There is a struggle we all go through when we find ourselves as an anomaly in a group of people. To what extent should we alter our behavior to fit in? To what extent should we stay true to who we are and challenge the system?

The number of women who make it to the highest levels of the venture capital game are few and far between. Looking at the Midas list this year, with only six women versus 94 men as top investors in VC, the reality of this industry’s gender diversity is obvious. Interestingly, I believe the ultimate challenge for women is not sexism, it is caused by something subtler. As a part of human nature, we unconsciously favor the people that appear like us. People that we can easily relate to. The dominance of men in VC creates an invisible drive to welcome more men to the industry, as “a bright young man who reminds me of my younger self and who I can feel comfortable both working and socializing with”. In a way, it’s the simpler and seemingly safer path when hiring.

I remember the first few weeks at my previous firm, IDG Ventures Vietnam. I went out for lunch with a group of fellow associates and it struck me that I was the only woman at the table. I had little experience in the VC industry, and certainly had no idea about the diversity challenge. I used to think I could be one of the guys during the first few years of my career. However, part of me always wondered if this bending was how other females had evolved to fit in? How about the women who made it to the top echelons of the venture investment world? How did they do it? Did they even exist?

I recently came to Canada and Whitney Rockley, the Co-founder of McRock Capital, was the first female VC Partner I had ever encountered in my career. I couldn’t wait to ask her how she did it. To my surprise, her personal experience was simple and straightforward “You always have a choice. Work hard, be kind, and never, never, never quit”.

There has been some recent attention on how to solve the lack of gender diversity in our VC world; and I believe that female role models play an important part of the change. As women, we all face the same adversity when it comes to staying the course in this business. Whether it’s a secret feeling of isolation, or a tough choice to make between work and family at some point; we often look out with the hope to see that we are not alone on this path.  For most of us, “you can’t be what you can’t see”. Women like Whitney are not just the role models for other young women, they are changing the attitudes of men. Diversity is a competitive advantage and in this performance-driven business, that acknowledgment will eventually start to challenge what a winning team looks like. Not simply for the sake of attaining gender equality but because of a desire to succeed. The need to build the highest performing teams.

Whitney was just named as the Chair of the Canada’s Venture Capital & Private Equity Association (CVCA), after years of hard work and commitment to the ecosystem. This appointment is so important to our industry because Whitney becomes the first female Chair since the inception of the CVCA over 40 years ago. When I recall that advice she gave me the first time we talked, there was no gender-based secret. Anyone can make it one day if they work hard, stay true to what they believe in, and never, never, never quit. Today I have a role model for my own journey to convince people to look beyond gender. I can see what I want to be.

Author: Ha Nguyen, Associate, McRock Capital

 

Seeding the Canadian VC Innovation Ecosystem

When we started McRock Capital five years ago, we had a vision and a blank piece of paper. We believed in Al Pacino’s speech from the film, Any Given Sunday, in that “life is just a game of inches” and the inches we need to succeed are everywhere. We fought for every inch to get McRock’s first venture capital fund launched, and our portfolio company entrepreneurs fight for every inch to change the world. The difficult part, however, is recognizing the inches that will end up helping you the most.

Looking back, we know there was one inch we fought for that turned into a mile; having access to funding through the Venture Capital Action Plan (VCAP). VCAP was announced by the Federal Government of Canada in 2013 and launched in 2014. The VCAP was intended to fill a market gap and attract capital to Canada’s venture capital (VC) fund managers from private investors such as pension funds, high-net-worth individuals, corporations, and banks. Having a well-capitalized VC industry, would, in turn, create a sustainable ecosystem for new and innovative businesses in Canada to access capital.

Today, everyone is talking about the VCAP and whether the Government of Canada should continue the program, modify it, or abandon it entirely. Like any broad-reaching government initiative, there have been plenty of supporters but also some detractors. Concerns have been raised regarding the additional layer of management fees resulting from the fund of funds (FOFs) structure, the slow speed that the Canadian economy may benefit from VCAP, and whether the program is a prudent use of taxpayer dollars.  

