technology” trap.
What is the “bridge technology” trap?
Reflecting on significant “platform shifts” over recent decades reveals a pattern: each shift unleashes 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 also created significant pain points as the world tried to leap from one technology to another. Many companies emerged to solve problems arising from these changes.
Tira started when the world began its transition from web to mobile. Initially, there were countless mobile platforms and operating systems. These idiosyncrasies created a huge pain point, and Tira capitalized on that. But in a few short years, mobile consolidated into just two major players—iOS and Android. The pain point rapidly disappeared, and so did Tira’s business.
Similarly, most of these “bridge technology” companies perform very well during the transition because they solve a critical, short-term pain point. However, as the world completes the transition, their business disappears. For instance, numerous companies focused on converting websites into iPhone apps when the App Store launched. Where are they now?
Some companies try to leverage what they’ve built and pivot into something new. But building something new is challenging enough, and maintaining a soon-to-be-declining bridge business while transitioning into a new one is even harder. This is akin to the innovator’s dilemma: successful companies often struggle with disruptive innovation, torn between innovating (and risking profitable products) or maintaining the status quo (and risking obsolescence).
As an investor, it makes no sense to invest in a “bridge” company that is fully expected to pivot within a few years. A pivot should be a Plan B, not Plan A. It’s extremely rare for bridge technology companies to become great, venture-scale investments. In fact, I can’t think of any off the top of my head.
We are currently in the midst of a tectonic AI platform shift. We’re seeing a huge volume of pitches, which is incredibly exciting. Many of these startups built great technologies and products. However, a significant number of these pitches also represent bridge technologies. As the current AI platform shift matures, these bridge technologies will lose relevance. Sometimes, it’s obvious they’re bridge technologies; other times, it requires significant thought to identify them. This challenge is intellectually stimulating, and I enjoy every moment of it. Each analysis informs us of what the future looks like, and just as importantly, what it will not look like. With each passing day, we gain stronger conviction about where the world is heading. It’s further strengthening our “seeing the future is our superpower” muscle, and that’s the most exciting part.
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.
#paid was one of the first investments we made at Two Small Fish Ventures. It’s been over a decade since we backed Bryan and Adam, who were still working out of Toronto Metropolitan University’s DMZ at the time. They had a vision to build a platform that connected creators and brands before “creator” was even a term! Back then, influencer and creator marketing campaigns were just tiny experiments.
A decade later, the creator economy has taken off. It’s now a $24 billion market—an order of magnitude larger than just a few years ago, with no signs of slowing down. The next wave of growth is still ahead as ad spending continues to shift away from traditional media. With the global ad market approaching $800 billion, one thing remains true: ad dollars follow the eyeballs—always. And where are those eyeballs today? On creators and influencers.
Today, #paid has become the world’s dominant platform, with over 100,000 creators onboard. It addresses a significant challenge: most creators don’t know how to connect with brands, especially iconic brands like Disney, Sephora, or IKEA. On the other hand, brands struggle to find the right creators amidst a sea of talent. #paid bridges this gap, acting as the marketplace that makes collaboration easy. They use data-driven insights to determine what makes a successful match, ensuring that both creators and brands can find each other effortlessly.
At #paid, brands and creators work with a dedicated team of experts to build creative strategies backed by research, first-party data, and industry benchmarks. This means campaigns run smoothly, allowing creators to focus on doing what they love—creating—without getting bogged down by administrative tasks.
I’m not just speaking as an investor—I’ve actually run a campaign with #paid as an influencer myself, and I can personally vouch for how seamless the experience was.
If you think #paid is all about TikTok, Snap, or Instagram, think again. Brands leverage #paid content across every platform. Want proof? Just check out the Infiniti TV commercial, which came from a #paid campaign.
How about billboards in major cities like NYC, Toronto, and more? #paid has that covered too.
#paid also brings creators and marketers together in real life. I had the privilege of speaking at their Creator Marketing Summit in NYC a few weeks ago, and I was amazed at how far #paid has come. The summit brought together hundreds of creators and top brand marketers—an impressive showcase of the platform’s evolution.
Looking back on this journey, here are my key takeaways:
• Great companies take a decade to build.
• To create a category leader, especially in winner-take-all markets, the idea has to be bold and often misunderstood at first. Bryan and Adam saw something that few others did, and their first-mover advantage has solidified #paid’s leading position today.
• There’s no such thing as “done.” #paid constantly reinvents itself. Generative AI is another exciting opportunity for step-function growth, and I can’t wait to see what’s next.
Bryan and Adam should be incredibly proud of what they’ve accomplished.
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.
Early-stage venture capital (VC) has always been the oddball in asset management. Unlike other asset classes, it offers the highest potential returns, but it also comes with the highest variance—especially when portfolio construction isn’t done right. On top of that, it has an inherent “default rate” of about 80%.
Tell a traditional fund manager about this 80% default rate, and you’ll likely get a strange look.
A few months ago, I was trying to explain how VC works to a fund manager. After covering the usual points—how VC is essentially a home run derby with many misses—he paused and said, “I get it. VC is like buying call options on startups.”
I hadn’t considered it that way before, but he was absolutely right.
For those unfamiliar, buying a call option gives you the right, but not the obligation, to purchase a stock at a predetermined price (the strike price) before a specified expiration date. Investors use this strategy to profit from an anticipated—but not guaranteed—increase in the stock’s price. If the stock price rises above the strike price (plus the premium paid), the option becomes profitable. The potential profit is theoretically unlimited, while the maximum loss is limited to the premium paid.
Similarly, investing in a startup gives you the chance to acquire equity at an attractive price, with a ~20% chance the startup will take off—though this usually takes about a decade to materialize. VCs use this strategy to profit from a potential—but not guaranteed—rise in the company’s value. If the startup succeeds and its valuation soars beyond the investment (plus associated costs), the return can be massive. The potential profit is virtually unlimited if the company becomes a breakout success, while the maximum loss is limited to the initial investment.
VC and call options are strikingly similar, don’t you think? They’re like twins!
From now on, I’ll tell people: Venture capital is call options on startups.
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.
TLDR – 20 companies in a VC portfolio is the optimal balance between risk and reward, offering a very high chance of hitting outsized returns without significant risk of losing money. This is exactly the approach we follow at Two Small Fish Ventures, as we keep our per-fund portfolio size limited to roughly 20 companies.
In my previous post, VC is a Home Run Derby with Uncapped Runs, I illustrated mathematically why early-stage venture funds’ success doesn’t hinge on minimizing failures, nor does it come from hitting singles (e.g., the number of “3x” companies). These smaller so-called “wins” are just noise.
As I said:
“Venture funds live or die by one thing: the percentage of the portfolio that becomes breakout successes — those capable of generating returns of 10x, 100x, or even 1000x.”
To drive high expected returns for VCs, finding these breakout successes is key. However, expected value alone doesn’t tell the full story. We also need to consider variance. In simple terms, even if a fund’s expected return is 5x or 10x, it doesn’t necessarily mean it’s a good investment. If the variance is too high—meaning the fund has a low probability of achieving that return and a high probability of losing money—it would still be a poor bet.
For example, imagine an investment opportunity that has a 10% chance of returning 100x and a 90% chance of losing everything. Its expected return is 10x (i.e., 10% x 100x + 90% x 0x = 10x). But despite the attractive expected return, it’s still a terrible investment due to the extremely high risk of total loss.
That said, there’s a time-tested solution to turn this kind of high-risk investment into a great one: diversification. While everyone understands the importance of diversification, the real key lies in how it’s done. By building a properly diversified portfolio, we can reduce variance while maintaining a high expected return. This post will illustrate mathematically how the right portfolio construction allows venture funds to generate outsized returns while ensuring a high probability of success.
Moonshot Capital vs. PlayItSafe Capital: A Quick Recap
Let’s start by revisiting our two hypothetical venture capital firms: Moonshot Capital and PlayItSafe Capital. Moonshot Capital swings for the fences, aiming to find the next 100x company while expecting most of the portfolio to fail. PlayItSafe Capital, on the other hand, protects downside risk (at least that’s what they think), but by avoiding bigger risks, it sacrifices the chance of finding outsized returns.
• Moonshot Capital: Out of 20 companies, 17 resulted in strikeouts (0x returns), 3 companies achieved 10x returns, and 1 company achieved a 100x return.
