The Narwhal List – July 2019 Update

There has been a lot of action in the Canadian tech scene over the last six months. Deals are happening with increased regularity and for bigger amounts. We thought it would be worthwhile to update the Narwhal List for July 2019 to show what has happened over the last six months. July itself has been a busy month and this update doesn’t include anything happening in July.

First of all, four companies graduated from the list. Milestone and Lightspeed went public and H&R Block acquired Wave Financial for the princely sum of $398 M US. Wealthsimple, a company we hoped would become the next Unicorn exited the list as Power Financial ponied up for another round and became a majority shareholder. Here’s to hoping that Wealthsimple goes out and raises another round from an external party and becomes independent again.

Eleven companies including Vena Solutions and Lungpacer are either new or returning to the list. These 11 companies raised an average of $36 million US each.

Companies new or returning to the ListAmount raised $M US
AlayaCare25
ApplyBoard41
Dialogue30
Fiix Software40
Koho Financial31
Lungpacer Medical55
Mindbridge AI11
Sonrai Security19
TrackTik34
Vena Solutions87
Xanadu31

And finally, 8 companies already on the list raised an average of $38 million US of capital and moved up. At the top end of these companies was Fusion Pharmaceuticals which raised an eye-popping $105 M US.

Companies that raised moneyAmount raised $M US
D-Wave Systems30
ecobee61
eSentire47
Fusion Pharmaceuticals105
MOJIO10
Northern Biologics7
Turnstone Biologics42

You can see a completely updated list of the Narwhal List for July 2019 at https://narwhalproject.org/narwhal-list/

Sonder is a great “Started in Canada” story!

Today’s article in the Globe and Mail about Sonder, the San Francisco based travel company tells a great story. Founded in Canada in 2012, they moved quickly to the US where 90% of their 560 or so employees now reside. (Employee data from LinkedIn.) They are heading to $400 million in sales this year and just raised a $210 million US D round of capital (CBInsights). So far they’ve raised $340 m US and are officially a Unicorn. In Narwhal List terms, Sonder has a Financial velocity of 48. This is 39% higher than Canada’s leading tech Narwhal, Element AI which has a Financial Velocity of 35.

If you paid attention to our latest research summary, you’ll see why we think they are doing it right. First of all, they are in a horizontal consumer market. This is where all sorts of strong growth is possible. Secondly they are amassing copious amounts of capital. With last year’s revenue of about $200 million they now have 1.7 times as much capital as revenue. They have employee growth of 94% in the last year and 244% in the last two. This is exactly the growth they need to propel them towards an IPO.

Why this is great for Canada

You may be asking why I think this is a great Canadian story. After all, they are now based in San Francisco. It is sad that Sonder had to move south to be successful. But it’s great because it shows that we can create good ideas here and have the entrepreneurs to propel them to glory. It’s great because Sonder is now about to bring a second headquarters back into Canada and that’s a place where we can incubate new talent. Most of all, we’ll be building employees with the experience of working in fast growing companies and that can only be good for our ecosystem.

If we get enough of these stories, the Shopifys and Sonders, we will eventually have enough anchor companies around which a more successful ecosystem can flourish.

The Narwhal Project

Three years ago, I started doing research at the Impact Centre at the University of Toronto to discover the root causes of Canada’s challenges in creating a world-leading innovation economy. I thought it would be useful at this juncture to summarize our findings. This report highlights some of the issues we have identified. This blog also announces the move of our content to this new site and the launch of what we are calling the Narwhal Project, an exploration through research of what it takes to scale a tech company. I promise to blog more frequently again but meanwhile, you can check out a summary of our findings in our latest report.

For fifty years, the federal and provincial governments have been spending billions to improve our innovation economy, but without performance improvements. The usual discussion is centered on Canadian businesses and their lacklustre performance on research and development (R&D) and intellectual property (IP) protection. In addition, our productivity has lagged relative to the US because of insufficient investments into productivity-enhancing technologies, along with the lack of available capital and talented people to grow technology firms. 

But we believe that a critical challenge is our inability to scale companies to a world-class size. Larger companies boast several advantages. They have greater revenue per employee, pay better salaries, undertake more R&D, and take out more patents.

We lack large companies, particularly in the technology sector. We have only one Unicorn (with perhaps another one qualifying but not listed as such at the date of this publication) compared with over 150 in the US. Few tech companies in Canada grow large enough to go public. This means less R&D, fewer patents, and, ultimately, lower income per capita and productivity. 

Perhaps the solution to our innovation challenge is not more R&D and more patents, but rather scaling and building of companies. But why are we challenged do this in the tech field? What we have found is that:

  • Few Canadian companies are founded in large consumer markets capable of generating the desired scale.
  • We invest less per company relative to the US.
  • Canadian firms spend less on marketing and sales (M&S), activities that are critical to building the customer base.
  • We have fewer qualified people in marketing functions.

The underinvestment and underspending result in lower growth rates for Canadian tech firms compared to their US counterparts. Fundamentally then, Canadian firms do not look as attractive as potential investments due to slower growth. Because of this, they do not attract large amounts of late-stage capital and are often sold before they can scale to world-class size.