We recognize that, as direct beneficiaries of the VCAP, our objectivity on the subject could very reasonably be questioned. Since we are analysts at heart, we set out to take an unbiased look at whether the VCAP had been successful so far and also find a clear way to illustrate that success. The Canadian Venture Capital Innovation Tree shows how the VCAP impacted the Canadian VC industry as a whole and how all of its beneficiaries interact together as one functional ecosystem.
​
To begin, we want to highlight how successful VCAP has been in attracting private capital[1] into Canada’s VC ecosystem. Here are some of the key achievements of VCAP to date that you can find within the Innovation Tree:​

• Down in the roots of the tree, the four VCAP FOFs raised a total of $1.36 billion; $906 million from private capital and $450 million from the federal and provincial governments. For every $1.00 of government funding across the four VCAP FOFs, $2.00 of private capital was attracted to the VC ecosystem.
• Up in the branches of the tree, 20 Canadian VC funds to date have received funding from either a VCAP FOF or direct investment from VCAP. These 20 funds have raised a total of $3.34 billion; $2.97 billion from private capital and $369 million from the federal and provincial governments through their commitments to the FOFs. For every $1.00 of government funding across the 20 Canadian VCs, $8.06 of private capital was attracted to the VC ecosystem.
• Looking at the tree as a whole, what began as $500 million in commitments from the federal and provincial governments resulted in an additional $3.88 billion of private capital being attracted to the VC ecosystem, or $7.75 of private capital for every $1.00 of government funding.

​Zooming in on the McRock branch of the Innovation Tree illustrates the benefit of VCAP in attracting private capital on a VC fund level. McRock raised a $70 million VC fund of which $25 million came from VCAP FOFs. Within the FOFs’ allocation of our fund, $8 million was from the government, and this support enabled McRock to attract an additional $62 million from other investors. For every $1.00 of government funding, McRock raised $7.47 of private capital from a group of leading investors such as Cisco Systems, Électricité de France, and Caterpillar. The commitment from our three corporate investors alone exceeds our government commitment and provides these global corporations with direct access to Canadian deal flow and McRock’s portfolio companies.
​
Beyond the attraction of private capital into the Canadian VC ecosystem, the VCAP program also fuels extensive job creation across the country. Through the VCAP FOFs and the 20 VCs, a total of 126 Canadian companies have received funding – resulting in thousands of new jobs being created. Further, only 15% of the VCAP’s total commitment to the FOFs has been invested to date, so we have barely even scratched the surface of the potential that this program brings to the economy. Canadian job creation is an important point because it ties directly into one of the concerns raised against the VCAP: that the cost of the program may be too high, partially due to the additional layer of management fees that the FOFs represent. We believe that, in order to fully understand the cost of the VCAP, you must also examine the money that the federal government receives back in the form of income taxes.

First, let’s look at how much the VCAP pays in management fees versus how much the federal government receives back in income taxes from the people who work at the FOFs and VCs. We looked at the Canadian workforce of the VCAP FOFs and 20 VCs and, using some standard VC industry assumptions, we estimate that the current employees of the fund managers will pay $106 million in federal income taxes during the full fund lives. Using the same assumptions, we estimate that VCAP will pay only $89 million in total management fees during the full fund lives, including all fees paid directly to the four FOFs, directly to the four high-performing VCs, and indirectly to the 20 Canadian VCs. To sum up, the federal income taxes paid by the VCAP FOF and Canadian VC fund workforce offsets all of the management fees paid by the government across all levels of the program with a surplus of $17 million in the government coffers.

Next, let’s look at how much the federal government receives in income taxes from all of the portfolio companies that the VCAP FOFs and Canadian VCs invest in. Across all of the funds, a total of $453 million has been invested into 126 unique Canadian companies. Applying some basic assumptions based on our experience investing in tech, we estimate that these 126 companies represent $63 million in federal income taxes based on their current employees. Since only 15% of the capital has been called by the VCAP FOFs, we can expect that a few hundred additional companies will be started through the program during the next few years. Put simply, it’s not unreasonable to think that the entire $500 million VCAP program could be paid back entirely through income taxes paid by the new portfolio companies. How do you like them apples?

We can use the McRock branch of the Innovation Tree again to serve as an example of this last point. Using the $8 million that our VC fund received from the government, we looked at the government’s pro rata investment into each of our Canadian portfolio companies. We then compared that pro rata investment to the total amount our portfolio companies’ employees paid in federal income taxes last year. We found that, in all our portfolio companies, the government’s pro rata investment into each was paid back through federal income taxes in a single year.

Even with the success of VCAP, there are hundreds of early-stage Canadian companies with incredible innovations that need access to capital to move forward. The capital needs of these companies are far greater than what the Canadian VC ecosystem can currently support. The VCAP benefits Canada and its economy as a whole and we believe that these benefits far outweigh the costs. However, ongoing support is required to create a strong, sustainable Canadian VC ecosystem.

To sum it up, the Canadian economy is already seeing significant benefits from VCAP only three years in. As VC-backed exits continue, the recirculation of capital and the success of the program will expand even further. We believe the VCAP program was a brilliant move by the government and, more specifically, the Honourable Jim Flaherty. VCAP provided the necessary nutrients to grow a Canadian VC innovation tree that is seeding an entire forest of unique, high-growth companies.