• PlayItSafe Capital: Out of 20 companies, 7 resulted in strikeouts (0x returns), 7 companies broke even (1x), 5 companies achieved 3x returns, and 1 company achieved a 10x return.
Here’s how their expected returns compare:
• Moonshot Capital has an expected return of 6.5x, thanks to one company yielding 100x and three companies yielding 10x (i.e. (1 x 100 + 3 x 10 +16 x 0) x $1 = $130).
• PlayItSafe Capital has a much lower expected return of 1.6x, with its highest return from one 10x company, five 3x returns, and several breakeven companies (i.e. (1 x 10 + 5 x 3 + 7 x 1 + 7 x 0) x $1 = $32).
Despite these differences in expected returns, what’s surprising is that counterintuitively, the probability of losing money (i.e., achieving an average return of less than 1x at the fund level) is quite similar for both firms.
Let’s dive into the math to see how we calculate these probabilities:
Moonshot Capital: 12.9% Probability of Losing Money
1. Expected Return :
2. Variance :
3. Standard Deviation :
4. Standard Error :
Using a normal approximation, the z-score to calculate P(X < 1) is:
Looking this up in the standard normal distribution table gives us:
P(X < 1) = 0.129 or 12.9%
PlayItSafe Capital: 11.6% Probability of Losing Money
Similarly, looking this up in the standard normal distribution table gives us (sparing you all the equations):
P(X < 1) = 0.116 or 11.6%
Shockingly, these two firms’ probabilities of losing money are essentially the same. The math does not lie!
Here’s a graphical representation of the outcomes (probability density) for Moonshot Capital and PlayItSafe Capital.
Probability Density Graphs: Comparing Moonshot and PlayItSafe
As you can see, Moonshot has higher upside potential, as the density peaks at 6x, while PlayItSafe is more concentrated around lower returns. Since their downside risks are more or less the same while PlayItSafe’s approach significantly limits its upside, counterintuitively PlayItSafe is far riskier from the risk-reward perspective.
Proper Portfolio Construction: How Portfolio Size Affects Returns
To further optimize Moonshot’s strategy, we will explore how different portfolio sizes affect the balance between risk and reward. Below, I’ve analyzed the outcomes (i.e. portfolio size sensitivity) for Moonshot Capital across portfolio sizes of n = 5, n = 10, n = 20, and n = 30.
The graph below shows the probability density curves for Moonshot Capital with varying portfolio sizes:
As you can see, smaller portfolios (n = 5, n = 10) exhibit higher variance, with a greater spread of potential outcomes. Larger portfolios (n = 20, n = 30) reduce the variance but also diminish the likelihood of hitting outsized returns.
Why 20 is the Optimal Portfolio Size
1. Why 20 is Optimal:
At n = 20, Moonshot Capital strikes an ideal balance. The risk of losing money, i.e. P (X < 1), remains manageable at 12.9%, while the probability of outsized returns remains high: 62.1% chance of hitting a return higher than 5x. This suggests that Moonshot’s high-risk, high-reward approach pays off without exposing the fund to unnecessary risk.
2. Why Bigger Isn’t Always Better (n = 30):
When the portfolio size increases to n = 30, we see a significant drop-off in the likelihood of outsized returns. The probability of achieving a return higher than 5x drops significantly from 62.1% at n = 20 to 41.9% at n = 30, and counterintuitively, the risk of losing money starts to increase. This suggests that larger portfolios can dilute the impact of the big wins that drive fund returns. It also mathematically explains why “spray-and-pray” does not work for early-stage investments.
3. The Pitfalls of Small Portfolios (n = 5 and n = 10):
At smaller portfolio sizes, such as n = 5 or n = 10, the variance increases significantly, making the portfolio’s returns more unpredictable. For example, at n = 5, the probability of losing money is significantly higher, and the risk of extreme outcomes becomes more pronounced. At n = 10, the flat-curve suggests that the variance is very high. This high variance means the returns are volatile and difficult to predict, increasing risk.
Conclusion: How to Win the Home Run Derby With Uncapped Runs
The key takeaway here is that Moonshot Capital’s strategy of swinging for the fences doesn’t mean taking on excessive risk. With 20 companies in the portfolio, Moonshot is the optimal between risk and reward, offering a very high chance of hitting outsized returns without significant risk of losing money.
While n=20 is optimal, n=10 is also pretty good, but n=30 is significantly worse. So, a ‘concentrated’ approach – but not ‘n=5 concentrated’ – is far better than ‘spray and pray,’ if you have to pick between the two.
This is exactly the approach we follow at Two Small Fish Ventures. We don’t write a cheque unless we have that magical “100x conviction.” We also keep our per-fund portfolio size limited to roughly 20 companies. This blog post mathematically breaks down one of our many secret sauces for our success.
Don’t tell anyone.
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.
Today’s blog post is brought to you by Eva Lau. She will talk about one of our recent investments: Axiomatic AI.
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Congratulations to Axiomatic on their recent US$6M seed round led by Kleiner Perkins! Two Small Fish Ventures is thrilled to be an early investor since the company’s inception—and the only Canadian investor—in what promises to be a game-changer in solving fundamental problems in physics, electronics, and engineering.
Why is this important? Large Language Models (LLMs) excel at languages (as their name suggests) but struggle with logic. That’s why AI can write poetry but struggles with math, as LLMs mainly rely on ‘pattern-matching’ rather than ‘reasoning.’
This is where Axiomatic steps in. The company’s secret sauce is its new AI model called Automated Interpretable Reasoning (AIR), which combines advances in reinforcement learning, LLMs, and world models. Axiomatic’s mission is to create software and algorithms that not only automate processes but also provide clear, understandable insights to fuel innovation and research, ultimately solving real-world problems in engineering and other industrial applications.
The startup is the brainchild of world-renowned professors from MIT, the University of Toronto, and The Institute of Photonic Sciences (ICFO) in Barcelona. The team includes leading engineers, physicists, and computer science experts.
With its innovative models, the startup fits squarely within our fund’s focus: the next frontier of computing and its applications. As all TSF partners are engineers, product experts, and recent operators, we are uniquely positioned to understand the potential of Axiomatic and support the team.
Axiomatic’s new AIR model is well-positioned to accelerate engineering and scientific discovery, boosting productivity by orders of magnitude in the coming years, and ultimately make the world’s information intelligible.
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.
Co-founded by AI and reinforcement learning luminaries Rich Sutton, Randy Goebel and Joseph Modayil, Openmind is a Canadian non-profit focused on conducting fundamental AI research to better understand minds.
We believe the greatest advancements in AI are yet to come. Basic research is essential to understanding what is scientifically possible before pursuing the next generation of commercial and technological developments.
A key aspect of Openmind is its commitment to open research. Openmind places no intellectual property restrictions on its research, allowing everyone to contribute to and build upon this shared knowledge.
As a board member, I will leverage my decades-long experience in building, operating, and investing in AI companies to support Openmind’s mission. Supporting innovation is one of my life’s passions, and I am thrilled to accept this position and join a team dedicated to pioneering advancements in AI.
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.
We’re thrilled to share that Toronto-based Viggle AI, a Canadian start-up revolutionizing character animation through generative AI, has raised US$19 million in funding. The round was led by a16z with Two Small Fish participating as a significant investor. As part of the investment, I also became an advisor to the company.
Creators are unleashing their creativity with Viggle AI by generating some of the most entertaining memes and videos online. You’ve probably seen a clip of Joaquin Phoenix’s Joker persona replacing recreating Lil Yachy’s walkout from the Summer Smash Festival – it was made with Viggle AI!
But Viggle AI is much more than a simple meme generator. It’s a powerful platform that can completely reinvent how games, animation, and other videos are produced.
Powered by JST-1, the first-in-the-world 3D-video foundation model with actual physics understanding, Viggle AI can make any character move as you want. Its unique AI model can generate high-quality, realistic, physics-based 3D animations and videos from either static images or text prompts.
For professional animation engineers, game designers, and VFX artists, this is game-changing. Viggle AI can streamline the ideation and pre-production process allowing them to focus on their creative vision and ultimately reduce production timelines.
And, for content creators and everyday users, Viggle AI can generate high-quality animations using simple prompts to create engaging animated character videos within a matter of minutes.
