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VC10X - VENTURE CAPITAL PODCAST

Venture Capitalists (VCs) & Angel Investors share their investing thesis, screening process, value-add, exits, and more. Hosted by Prashant Choubey (@ChoubeySahab)

  • angel-syndicate
  • canada
  • united-states

The Canadian Startup Ecosystem w/ Matt Wilson, MD Allied Venture Partners

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Matt Wilson is the founder and Managing Director at Allied Venture Partners. He founded Allied VC after being a private angel investor since 2012. Allied has since grown to more than 1400 investors globally, and they've deployed over $3.5 million into early stage startups across Canada and United States.

We talk about:

  1. Matt’s story and how he started investing?
  2. Investment thesis of Allied VP
  3. Why is Allied VP structured as a syndicate and not a fund?
  4. How’s the Canadian startup ecosystem shaping up?
  5. Are taxes too high in Canada?
  6. Canada Startup Visa Program
  7. How do you evaluate startups for investment?
  8. Involving LP network in the diligence & value add process
  9. Exciting portfolio companies
  10. Rapid Fire Round

Matt’s story and how he started investing?

I actually caught the entrepreneurial and investing bug at a pretty young age. I started my first business at age eleven and then started investing in the stock market at age 14. So I've always had a passion for entrepreneurship and investing. I went to university for law, originally thought I'd become a lawyer, and then after I graduated, I realized I didn't like law. I wanted something more dynamic like finance, and ended up actually moving to Toronto as I was pursuing a career as a professional ice hockey referee, believe it or not.

My day job at the time was working various sales and marketing roles. I first started at Nestle and then I moved over to Coca Cola for a couple of years. So I really got a behind the scenes look at how the CPG industry worked. And from there, my former business partner and I, we spun out a CPG startup of our own, which we ended up selling in 2012. And from that point, I moved out to Western Canada, where I am now, and I just started doing some angel investing as a way to combine my passions for entrepreneurship and investing. And I really enjoyed working with founders, helping them with their sales and marketing strategies, and it just kind of grew from there.

I started writing more and more angel checks, and as my network grew, I started scouting for various VC funds and a couple of different VC syndicates. And then in 2017, when I wanted to get more formally involved in the industry, maybe get a job at a VC fund, for example, everyone I spoke to said, if you want to work in VC, you need two things. You need an exit and an MBA. So I'd already had my exit from the CPG company, but I decided to go back to business school, got my MBA, and then when I graduated, I graduated in spring of 2020.

So the Pandemic was just kicking off. The timing was terrible. As you recall, the world was shutting down. Nobody was hiring, no one was doing anything. People were just sitting on their hands and staying inside, basically. So incidentally, my capstone project for my MBA was the business plan for a new venture syndicate based here in Western Canada that would invest in early stage software and technology companies across North America. So after a few more months throughout the summer of running the idea of past people and just sort of trying to get a feel for where the industry was going to go and how this whole Pandemic thing was going to play out, I decided, hey, what better time to launch it?

Let's just go ahead and launch it right now and we'll see what happens. We'll just see where it goes. Over the next twelve months or so, as you remember Q4 2020 things really started to pick back up. The markets got really hot and then 2021 was obviously a massive year for funding in VC, so it absolutely exploded. We grew to over 10 LPs in less than twelve months and we just wrapped up our 17th investment two weeks ago and we put a little over 3.5 million dollars to work. So it's been an incredible ride, definitely beyond my expectations. But that's where we are now, investing in early stage companies across North America.

Investment thesis of Allied VP

We invest in early stage so pre-seed series, a software technology focus in terms of industries. We're relatively industry agnostic, but we do avoid stuff like healthtech, biotech, and climate. It's just not my area of expertise.

Geo-focus is North America, but we'll look at anything, whether it's consumer, whether it's enterprise marketplaces platforms, fintech, prop, tech, you name it, we'll pretty much look at anything. 

Why is Allied VP structured as a syndicate and not a fund?

It is really challenging if you don't have a big track record to go and launch a fund. So I chose the syndicate approach. I've been investing in syndicates for about ten years now, so I really like the syndicate model.

It plays well to active investors who want to read the deal memo and then choose to invest on a Dealbydeal basis versus, you know, passive fund LPs who just want to write a check and then get their quarterly or annual updates. So I purposely structured it as a syndicate. That's the model that I prefer.  So far it's been working out really well. 

How’s the Canadian startup ecosystem shaping up?

The Canadian startup ecosystem is really interesting. It's an absolutely fantastic place to start a company and incubate a company. The regulatory environment is very favorable. There are lots of grant funding options. Our visa program is really great as well. So we have a lot of engineers coming from overseas that are setting up shop and living in Canada. And then it's also a really good place for later stage companies.

For example, companies in the US. Who want to hire more talent, they need to expand their engineering team. So we're seeing a lot of later stage companies hire and get talent out of the Canadian market. And that's great as well because similar time zones, same language, similar culture, and they're saving 30% on the exchange rate. So it's actually cheaper to hire developers in Canada. But there is a pretty significant gap in the Canadian startup ecosystem is at that middle stage, sort of that seed to Series A. There remains a pretty big funding gap there.