 [1] “Private Capital” is defined as any capital that was not directly invested into VCAP by the federal or provincial governments. For greater clarity, BDC, EDC, AEC, and other similar institutions are considered Private Capital for this analysis.

Sources: McRock Capital, CVCA, Government of Canada, Pitchbook, PEHub, Teralys Capital, HarbourVest Partners, Kensington Capital

The statistics are that 50% of startups don’t make it to year 5. However, if you make it to year 5, your odds of not making it to year 6 drop to a relieving 10%. Phew because today marks the 5th anniversary of the incorporation of McRock Capital. A name, an idea and two co-founders with energy, experience and naivete. Kind of Ironic that McRock was a startup that if successful would fund and help grow startups.

As we reminisce today about the adventures of the past 5 years, we decided to write them down. We got some things right, we got some things wrong but in the end these 5 factors made the difference for us. We do this as a way to celebrate, to share but mostly to not forget.

 

 

 

 

 

 

 

 

 

1. Fun Matters
A key ingredient to being good at anything is having a passion for it. That doesn’t exist unless it’s fun. We have been told that fun is irrelevant. We totally disagree. Being able to have fun during the most productive waking hours of our lives is simply a necessity. It gives us the drive to succeed.

 

 

 

 

 

 

 

 

 

 

2. Two Is Better than One
There is lots of research around the single founder vs co-founder advantage. Most reports agree that two is better than one for many obvious reason. We couldn’t agree more. Of course having two people to split the work is the obvious reason but the real value is having someone play the cheerleader role when the other has hit bottom.

 

 

 

 

 

 

 

 

 

 

3. Founder Alignment is Critical
If you go with multiple founders, you need to pay close attention to alignment. Resentment can grow fast when financial and career stakes are high. The startup environment is a perfect breeding ground for resentment when different work ethics, financial situations or even holiday destinations creep in. Even this picture from Scott’s daughter years ago showed the natural equality. We found that when those feelings of “not fair” show up, it can be the beginning of the end.

 

 

 

 

 

 

4. The Inches You Need Are Everywhere
We live by Al Pacino’s famous locker room speech in the movie “Any Given Sunday” in that the inches you need to win are everywhere. Fight for every inch and you will end up down the field. Succeeding at any ambitious goal requires this approach. Map the strategic path, break it up into pieces and fight for every inch one at a time. If not broken into manageable tasks, the larger vision can be paralyzing. We would also add that being naive to the magnitude of a challenge actually makes it possible to achieve. Knowing what we know today would have made that first day at McRock in 2012 beyond overwhelming.

 

 

 

 

 

 

 

 

 

 

5. Never, Never, Never Quit
If you have fun, if you have the support of others, if you are set up for resilience and won’t easily crumble, and if you understand how to win one day at a time, the last piece of advice is the only one that really matters. Just don’t stop. It’s impossible not to be successful in the end.

This was a note we put on a bottle of Champagne. Good thing that stuff gets better with age as it took longer to pour on our heads than expected.

We started McRock Capital on March 1, 2012 and we closed our first venture fund on Dec 12, 2014. Today we have $70 million of capital under management from 15 investors including large corporations like Cisco Systems, Electricity de France and Caterpillar. The fund has made 5 investments with a sixth coming soon. We opened a second office in Calgary in 2015. We are now a team of 5. Now that we are statistically beyond the death zone, there is nothing but excitement for the next 5.

Disrupt or Be Disrupted. In the ever accelerating world of technological advancement this statement is not just a clever tweet, it’s a sober competitive reality. We live in a digital world where every company, industry, city and country is being disrupted at a very fast pace. Recent history proves that new winners are emerging and past champions are afforded no certainty.

The Digital Age, which officially began in 2010 and is expected to continue until 2030, will be 5-10 times bigger than the Information Age (1990 – 2010)[1]. This Digital Age is driven by the Internet of Things (IoT) and is estimated to have an economic benefit over the next decade of $19 trillion, or the equivalent to the US economy today. The Digital Age takes us beyond simply accessing volumes of data. It moves us closer to controlling and predicting complex outcomes. Advancements in software analytics and operational automation will drive a major wedge in the growing digital divide.

The inflection point of the Digital Age arrived in 2015 when we looked back to see how far we had come. Here’s the IoT growth by the numbers[2] since 2012:

• 18.2 billion things connected to the Internet today versus 8.7 billion[3];
• 13x growth in sensors shipped;
• 5.9 billion machine-to-machine connections (M2M) in place today versus 2.6 billion connections;
• $779 billion in IoT revenue today versus $450 billion;
• 2x growth in M2M service revenue of $122 billion today up from $66 billion; and
• $1.4 billion in predictive maintenance revenue versus $400 million.