Easier. Faster. Cheaper. Viggle AI is a truly transformative product that will unlock new values for consumers and professionals alike.
Here are a couple of fun examples of Viggle AI in action – I was terrible at dancing, but now I can do it!
Since launching in March, Viggle AI has taken the internet by storm and now boasts over 4 million users. When the startup first landed on our radar it only had 1000s of users. This rapid growth is not only a testament to Viggle AI’s ability to create an engaging product but also Two Small Fish’s ability to spot tech giants in the making.
Two Small Fish has an unparalleled track record of helping create the future of content through technology. After all, the team built Wattpad from a simple app for fiction into a massive global entertainment powerhouse with 100 million users. Seeing the future is our superpower. We’re the best investors to help future tech giants like Viggle AI as they transform how content is created, remixed, customized, consumed, and interacted with. We’re excited to continue to play a role in reinventing content creation and entertainment.
Congratulations Hang Chu and the entire Viggle AI team!
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.
The history of computing has been a constant shift of the centre of gravity.
When mainframe computers were invented in the middle of the last century, they were housed in air-conditioned, room-sized metal boxes that occupied thousands of square feet. People accessed these computers through dumb terminals, which were more like black and white screens and keyboards hooked to the computer through long cables. They were called dumb terminals because the smart part was all on the mainframes.
These computers worked in silos. Computer networks were very primitive. Data was mainly transferred through (physical!) punch cards and tapes.
The business model was selling hardware. During that era, giants like IBM and Wang emerged, and many subsequently submerged.
Hardware was the champion.
Mainframe computers in the 50s. Image source: Wikipedia
The PC era, which started in the 80s and supercharged in the 90s, ended the reign of the mainframe era. As computers became much faster while the price dropped by orders of magnitude, access to computing became democratized, and computers appeared on every desktop. We wanted these computers to talk to each other. Punch cards clearly no longer worked as there were millions of computers now. As a result, LANs (local area networks) were popularized by companies like Novell, which enabled the client/server architecture. Unlike the previous era, the “brains” were decentralized, with clients doing much of the heavy lifting. Servers still played a role, but for the most part, it was for centralized storage.
Although IBM invented the PCs, the business models shifted, creating the duopoly of Intel (and by association companies like Compaq) and Microsoft, with the latter capturing even more value than the former. The software era had begun.
Software became the champion. Hardware was dethroned to the runner-up.
Then, in the late 90s to the 2010s, the (broadband) web, mobile, and cloud computing came along. Connectivity became much less of an issue. Clients, especially your phones, continued to improve at a fast pace, but the capability of servers increased even faster. The “brains” shifted back to the server as that’s where the data is centralized. For the most part, clients were now responsible for user experience, important but merely a means to an end (of collecting data) rather than an end in themselves.
Initially, it appeared that the software-hardware duopoly would continue as companies like Netscape and Cisco were red hot, only to be dethroned by companies like Yahoo and AOL and later Google and Meta. Software and hardware were still crucial, but they became the enablers as the business model once again shifted.
Data became the newly crowned champion.
Fast forward to now, the latest—and arguably the greatest of all time—platform shift, powered by generative AI, is upon us. The ground beneath us is shifting again. On a per-user basis, generative AI demands orders of magnitude more energy. At a time when data centres are already consuming more energy than many countries, it is set to double again in two years to roughly equivalent to the electricity consumption of Japan. The lean startup era is gone. AI startups need to raise much more capital upfront than previous generations of startups because of the enormous cost of compute.
Expecting the server in the data centres to do all the heavy lifting can’t be sustainable in the long term for many reasons. The “brains” have once again started to shift back to the clients at the edge, and it is already happening. For instance, Tesla’s self-driving decisions are not going to make the round trip to its servers. Otherwise, the latency will make the split-second decisions a second too late. Another example, most people may not realize this, but Apple is an edge computing company already as its chips have had AI capabilities for years. Imagine how much more developers can do on your iPhone—at no cost to them—instead of paying a cloud provider to run some AI. That would be the Napster moment for AI companies!
Inevitably, now that almost every device can run some AI and is connected, things will be more decentralized.
In past eras, computing architectures evolved due to the constraints of—or the liberation of—computing capabilities, connectivity, or power consumption. The landscape has once again shifted. Like past platform shifts, there will be a new world order. The playing field will be levelled. Rules will be rewritten. Business models will be reinvented. Most excitingly, new giants will be created.
Every. Single. Time.
Seeing the future is our superpower. That’s why a while ago, at Two Small Fish Ventures, we have already revised our thesis. Now, it is all about investing in the next frontier of computing and its applications, with edge computing an important part of it. Our recent investments have been all-in on this thesis. If you are a founder of an early-stage, rule-rewriting company that is taking advantage of this massive platform shift, don’t hesitate to reach out to us. We love backing category creators in massive market opportunities.
We are all engineers, product builders and company creators. We know how things work. Let’s build the next champion together!
Update: This blog post was published just before Apple announced Apple Intelligence. I knew nothing about Apple Intelligence at that time. It was purely a coincidence. However, it did validate what I said.
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.
I haven’t been involved with Wattpad for a while now, so it’s a strange feeling—though not in a bad way—to catch up on all the details about WEBTOON and Wattpad in the SEC filing. From what I’ve gathered, WEBTOON is performing exceptionally well, with revenue now surpassing $1 billion.
Three years ago, one of the main reasons I was drawn to Naver WEBTOON among all the suitors was Naver’s intention to spin out WEBTOON, together with Wattpad, as a separate, entertainment-focused, NASDAQ-listed company. This was a significant undertaking with numerous challenges, and the WEBTOON team is delivering on the promise. I’m pleased to see that Wattpad is playing a crucial role in this upcoming IPO.
The timing has turned out to be ideal for both WEBTOON and myself personally. With the rise of generative AI, the media industry is undergoing a new wave of massive disruption. It’s exciting to see WEBTOON raising more capital to seize this opportunity. From a distance, I wish the WEBTOON team all the best!
At Two Small Fish Ventures, we’re equally excited as we witness many incredible AI-native media startups and are actively investing in several amazing ones. I’ll share more about this in future posts.
This is a once-in-a-decade, platform-shift opportunity. It is arguably the biggest platform shift in the past century! TSF is actively investing in the next frontier of computing and its applications as a lead investor or as part of a syndicate. If you’re a founder of an early-stage AI-native company—media or not—don’t hesitate to reach out to us, as TSF is a rare investor who understands this space extremely well, and possibly the best investor with real-world operating experience who can help you achieve massive success like Wattpad did.
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.
The month of May is Asian Heritage Month, honouring the lives and contributions of people of Asian origin.
This year, I would like to talk about one common issue among Asians—speaking up, or the lack thereof.
How often do you stop yourself from saying what needs to be said?
One of the biggest cultural differences that could hold Asians back is our tendency not to speak up. Since I was a kid, my parents and grandparents conditioned us to keep our heads down. Focus on your work, and as long as you do good work, your work will speak for itself.
This is all fine, except that in Western culture, certain behaviours are perceived as the norm. Leaders are expected to be vocal and own the stage.
I have seen firsthand very capable Asian people not getting promoted because they don’t say much. I have seen investors criticizing Asian founders for not having a take-over-the-world demeanour. In one specific example, a founder was having trouble raising capital despite the company doing really well. An existing investor (also Asian) told me privately that the main reason was that this founder didn’t act like a typical American founder.
Ouch! I instantly knew what he meant.
Speaking from my own experience, it took me decades to overcome this issue. I can’t speak for other Asian cultures, but in Hong Kong, during the era when I was growing up, parents would put masking tape on a kid’s mouth if they spoke too much. My parents never did this to me because I rarely said anything. 🙂 Even today, I have to constantly push myself to speak up. On some occasions, I still err on the side of not speaking up enough because it is still very unnatural for me. Your culture stays with you for life.
I can’t tell you exactly how to overcome this issue. To a degree, it has to come from within. You have to find your own way. For me, I kept telling myself I needed to err on the side of speaking up too much. Trust me, even with that, the end result is that on many occasions I still find myself thinking I could have spoken up more, even today. So, imagine if I didn’t give myself a little nudge. It took years of practice to overcome my own emotions. Eventually, I got used to it. Well, most of the time.