All of these factors converge to create serious barriers to growth of Canadian companies, thus necessitating smarter and more strategic thinking about how we will overcome these challenges.

You can get a full copy of the report here.

Getting Good at Getting Better

I just finished an Impact Brief on Public Sector Venture Capital and there were a number of thoughts I had while preparing it that I didn’t think belonged in a report so I figured I would include them here.

The report looked at the ability of BDC’s venture capital arm and MaRS’ Investment Accelerator fund to pick and nurture world class companies. These are two organizations that have invested in over $1 billion of government money in 500 Canadian tech companies.

As I was doing the research I talked with a number of other VC firms to get their perspectives as well. What I found in these conversations stunned me. It appear that very few VCs are looking back at the history of their investments to discover best practices either at investing or at growing world-class tech companies.

Several major venture capital funders have done absolutely no research on best practices and don’t intend to do so. One VC is planning to do some research. One even told me that he didn’t think it would be worthwhile to do this type of research as his companies were all different.

And then I thought about Google and perhaps the whole ethos of Silicon Valley. Google has initiated numerous projects to determine best practices within Google. An HBR article reports that Google initiated “Project Oxygen, a multiyear research initiative. It has since grown into a comprehensive program that measures key management behaviors and cultivates them through communication and training.” Project Aristotle was another study that looked at team effectiveness.

VCs like Openview regularly do research to help their portfolio companies and they share best practices publicly. CB Insights did research on why companies fail. All sorts of VCs blog regularly about the industries they are investing in and how to get better. Just check out websites for Bessemer or Andreessen Horowitz.

What the US VCs get is that research is essential to improve business practices. They are actively trying to get better.

In Canada there is virtually no practitioner based research on technology company best practices. There is virtually no research on investing practices. Governments across the country are investing over $5 billion annually to improve the performance of the technology sector and the application of technology but there is very little research to determine how we can improve these practices. If we’re spending so much money to get better, wouldn’t it make a little sense to spend some money to figure out how best to do that?

Shouldn’t we be trying to get good at getting better?

We’ve misunderstood the US dominance of the world of innovation


It just hit me this morning why the US seems to dominate the world in the creation of innovative companies and products and I think we’ve gotten it all wrong. The Americans aren’t better than the rest of us at research and development and product creation, they’re just better at us in market development.

If you’ve been following my recent research you’ll have seen that I’m on a path to discover why Canada lags many of its peers at the development of an innovation economy. My thesis is that our problem has been misunderstood for years and the problem is not that Canada fails at research and development, patenting or financing startups. The problem is that we’re no good at market development.

I’ve recently started to look at why the US is so good at launching new products and companies. The general consensus seems to be that the US and in particular Silicon Valley is more innovative than the rest of us. But wait a second, this is the country that hasn’t adopted the metric system or replaced low denomination paper currency with coins. This is the country without universal medical care, that still executes citizens, even minors. It is a country with a completely dysfunctional political system and one that is still embroiled in debates over abortion and gay marriage while the rest of the world has moved on. Is this evidence that they lead the world at innovation?

Despite what they claim about innovation and what we think, I think they’re wrong. There is no evidence that the US is better than the rest of us at research and product development. But if they seem to be so good at creating products and companies, what are they better at? I think they’re better at market development.

Over the years across the US, entrepreneurs and companies have perfected the art of market research and in particular design thinking. They have perfected product marketing, developing alliances through business development. They have perfected marketing communications and even more so, sales. They have perfected the art of incubation through such entities as Y Combinator. They have perfected the use of private venture capital and how to best assist the companies reach markets through the assistance these VC firms provide. They have created a machine that can turn average research into world-leading products and companies.

If we want to improve our ability to help innovative new products reach markets we have to stop focusing on the research and development side and focus, as the US has on market development.

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The Curse of Millennial Job Churn

millennials-in-charge-640x302I was surprised that Finance Minister Bill Morneau warned Millennials that they should “get used to so-called job churn – short-term employment and a number of career changes in a person’s life.” Does this mean he’s giving up on the economy?

I looked around the other day and decided that as a group, my friends who had stuck with one job or one career all of their lives were on the whole, financially better off than the ones who skipped around between jobs and careers. Even the ones in lower paid jobs had done well financially as they could plan and save knowing how much they were earning.

So is Bill Morneau effectively stating that Millennials should get used to the idea that they are not going to be as well off financially as their parents?

Here’s what happens. If you don’t have a secure career, you won’t spend as much on a house or maybe you won’t buy one at all. After all, Bill’s saying that you better play it safe as you might not know when your next gig will start even though we’re going to train you so that you can keep switching careers regularly.

If you don’t buy a house or spend as much on one then you probably won’t need all sorts of furniture and will not be spending much on renovations. As for buying a cottage, to hell with that idea.

So what happens to the economy when all those job-churning millennials stop spending money? Well the economy tanks and who then will pay for all of us boomers to retire?

What’s the solution? Well it isn’t only training plans. Somehow we need to be de-risking this world of churning jobs so that millennials can plan properly for their future. (And in that way contribute better to boomer retirement – did I mention that it’s still all about boomers anyway?)