Over the past five years we have seen the number of corporate groups engaged in the IoT and, more specifically, the Industrial IoT (IIoT) soar. Corporate consortia involvement has grown 50-fold since 2012. Today more than 350 different corporations belong to IoT consortiums as they prepare to survive and thrive in the new Digital Age.

McRock was founded in 2012 when only a handful of corporations like Cisco and GE seriously understood the potential of the IIoT. We had a vision that the profound digital transformations taking place in the consumer and enterprise markets would similarly provide massive opportunities and disruption to large trillion dollar industries.

Today companies such as Électricité de France, Schneider, Pitney Bowes, SKF, Siemens, Rio Tinto, and Schlumberger have now started the transition into the Digital Age. GE has aggressively positioned itself as the Digital Industrial company.  This provides exciting opportunities for venture-backed IIoT tech companies looking for reputable customers, channel partners and ultimate acquirers. 

Canada is well positioned to be a leader in the IIoT given its formidable resource sector, highly technical workforce, and innovation eco-system. Companies like Dundee Precious Metals have created a completely connected underground mine. BC Hydro has reduced energy theft by 75% and generated $224 million in self-service savings. The City of Mississauga has sensored the city to significantly improve public safety. Equally as exciting, IIoT tech companies in Canada are leading the charge with global deployments, profitable business models and demonstrable scale.  

Take industrial app company, RtTech Software, based in New Brunswick. RtTech has deployed its industrial apps with 30 top-tier customers in 67 sites across the world. In 2016, GE Digital said, “One Canadian IoT technology company that has figured out the ROI from its products is RtTech Software, a Moncton, N.B. firm. The company has developed apps that help industrial clients − ranging from window and door manufacturers and bottling plants to corporate giants such as Michelin, Rio Tinto and Potash Corp − improve their operational efficiency”.

mnubo is another example of a Canadian IoT tech company that has experienced impressive growth since its inception only four years ago. The team has worked with a variety of customers in the smart home, manufacturing and agriculture sectors. In April 2016, mnubo announced it was collaborating with CaSA, a Montreal-based energy management company, to deliver actionable insights to thousands of connected smart home clients.

These are just two of many examples of how Canadian IoT tech companies are working with corporations to enter the Digital Age. The companies, industries, cities and countries taking action today will be the leaders of tomorrow because they understand they must keep moving or die. Which side of the digital divide are you on?

Author: Whitney Rockley, Co-founder & Managing Partner, McRock Capital

[1] Cisco Chairman, John Chambers, IoT World Forum December 2015, Dubai
[2] Source: Machina Research, IDC, ABI Research, Cisco Consulting Services
[3] Source: ABI Research, Business Insider, Cisco, EMC, Ericsson, Forbes, Gartner, Hammersmith Group, Intel, Internet Consensus, Internet World Stats, Machina Research, Navigant Research

November marks the one-year anniversary of that desperate moment that proceeds success. Only hindsight makes this statement true as failure is also proceeded by the same desperate moment. It was a time where hope was challenged, success was no longer on the horizon, yet we kept holding on. We didn’t quit.

People ask me how we did it. How did we hold on when others started to give up on us? I found it fascinating that some people appeared to get a perverse sense of comfort from watching us struggle. I also found eternal gratefulness to those who guided us and stood beside us during those challenging days.

But when it came down to it, it was really about every relentless inch. We had no idea if the things we tried would move us closer to success or perhaps take us backwards. We just knew one thing – we had to wake up every day and do something. The small things added up and were manageable to action. Those inches demonstrated to ourselves, and the people we needed to reach, that we were relentless. We weren’t going away.
​
My co-founder would always tell me that we could do 10 more push-ups. And we did. He would always have these crazy ass creative ideas that would immediately send me into exhaustion but I knew he was brilliant and, if I executed on his ideas, we would get one more inch closer.

One of our favourite rituals that I enjoy sharing is that we would toast our week’s accomplishments every Friday late in the afternoon over chicken wings and beer at our neighbourhood pub. Some weeks we had awesome things to celebrate while other times we simply celebrated the fact that we cycled our butts into the office through rain and snow. Reminding ourselves of every little inch and ending the week on a positive note was nothing short of powerful. It was a recipe for success.

We believed, never gave up and hustled for every inch. So here we are today…one year on and life is pretty okay.

​Author: Whitney Rockley, Co-founders & Managing Partner, McRock Capital