However, I don’t mean to say that it is all on Asians’ shoulders to overcome this. Asian or not, great leaders have the responsibility to create a safe environment for everyone to speak up in the first place.
Humility and kindness are great traits in Asian culture. Keep them. It is also okay to push yourself to be more vocal. The barrier is totally breakable, especially one step at a time. You just have to keep pushing. After all, speaking up is not mutually exclusive with your heritage!
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.
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.
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.
Over a decade ago, in his blog post titled “Why Software is Eating the World,” Marc Andreessen explained why software was transforming industries across the globe. Software would no longer be confined to the tech sector but permeated every aspect of our lives, disrupting traditional businesses and creating new opportunities, driving innovation and reshaping the competitive landscape. Overall, the post underscores the profound impact of software on the economy and society at large.
While the prediction in his blog post was mostly accurate, today, the world is still only partially eaten up by software. Although there are many opportunities for software alone to completely transform user behaviour, upend workflow, or cause other disruptions, the low-hanging fruits are mostly picked. That’s why I said the days of shallow tech are behind us now.
Moving forward, increasingly, there will be more and more opportunities that require hardware and software to be designed and developed together from the get-go to ensure that they can work harmoniously and make an impact that otherwise would not be possible. The best example that people can relate to today is Tesla. For those who have driven a Tesla, I trust many would testify that their software and hardware work really well together. Yes, their self-driving software might be buggy. Yes, the build quality of its hardware might not be the best. However, with many features on their cars – from charging to navigation to even warming up the car remotely – you can just tell that they are not shoehorning their software and their app into their hardware or vice versa.
On the other hand, on many cars from other manufacturers, you can tell their software and hardware teams are separated by the Grand Canyon and perhaps only seriously talk to each other weeks before the car is launched 🙂
We also witness the same thing down to the silicon level. From building the next AI chip to the industrial AI revolution to space tech, software and hardware convergence is happening everywhere. For instance, the high energy required by LLMs is partially because the software “works around” the hardware, which was not designed with AI in mind in the first place. Changes are already underway, ensuring that software and hardware dance together. There is a reason why large tech players like OpenAI and Google are planning to make their own chips.
We are in the midst of a once-in-a-decade “platform shift” because of generative AI. In the last platform shift more than a decade ago, when the confluence of mobile and cloud computing created a massive disruption, there was one “iPhone moment,” and then things progressed continuously. This time, new foundation models are launching at a break-neck pace, which is further exacerbated by open-source. So fast that we are now experiencing one iPhone moment every few weeks.
All of this happens when AI-native startups are an order of magnitude more capital-intensive than in the past cycle. At the same time, investors are also willing to write big cheques to these companies, but perhaps it is appropriate, given all the massive opportunities ahead of us.
Investing in this environment is both exciting and challenging as assessing these new opportunities is drastically different from the previous-generation software-only, shallow-tech startup.
The next few years are going to be wild.
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.
In the early 2010s, when Wattpad began raising capital from Silicon Valley, Valley VCs didn’t ask me ‘if’ I would move the company or open a second office there; they asked ‘when.’ They argued that Toronto lacked great product people and scale-up leaders, although we had top engineering talent. At that time, it was common for Valley VCs to ask non-Valley companies to move to the Valley as a condition for funding.
But I told them, ‘I won’t move.’
While their argument had a point, Valley VCs failed to see my “big-fish-small-pond” advantages. I don’t need to hire a million great people. After raising one of the largest funding rounds by a Canadian-based company at the time, I was absolutely sure we could hire “enough” great people to help us build a world-class company based in one of the most populous metropolises in North America called Toronto. Paradoxically, it could even work to our advantage. As one of Toronto’s biggest fish, we could hire the best. I couldn’t say the same thing if we moved to the Valley. Besides, building a company culture with a single office location was much easier.
It was a contrarian bet that few people saw, but it was so obvious to me. In hindsight, it was clear that it was the right call.
It all worked well until it didn’t. While the Toronto ecosystem went from strength to strength during the 2010s, it also meant that the talent competition became very fierce towards the end of the decade. The small pond became a much bigger pond, and there were a lot of big fish in it, including many Valley-based companies setting up shops here.
The tipping point for me was when someone bought the old building next to Wattpad HQ. Initially, we had no idea who wanted to turn it into an office tower until Google announced that it would hire a few thousand people. Where? Right next to Wattpad HQ.
My first-mover advantage has eroded. I had to figure out a new plan to regain my big-fish-small-pond advantage.
My solution was to establish a second HQ in a less populous city with a thriving tech ecosystem and an abundance of post-secondary institutions, where we could be the big fish again and have enough talent to enable us to continue to grow rapidly. It had to be a Canadian city because I wanted a few existing Wattpad employees to relocate there to help us “seed” the culture. It was far harder for me to pull it off if it was cross-border.
I toured around the country. I was impressed by what I saw. There were a handful of cities that met our criteria. I knew we could make it work.
At that time, I was already very familiar with Halifax, having been involved in the local ecosystem for a while. While there, I took advantage of the opportunity to grab dinner with Jevon McDonald, whom I had known for a few years. Nothing compares to talking to a local guru.
Jevon gave me the rundown of all the nuances I couldn’t find on Google search. But when I asked him to name one thing that he didn’t like about Halifax, this was our conversation:
Jevon: “I have a few employees in San Francisco. Going there is very painful as I have to catch a 5am flight to connect through Toronto first.”
Me: “So, there is no direct flight from Halifax to SF?”
“Nope.”
“Great!”
“What?!”
It’s a short flight between Toronto and Halifax. There are numerous daily flights between the two cities, so day trips are super easy. However, the lack of direct flights to the Valley means Valley-based companies won’t show up any time soon. An unfair disadvantage became my unfair advantage. The lack of direct flights became my talent moat.
The rest is history. Wattpad established its second HQ in Halifax. We hired a lot of fantastic people there. I have been the biggest champion of Atlantic Canada ever since, as I have encouraged other Toronto-based companies to do the same.
It was another contrarian bet that few people saw, but it was so obvious to me. It was the right call.
These are just a couple of examples. There were many more that Wattpad did, like establishing a movie studio or investing in something unproven called AI more than a decade ago.
Similarly, some of our best investments in Two Small Fish Ventures, such as Sheertex or BenchSci, had a very tough time raising capital early on because very few people saw what we saw.
Of course, I am not suggesting that one should be contrarian for the sake of being contrarian. But when a contrarian bet results in a first-mover advantage in a big opportunity that no one else saw, that will almost always generate an amazing outcome with outsized returns.
Don’t tell anyone.
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.
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.
There’s an old saying that goes, “Know the rules of the game, and you’ll play better than anyone else.” Let’s take baseball as our example. Aiming for a home run often means accepting a higher number of strikeouts. Consider the legendary Babe Ruth: he was a leader in both home runs and strikeouts, a testament to the high-risk, high-reward strategy of swinging for the fences.
Yet, aiming solely for home runs isn’t always the best approach. After all, the game’s objective is to score the most runs, not just to hit the most home runs. Scoring involves hitting the ball, running the bases, and safely returning to home base. Sometimes, it’s more strategic to aim for a base hit, like a single, which offers a much higher chance of advancing runners on base and scoring.
The dynamics change entirely in a home run derby contest, where players have five minutes to hit as many home runs as possible. Here, only home runs count, so players focus on hitting just hard enough to clear the fence, rendering singles pointless.
Imagine if the derby rules also rewarded the home run’s distance, adding extra runs for every foot the ball travels beyond the fence. For context, the centre field is typically about 400 feet from home plate. So, a 420-foot home run, clearing the centre field by 20 feet, would count as a 20-run homer. This rule would drastically alter players’ strategies. Not only would they swing for the fences with every at-bat, but they would also hit as hard as possible, aiming for the longest possible home runs to maximize their scores, even if it reduced their overall chances of hitting a home run.
This scenario mirrors early-stage venture capital, where I liken it to a home run derby with uncapped runs. The potential upside of investments is enormous, offering returns of 100x, 1000x, or more, while the downside is limited to the initial investment. Unlike in a derby, where physical limits cap the maximum score, the VC world is truly without bounds, with numerous instances of investments yielding thousandfold returns.
This distinct dynamic makes assessing VCs fundamentally different from evaluating other asset classes, where protecting the downside is crucial. In the VC realm, the potential for nearly limitless returns makes losses inconsequential, provided VCs invest in early-stage companies with the potential for exponential growth. The risk-reward equation in venture capital is thus highly asymmetrical, favouring bold bets on moonshot startups.
For illustration, let’s consider two hypothetical venture capital firms: Moonshot Capital and PlayItSafe Capital.
Moonshot Capital approaches the game like a home run derby with uncapped runs. They aim for approximately 20 companies in their portfolio, expecting that around 20% will be their home runs—or “value drivers”—capable of generating returns from 10x to 100x or more.
Imagine they invest $1 in each of 20 companies. One yields a 100x return, three bring in 10x, and the remaining are strikeouts. The outcome would be:
(1 x 100 + 3 x 10 +16 x 0) x $1 = $130
Their $20 investment becomes $130 (or 6.5x), a gain of $110, despite 17 out of 20 companies being strikeouts. Yes, you are correct. 85% of the portfolio companies failed!
PlayItSafe Capital, on the other hand, prioritizes downside protection, ensuring none of the portfolio fails but also avoiding riskier bets. In the end, one company generates one “10x” return, five companies return 3x, and the remainder is equally split between breakeven and failing.
(1 x 10 + 5 x 3 + 7 x 1 + 7 x 0) x $1 = $32
Despite several “successes” and very few “losses,” the fund’s return of $12 pales in comparison to Moonshot Capital’s. Even increasing the number of companies generating a 3x return to 10 with no loss (which is almost impossible to achieve for early-stage VCs) only yields a $29 gain from a total investment of $20:
(1 x 10 + 10 x 3 + 9 x 1) x $1 = $49
No one should invest in the early-stage VC asset class with the expectation of such a paltry return.
As illustrated, success isn’t about minimizing failures, nor is it about the number of “3x” companies or even the number of “unicorn logos” in the portfolio, as how early when the investment was made to these unicorns is crucial as well. One needs to invest in a unicorn when it was a baby-unicorn, not after it became a unicorn.
In summary:
Venture funds live or die by one thing: the percentage of the portfolio that becomes “value drivers”, i.e. those capable of generating returns of 10x, 100x, or even 1000x.
At Two Small Fish Ventures, we are the IRL version of Moonshot Capital. Every investment is made with the belief that $1 could turn into $100. We know that, in the end, only about 20% of our portfolio will become significant value drivers. Yet, with each investment, we truly believe these early-stage companies have the potential to become world-class giants and category creators when we invest.
This is what venture capital is all about: not only is it exhilarating to be at the forefront of technology, but it’s also a great way to generate wealth and, more importantly, play a role in supporting moonshots that have a chance to change how the world operates.
P.S. This is Part 1 of this series. You can read Part 2, “Winning the Home Run Derby with Proper Portfolio Construction” here.
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.
Diversifying a portfolio across various asset classes is the first principle for enhancing returns without significantly increasing risk from an investment standpoint. Traditionally, the go-to formula has been a 60/40 split—60% in stocks and 40% in bonds, a practice primarily due to the limited accessibility of alternative asset classes. However, recent years have seen a democratization of access to a wider array of asset classes, including private equity, venture capital and numerous alternatives, opening doors for more investors to explore areas once reserved for the privileged few. This broadening of opportunities is undoubtedly beneficial to many.
Yet, it introduces a new challenge: How do we assess fund managers across different asset classes? This task can be daunting even for seasoned investment professionals, as investing encompasses a vast range of specialties. A common mistake is posing the wrong questions, as assessment criteria are not interchangeable across asset classes. It is akin to comparing athletes from different sports—evaluating NBA players is not the same as evaluating MLB players since each asset class is akin to a distinct sport. For instance, inquiring about the batting average of an Olympic gold medalist swimmer is as illogical as expecting an NBA MVP to be proficient with a baseball bat.
It’s also unwise to question a fish on its ability to skate!
This blog post is the first in a series designed to demystify this process. I do not claim expertise in all asset classes—no one can. However, I hope to share my experiences to help you sidestep common mistakes and empower you with the basics to evaluate investment opportunities in unfamiliar territories, especially early-stage venture capital, which is my swim lane and relatively few people have the experience to assess. Please note, this blog post does not constitute investment advice or a comprehensive guide across all asset classes as we only cover a handful for illustration purposes.
Here is a chart that highlights the key differences:
How should you interpret this chart? Let me use early-stage venture capital, or simply referred to as VC, as an example.
Assessing VC is more art than science and more qualitative than quantitative. It offers far higher return potential than almost any other asset class. On the other hand, the risk of losing money is also higher than in other asset classes, with the predictability of the potential target return being low and its variance high.
Individual investments within a fund portfolio have a very high failure rate, even for the best funds. This is by design because VC is a home run derby. Strikeouts, singles, or doubles don’t impact the return at all, as only the home runs count. This is unique to VC and counterintuitive to managers from other asset classes.
The dispersion among fund managers is also much higher, as the top decile funds generate significantly better returns than the rest. Vintages also make a far more significant influence, as market downturns have an outsized impact on fund returns, even for the best funds. However, the best funds still generate very good returns during bad years. These funds simply generate enormous returns during the good years!
VC takes a decade or more to generate returns. The first few years usually have nothing to show for because it takes a few years to find the startups to invest in, and they take time to grow and realize the gain. Because of this, VC funds are usually illiquid.
On the other extreme, fixed income is more science than art. It is number-driven, much more predictable, and has lower returns, but any default is a cardinal sin!
Each row on the chart deserves a separate blog post. Stay tuned for subsequent posts in this series, where we’ll dive deeper into these topics.
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.
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.
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.
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.
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.
I was reading a report from the investment firm LetkoBrosseau, which highlights how minimally the Canadian pension system is investing in Canada. Their headline caught my attention:
“Canada Has Cut Back On Investing In Its Greatest Asset – Itself.”
Canadian pension funds largely invest our money outside of Canada. Given Canada’s population size, it’s not unreasonable for our pension funds to look abroad, but the pendulum may have swung too far. That’s a topic for another day, however.
One particular slide, slide 4, jumped out at me, presenting several not-too-fun facts:
Canada’s GDP per capita has steadily declined to 75% of that of the United States, down from near parity 40 years ago. One of the main reasons is Canada invests substantially less in our own startups, R&D, and our workers.
In 2023, American investment per worker is 2.25x that in Canada. It was near parity 40 years ago.
In R&D intensity (the ratio of a country’s R&D expenditures to its GDP), the US is at 3.5, Japan at 3.3, Germany at 3.1, the G7 average at 2.6, France at 2.4. Canada lags at 1.9.
Canada is underinvesting in its own startups: For every dollar Canada invests in venture capital, Israel invests $2 (despite Israel’s economy being a quarter the size of Canada’s), and the US invests $39. This means that on a per capita basis, Israel invests 8 times more than Canada, and the US 4 times more.
Moreover, Canadians only provide about 33% of the funding for their own startups, with the remaining 66% coming from other countries. At Wattpad, we observed a similar ratio. Our largest investors were Union Square Ventures (NYC), Khosla Ventures (Silicon Valley), OMERS (Canada), August Capital (Silicon Valley), and Tencent (Asia). As you can see, most of them are not Canadian, highlighting a limited appetite for investing in our own innovative ventures.
But it’s not just about pension funds. The awareness and appetite to invest in venture capital as an asset class are significantly lower among family offices and endowments in Canada. For example, in the US, it’s not uncommon for university endowments to allocate over 20% to VC. In Canada, many are at zero or in the low single digits.
But it all depends on whether you’re a glass-half-full or glass-half-empty person.
I’m a glass-half-full person. This is clearly a market gap, and market gaps create opportunities.
A decade ago, when Wattpad began raising capital from Silicon Valley, Valley VCs didn’t ask me ‘if’ I would move the company there; they asked ‘when.’ I told them, ‘I won’t move.’ They were all surprised to hear from me that building the company in Canada would be far better due to less competition for talent, paradoxically allowing us to hire and retain top talent more easily. Wattpad was one of the first to commit to scaling our company in Canada, successfully proving (to them) that a world-class tech company could be built here (obvious to me). The Wattpad team played a part in reshaping the narrative of Canada’s innovation ecosystem.
I am very committed to doing it again. This time, I’m not convincing people in the Valley that Canada is great; I’m convincing Canadians that Canada is great! My goal is to encourage more attention towards VC as an asset class. As a VC myself, I’m putting my money where my mouth is, and I will let our results speak for themselves. For many decades, Americans and Israelis have known that investing in top-tier VCs can help create world-class, iconic companies, benefiting their local economies significantly while also generating consistent, outsized returns. Canada can undoubtedly do the same.
This is my last post of the year. I’ll be “off the grid” until the new year, recharging for what promises to be a super busy 2024. Happy holidays!
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.
Sets the overall vision and strategy of the company and communicates it to all stakeholders.
Recruits, hires, and retains the very best talent for the company.
Ensures there is always enough cash in the bank.
These responsibilities might seem straightforward, but they encompass a vast array of tasks and decisions.
For instance, ensuring there is always enough cash in the bank could imply that a CEO needs to double as a CFO, but clearly, CEOs should not be CFOs. Similarly, hiring the very best talent could include all people functions, but of course, it should not.
In other words, even with just three things, CEOs will never run out of things to do. So how should they prioritize?
One guiding principle is that CEOs should only do things that they can uniquely do. Let someone else take care of the heavy lifting.
When Wattpad started to scale, this mindset shift really helped me prioritize. This problem is much more common than you may think. Based on my observations, I would even say that at some point, most inexperienced CEOs spend too little time on things that they can uniquely do. Failing to do so, the problem could manifest itself as people in the company chronically waiting on you before they can take their next actions on projects. You lose all the leverage you have in hiring a team.
You already paid them so much money to do the job for you. Don’t do their job for them!!!!
Although this lesson is mostly for CEOs, the same principle also applies to other leaders and managers. There is a bucket called ‘only you can do.’ Note that this bucket is not called ‘I can do it better‘ because who can do a better job or who can do it faster is not the issue here. Resisting the temptation to take on a task when your team can (should!) handle it can greatly help you improve your productivity and turn you into a much more effective leader.
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.
I’m a 3x entrepreneur. I was the CTO of my first company, which failed. I was the CEO of my second one, which was acquired when it was still very tiny.
Wattpad was my third and last company, but it was my first one as a scale-up CEO. It was a very different beast. The learning curve for me was extremely steep.
Thankfully, I was very privileged to have many world-class VCs and their firms invested in Wattpad. Being surrounded by world-class investors and their network not only helped me surmount that learning curve but also helped TSFV become a much better VC firm. More on that in a different post.
One of these firms is Union Square Ventures. The first and most important thing I learned from USV’s Fred Wilson is, “What does a CEO do?”
A CEO does only three things:
Sets the overall vision and strategy of the company and communicates it to all stakeholders.
Recruits, hires, and retains the very best talent for the company.
Ensures there is always enough cash in the bank.
A CEO should delegate all other tasks to his or her team.
In my experience, it’s rare to find great CEOs and consequently, great companies, not getting these three things right. Conversely, dysfunctional companies usually get at least one of these three things really wrong.
I frequently talked about these three things with my team at Wattpad. My leadership team and all the employees knew what to expect and could hold me accountable. And they did.
So much is packed into these three things. They are deceptively simple, and yet they are extremely nuanced. There’s enough material here for a book! So, expect multiple blog posts in the future on this topic.
However, this post alone is already a great guiding post for any CEO whose company has achieved (or is beyond) product-market fit, or the team is ready to scale, say, roughly 10 people, and even for companies of much larger size.
This post is the foundation of CEOs’ leadership, and everything flows from here. I learned it, I lived it, and I can testify that this is the first thing that any CEO must get right and keep getting right throughout their tenure.
And that’s precisely why this is the inaugural post in the Two Small Fish Ventures Masterclass Series.
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.
One of the most unusual practices I used as CEO was writing an internal blog called “Allen’s Thoughts” on Wattpad every day. My preferred form of communication is the written word, a key reason behind co-founding Wattpad.
Although it might sound time-consuming – and it is – blogging helped me tremendously in clarifying my thinking. More importantly, context matters. The 30-60 minutes I spent each day aligned and interacted with hundreds of employees, arguably making it the most effective activity in terms of leveraging time. Here’s what I explained on Allen’s Thoughts about why I needed to do this:
“Wattpad is an incredibly complex company. We are a tech company, a media company, a book publisher, an advertising company, an influencer network, an AI company, a movie studio, a social network, a community, and also an entertainment company that makes people happy.
What links us together is our common vision, mission, values, and culture. Allen’s Thoughts is less about the numbers and company updates, which you can get on Slack, email, Google Docs, or other channels. This blog is more about sharing the context, the whys, and the intangibles in a narrative that helps you navigate that complexity so that you can make the best possible decisions and do your best job.
This blog is one of my unique superpowers that connects everyone.”
I started Allen’s Thoughts in 2013 and stopped daily blogging after stepping down in May 2022. My final post, “IT’S THE FINAL CURTAIN CALL. A NEW STORY BEGINS,” was shared publicly on allensthoughts.com.
Do I miss it? Absolutely, yes. However, after writing half a million words, I became too mentally exhausted.
After a long break, I am fully recharged and ready to reactivate my public blog. Although the Wattpad story is well-documented, many challenges and triumphs weren’t shared externally. These backstories are valuable case studies in business, leadership, entrepreneurship, venture capital and even time management. Re-reading my old posts, I realized they are a startup treasure trove, offering insights from scaling from two co-founders to a scaleup with hundreds of employees and 100 million users. I plan to share these lessons, along with many new topics.
Of course, I will also share my perspective on the startup investment landscape, our investment thesis, and our areas of focus – i.e., AI, protocols, and sustainable computing – among other topics.
This material will be part of our “School of Fish” Masterclass Series, more on this later.
I don’t plan to write daily. Frequency is not the most important aspect; it’s more about when inspiration strikes. My goal is to share high-quality, high-leverage, and impactful content. I will use Allen Thoughts to think things through “in public,” writing for my own enjoyment and hoping it benefits many others. After a hiatus, I’m eager, hungry, and excited to do it again!
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.
Last week, I had the honour of chairing this year’s TechExit.io conference in Toronto, marking my first time in the role at a conference! Given my background as a 3x entrepreneur, with two of my companies having been acquired, I was thrilled to have the opportunity to share my insights and experiences. Now, as a venture capitalist, I actively support numerous entrepreneurs within the TSFV portfolio, guiding them toward outstanding outcomes.
In recent times, we’ve observed a shift in the landscape: funding has become more scarce, tech valuations more sensible, and consequently, M&A activity more appealing for both sellers and buyers. This is particularly true for traditional players, who now find themselves with greater purchasing power and are no longer priced out.
I was particularly heartened to witness the flourishing tech community in Canada. A decade ago, the focus was predominantly on selling, with most transactions below the $100 million mark. That landscape has transformed dramatically. Our ecosystem has expanded considerably, giving rise to a greater number of scaleups and facilitating larger deals. More importantly, Canadian companies are demonstrating a stronger appetite for acquisitions, with many scaleups actively pursuing growth through M&A, beyond organic means. The dialogue at TechExit.io underscored this shift.
While it’s impossible to capture all the rich content from the conference in a single post, I’d like to share my responses from a panel I had the pleasure of moderating, featuring Amar Varma, Monique Simair, and Mark Steele:
Q. If you had to choose just one thing, what would be the top learning or the biggest obstacle you wish you knew while you were building your company, that you know now?
A. Optionality! At the time of Wattpad‘s acquisition, we were in a great position, self-sustaining and with multiple paths forward, including raising another growth round or even considering an IPO. Ultimately, the decision was ours to make, and we opted for the path that we believed was in Wattpad’s best interest. The acquisition by Naver WEBTOON presented itself as the optimal choice, as it aligned with our strategic objectives and offered the unique opportunity to fully unlock Wattpad’s potential.
Q. Some investors love to ask, and some founders love to answer the following question: ‘What is your exit strategy?’ Were there things you built for an exit that went against building a great business?
A. We actually never did anything specific about the exit or formulated an exit strategy. For instance, we never created a product feature because we had potential acquirers in mind. Of course, we built relationships with them, but we didn’t do anything unnaturally in the hope of driving an acquisition. In other words, we only focused on building a great business.
Q. What did you miss the most after selling?
A. No doubt, my Wattpad team! We built an amazing all-star team. I missed my daily lunch with them in our kitchen!
It’s hard to convey the immense scale Sheertex has achieved in such a short time since its founding in 2017. Now going by SRTX, it will become one of Canada’s largest textile manufacturers with its upcoming 1,000,000-square-foot factory in Montreal.
Yet, the vast size of the factory, the quantity of pantyhose sold, and even their revenue only tell 1% of their story. If you think SRTX is “only” a direct-to-consumer company selling unbreakable pantyhose named Sheertex, think again.
The power couple, Katherine Homuth and Zak Homuth, are not your typical founders. Each has led their respective tech startups as CEO/founder. Together, they are building SRTX from the ground up as a software company and an advanced material company that is “disguised” as a textile company.
Check out the three products on SRTX Labs and you will understand.
Watertex – Their proprietary technical textile is crafted with one of the world’s most hydrophobic polymers that are engineered for unparalleled water resistance. Swimwear is an obvious use case. Clearly, there are more.
Cortex Software – Built to automate manufacturing operations, Cortex is a SaaS platform for running modern, connected, responsive and real-time aware soft goods and textiles factories. It enables factories to go paperless, generates meaningful insights into production and gives operators better work order control and reporting capabilities.
Sheertex – Its rip-resistant technology is already world-famous. Enough said.
STRX is rewriting the rules of textiles. This is another great example of our investment thesis:
Two Small Fish Ventures invests in early-stage products, platforms, and protocols that transform user behaviour and empower businesses and individuals to unlock new values.
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.
“Bags 2 Riches”, brought to you by Simplii Financial, is a docuseries that features the origins of seven notable immigrants’ journeys while highlighting their new lives in Canada. The series revisits the lows and celebrates the highs as each individual recounts the challenges they faced.
I am honoured to be featured alongside NBA star Chris Boucher, Syrian-born “refugee” chocolatier Tareq Hadhad, broadcast pioneer Shushma Datt, first 3-sport-Canadian-Olympian Georgia Simmerling, and a few others. We are all immigrants who call Canada home, and we all aim to contribute to this incredible country.
The docuseries was a massive success, so last evening the “Bags 2 Riches” team brought us together in real life to celebrate with a few hundred guests.
Back row, from left to right: Eva Lau, Allen Lau, Chris Boucher, Georgia Simmerling, Tareq Hadhad; Front row, from left to right: Shushma Datt, Sangita Patel
Tareq shared how the war destroyed his family’s chocolate business, which was one of the largest in the region at the time. As a refugee in Canada, he rebuilt everything from the ground up. Peace by Chocolate is now one of the largest chocolate companies in Canada.
If you think his inspirational story is like a Hollywood movie, you are not wrong. You can now watch “Peace by Chocolate” (the movie) on your favourite streaming service.
Chris revisited his early struggles. He occasionally needed to ride the overnight bus just to stay warm for the cost of a fare before achieving success, including helping the Raptors win the championship in 2019.
Shushma, Georgia, and I also revisited our own experiences, moderated by the amazing Sangita Patel. The takeaway? Follow your passion, lean into your strengths, work hard, don’t give up, and dream big.
Other important takeaways: 1) Chris is incredibly tall! 2) Like me, Sangita is an electrical engineer, which I didn’t know. She is now one of the most engaging media personalities in Canada.
Thanks again to Simplii Financial for giving us the platform to share our stories!
P.S. All 7 episodes of “Bags 2 Riches” can be viewed on YouTube. I know you’ve probably seen enough of me. But, if you’re curious, catch Eva and on episode 4 🙂
Yesterday at TIFF, in the world’s premiere of The Movie Emperor, one of the A Laus watched the other A Lau cheekily cast as a movie star, also named Lau, seeking relevance via a film festival–baiting art-house role in director Ning Hao’s sharp satire of movie industry pretension.
Equally importantly, it was an honour for me to witness the one and only Andy Lau receiving the prestigious TIFF Tribute Award live. 🏆
From left to right: Karina Lee, Rick Mak, Eva Lau, Allen LauFrom left to right: Maggie Mok, HKETO (Toronto) Director Emily Mo, Eva Lau, Karina Lee
I wasn’t in that many pictures as I was too busy taking pictures and enjoying the show. 📸🎥
While many associate Wattpad primarily with storytelling (and they’re not wrong – after all, I am on IMDb!), it is important to highlight that Wattpad has also been an AI-driven company for well over a decade, long before AI became cool! 😉 We built our own “Story DNA” AI technology to generate insights from the world’s largest and most diverse sets of stories and data. Without AI, managing our billions of story uploads would be impossible.
It is also worth noting that I am an electrical engineer, which means I know a thing or two about semiconductors, energy, telecommunication, etc. In fact, all three partners at Two Small Fish Ventures, i.e. Eva, Brandon and myself, are engineers with BOTH software and hardware experience. We’ve been backing commercialized AI, semiconductor and advanced material companies like Ideogram, Ada, BenchSci, Zinite, Sheertex and many more for years.
As an engineer-turn-CEO-turn-investor who has been involved in deep tech for a long time, I will share a broad perspective of where deep tech is heading. Look forward to it!
Earlier today, TSFV announced our latest investment: Story Protocol. In short, Story Protocol is “Git for creative IP.” We backed the founders in late 2022, when the company was operating in stealth mode. Now, we’re committing additional funding in Story Protocol’s latest round, led by Andreessen Horowitz. So far, the company raised over US$54 million in funding.
Being part of the founding team of Wattpad – the world’s largest storytelling platform – the Two Small Fish Ventures team is especially excited about Story Protocol and what it means for creators and the industry as a whole. The internet is a co-creation and remixing machine, and this trend will be supercharged by Generative AI. Story Procol is building the core infrastructure for this era.
On a more personal note, I am also super excited to work with its co-founder Seung-yoon Lee. We know S.Y. Lee well from our Wattpad days, as he was the co-founder and CEO of Radish, a direct Wattpad competitor. Although we were once competitors, we’re now partners ready to usher in a new era for IP together.
It feels like it’s been ages since we were last here! In 2011, Union Square Ventures’ Albert Wenger led Wattpad’s Series A, our first institutional round. throughout the subsequent decade, Ivan and I made frequent visits to the USV office, be it for board meetings, the CEO Summit, or just casual get-togethers whenever we were in NYC.
Yet, my last visit was just before the pandemic hit. And after Wattpad‘s acquisition in 2021, circumstances didn’t permit me to return.
Until now.
USV has backed many iconic companies that have become household names — Twitter, Tumblr, Zynga, Cloudflare, Twilio, MongoDB, Etsy, Duolingo, to name a few.
Becoming an investor in these companies at a mature stage, or post-IPO, is straightforward. But what sets USV apart is that this team has spotted these future giants before anybody else, time and again. Often, these companies were budding startups with just a few team members and pre-revenue. To illustrate, when USV placed their bet on Wattpad, we had fewer than 10 on the team. While we weren’t exactly pre-revenue, it would still be years before many of our current revenue streams took off.
Throughout this journey, our learnings haven’t just come from the USV team. We’ve peer-learned so much from the network of USV portfolio CEOs and founders. The speed, intensity, skills and tenacity needed to navigate these rocket ships are on another level. A single misstep can derail years of hard work. What is at stake is unbelievably high. Interacting with these founders was tremendously helpful to me. I can testify that being part of the USV network played a part in Wattpad’s eventual success.
Post-Wattpad, the Laus has re-entered the USV fold as an LP. We’re also thrilled to be collaborating with USV’s Andy Weissman on an exciting new investment. Stay tuned for more updates on this front!
I’ve long wanted to craft a steampunk story on Wattpad. The allure of this science fiction subgenre, which fuses futuristic tech with 19th-century steam-driven aesthetics, has always captivated me.
But the initial draft didn’t meet my expectations. I lacked the time for refining, and equally challenging was crafting an appealing steampunk cover.
Ideogram.ai empowers individuals with generative AI, enhancing their creative capabilities.
Here’s how simple it is: I just typed:
Text says: “My Steampunk Story”. A male and a female wearing steampunk style fashion in Europe, 4k, cyberpunk., 3d render, cinematic, photo, typography.
…and voila!
What sets Ideogram apart is its ability to address a longstanding issue among popular AI image generators: rendering text in a spectrum of colours, fonts, sizes, and styles within images. Whether it’s lettering on signs or crafting company logos, it’s all achievable with a few keystrokes or taps.
Previously, I’d spend hours attempting to create a passable cover using tools I was hardly proficient in. Now, I simply describe my vision, and a polished cover is instantly brought to life. The process couldn’t be more effortless.
Last week, Two Small Fish Ventures announced our most recent investment in Ideogram AI, a Toronto-based generative AI company. The company was founded by former Google Brain researchers and launched with $16.5 million USD ($22.3 million CAD) in seed funding led by Andreessen Horowitz and Index Ventures. The round was actually closed at the beginning of 2023. We can finally talk about it now, as the company was in stealth.
The founders of Ideogram – Mohammad Norouzi, William Chan, Chitwan Saharia and Jonathan Ho – are renowned scientists who pioneered research in generative AI text-to-image systems. They’re also “the brains” behind Google Brain’s Imagen (pun fully intended).
Ideogram’s new product is transformative as it has successfully addressed an issue that has plagued many popular AI image generators to date: producing reliable text in varying colours, fonts, sizes, and styles within an image – be it lettering on signs or company logos – with just a few clicks, words, or taps.
For instance, when I typed:
“Cartoonish happy animals with a big sign that says ‘animal kingdom’, vibrant, graffiti, typography.”
The result was excellent. I can already imagine so many new use cases that weren’t possible before.
The stories behind this picture we took in Muskoka a few weeks ago captured four incredible world-dominating startups.
From left to right: Sally Daub, Zak Homuth, Katherine Homuth, Eva Lau, Allen Lau, Dennis Bennie
Eva and I started our careers at Delrina in the ’90s. Delrina was a fledgling startup with a modest team of just over 20 when she joined. When I joined nine months later, it reached nearly 100 people. Less than four years later, when Dennis Bennie, the CEO and co-founder, brokered a half-a-billion-dollar deal with Symantec, the company employed just under 800 people and became one of the world’s top 10 PC software companies. With over 90% of the market share, Delrina’s products were so dominant that we crushed all our competitors. Truly legendary.
Post-acquisition, Eva went to work for ATI, where she crossed paths with Sally Daub, then served as its General Counsel. ATI and its chief rival Nvidia emerged as the two world’s leading graphics chip players. In 2006, ATI was acquired by AMD for $5.4 billion. The transaction is one of the largest Canadian tech acquisitions. Probably still in the top three to date.
I’ll be succinct about Wattpad—it’s a story many are familiar with. We pioneered mobile reading, user-generated fiction, AI-and-audience-backed movies and many areas that resulted in billions of story uploads in over 50 languages, numerous world’s most-watched movies and 100 million users in virtually every corner of this planet.
Katherine and Zak Homuth’s Sheertex needs no introduction. In seven short years since its founding in Muskoka, the company became a world-famous household name and synonymous with unbreakable pantyhose. Three years ago, it took over the largest hosiery factory in Canada. To keep up with the demand, it is now moving into a space in Montreal three times larger. There is still so much headroom for growth.
These four Canadian companies are all world-dominating category creators.
As a passenger on the rocket ship, being the captain of the rocket ship and funding the rocket ship are three different skills. And yet, they’re intertwined, each amplifying the other. If you have never been on a rocket ship, it would be hard to imagine what a rocket ship looks like and spot the next one.
Eva and I have been immensely fortunate to wear multiple hats as employees, founders, and investors in many rocket ships. The timeless adage rings true: Surround yourself with the best. If you aim to be the best, work for the best and work with the best will help you learn from the best.
I thoroughly enjoyed yesterday’s fireside chat between OpenAI’s CEO Sam Altman and Shopify’s CEO Tobi Lutke!
Despite the downturn, it is a super exciting time to be an entrepreneur and an investor in tech startups. We are in the midst of a “once-in-a-decade” paradigm shift as a number of new tech trends emerge. Generative AI is one of them. When these new transformative technologies achieved mass adoption, they changed behaviour, democratized access, and unlocked values that weren’t possible previously. New startups will more easily challenge the old guards. An exciting time indeed!
Specifically, Altman said: “It should be a big moment for Toronto,” which I couldn’t agree more. In the last decade, Toronto has become one of the world’s AI epic centres. TSFV has already invested in many Canadian AI companies. Look forward to seeing the proliferation of a new crop of moonshots born and raised in your home and native land!
Thanks Lisa Zarzeczny and team Elevate for organizing!
No doubt Grand Tourismo 7 is one of VR’s killer apps! Although my Thrustmaster setup already has a brake pedal with an adjustable spring, a seatbelt and a manual transmission with a clutch to maximize the immersiveness, PS VR2 brings it to another level. Watch the video if you don’t believe me!
For instance, creating game-ready 3D assets is very challenging and time-consuming. Using Masterpiece’s 3D Generative AI, one can now create 3D assets with just a few words, such as “blonde viking with a beard.”
Millions of people are already creating games. Unity, one of the most popular game engines used by 2 billion monthly gamers, already has over 1.6 million monthly creators. Platforms like Masterpiece will further democratize game creation and unlock creativity amongst millions who never thought they would become game creators.
Check out Masterpiece Studio’s 3D Generative AI here.
Episode 4 of Bags 2 Riches is live! The docuseries features the roots of seven notable immigrants’ journeys while sharing their new life in Canada. The series relives the lows and celebrates the highs as each individual recounts the tests they faced.
I am honoured to be featured alongside NBA star Chris Boucher, Syrian-born chocolatier Tareq Hadhad, broadcast pioneer Shushma Datt and a few others. We are all immigrants who call Canada home, and we all want to contribute to this amazing country.
Despite two (!) flight cancellations and catching two (!) snow storms in Toronto and Halifax, my trip to Halifax last week was a blast!
First, I hosted an oversubscribed “office hours” at Volta. For those who couldn’t book a time, there is always a next time.
After that, I hosted a tech ecosystem dinner, where we had terrific conversations with many investors and accelerators in the tech ecosystem, and of course, some good food too 🙂
From left: Malcolm Fraser, Andrew Ray, Jeff Larsen, Rhiannon Davies, Jevon MacDonald, Ted Graham, me, Jonathan Saari, Matt Cooper
Lastly, I participated as a judge at Saint Mary’s University in Canada’s only VCIC (Venture Capital Investment Competition), an educational competition that provides students real-world experience in venture capital by simulating the venture capital investment process. The student VCs from across the country (e.g. University of Waterloo, University of Alberta, University of Toronto – Rotman School of Management, Queen’s University, Schulich School of Business – York University, University of New Brunswick, etc.) listened to pitches from real entrepreneurs and defended their investment choices to a panel of senior partners (i.e. me and other real investors).
I was super impressed by the quality of the students’ analysis, the term sheets they put together and their explanations. Equally importantly, we had a lot of fun, including the celebration and the after-party networking chat. Congrats again to all the winners!
It was such a (snow) blast. I will be back! Since Wattpad opened its second HQ in Halifax a few years ago, I have been coming to Atlantic Canada regularly. It is like a second home to me. No doubt this tradition will continue for many years to come!
Today is a big day for Two Small Fish Ventures as we reach first close of $24M for Fund III that targets $40M!
With the new and bigger fund, TSFV will continue to back early-stage startups using game-changing technology to achieve global scale. That has not changed. The difference is that we’ll be writing bigger cheques and leading more rounds. It’s a great time to invest as tech touches everything. It creates previously unthinkable opportunities for massive disruption. We will back early-stage companies that shift paradigms.
It’s a wrap! The massively successful 47th edition of TIFF is in the history books. For lack of a better term, this is the first ‘fully in-person’ TIFF since the beginning of the pandemic. There were many ‘behind-the-scene’ challenges that might not be obvious to the public. Kudos to the TIFF team for pulling this off.
A massive success also meant a disappointment to some who couldn’t get tickets because many screenings were sold out. For those who couldn’t get tickets, make sure you become a member before the next TIFF 🙂 In addition to supporting this iconic charitable organization, membership will give you many year-round perks, including early-access.
P.S. Don’t forget to check out this wonderful wrap-video!