I've been a proponent of this for quite a few years now. We’re seeing a lot of companies, for example, that end up raising their seed round and Series A rounds in the US. And then they're gone to the US. That's been a big criticism of the Canadian ecosystem for a while.

We need more VCs, we need more accelerators at the seed, and series A stage. Unfortunately, there's some great accelerators in the country, but a lot of them just don't invest in the companies that they have through the program. Right? So unlike a YC or Techstars model where they're actually put in money at the start of the accelerator, the founders can then put their heads down. They don't have to worry about paying their bills for the next six to eight weeks. And then there's a demo day, and then VCs come in and fund the company in a way to go.

Unfortunately, with the Canadian ecosystem, it's still pretty young in the sense that we don't have those accelerated programs in place. And then on the VC side of things, VC is still a pretty small asset class here in Canada. As I'm sure you might be aware. Canadians love the real estate, so real estate is still the dominant thing here. And then resources, especially where I am. So I'm based in Calgary, which is the oil and gas capital of the country. So everyone here is focused on oil and gas. So we see a lot of startup founders in technology, for example, they'll go out to pitch and they end up pitching wealthy oil and gas executives who don't really have the background to a SaaS company. So we see a lot of them going to the US. And unfortunately, that's just the way it is because our ecosystem is still quite young.

But thankfully, we're now starting to see the third leg of the funding stool, which I think is the most important, where we have founders who built companies in Canada that have now exited, they've got some liquidity and now they're reinvesting back into the ecosystem. And a great example of that is the team at SkipTheDishes. I don't know if you've heard of them. They're basically the DoorDash of Canada.

So they sold a few years ago and now they've all kind of split off and started new companies and accelerated programs and they're reinvesting into ecosystem. So it's just going to take some more time. We need more startups to hit that liquidity point and then recycle the money back into our local economy. And I think that's what's going to really keep our startups here and our entrepreneurs in Canada instead of going to the US. 

Are taxes too high in Canada?

Taxes are definitely higher if you compare to Florida, for example, where they don't have the state tax. But there's also a lot of things that you're getting for those taxes. You're getting the free healthcare, you're getting lots of great government tax breaks and support programs. So, I mean, it's kind of like you got to sort of weigh that too.

So, yeah, taxes are higher, but maybe I'm biased, but I think quality of life is excellent and like I said, the free healthcare. We have a beautiful scenery here. I'm personally next to the Rocky Mountains, so you can go out hiking, you can be in the mountains in half an hour, you can go skiing. Taxes are higher, but you're getting a lot for it.

Canada Startup Visa Program

Canadian government is trying to push entrepreneurship in Canada. Through the Startup Visa Program where founders from across borders can pitch their startup to a list of accredited investors. And if they invest, you get a citizenship along with your family.

That's been a huge driver for us, especially since the Pandemic began, is that new visa program that the government unveiled. I know it can be challenging to get into the US. So we're seeing a lot of founders who are potential founders that want to go to the US. Come to Canada. I mean, it's a short flight just across the border and maybe you come to Canada for a few years and then eventually you do get to the US. So I think it's a great option.

Canada is definitely taking advantage of that. You pitch the company if you can get some investment backing. Come on over, start your business, hire some people, create jobs, bring your family and contribute to the economy. So it's been a great program so far. It's still early days. It's only been around for, I think less than two years, but so far, everything that I've seen from it, it looks really promising. So I'm excited for the future. 

How do you evaluate startups for investment?

We do take cold inbound through our website, so we do see a lot of deals that way. But yeah, when looking at early stage companies, because we're investing predominantly at seed and Series A for a seed investment, for example, there's still very little data to go on.

Ideally they should have some type of MVP or prototype in market at that stage, and maybe some early customers. If it's a consumer product, maybe we can check out some initial reviews or customer testimonials. Or if it's an enterprise product, maybe we can talk to their initial beta customers or a couple of people that are using it and just try to get a feel for how the product works, what people like about it.

Then looking at Founder Market Fit, that's a big one for me. Like, does this team or does this founding team have that domain expertise and are they the most qualified people to do this? I think back to my days as a founder, my business partner and I, we both came out of the Nestle and the CocaCola realm, right? So we had that CPG background, so it made sense for us to start a CPG company. So does the team have that founder Market Fit? If a company comes to us in there at Series A, for example, there's definitely more data to go on. We probably have twelve plus months, ideally 24 months or so of data. And then I'll look at sort of what they said they were going to do at their seed round and then did they do what they said they would do? So we're now raising the series A, did they hit their metrics? If they didn't, did they make a pivot and does that pivot make sense and is it now working out? And then looking at some of their metrics, are their metrics improving and trending in a positive direction each month? Like their customer acquisition costs, for example, or their unit economics? And how efficient are they getting with their marketing? Is it continuing to improve over time and are their gross margins improving over time? And now it's just a matter of pouring that fuel on the fire to really accelerate their growth because they've got their marketing dialed in. Now they just need more money to continue those trends.

Then from there, we'll look at other things, more generic things like market size, the technology, is it new, is it innovative? Or is it just a fourth version of something that already exists? And then lastly, I'll look at the entry price and the economics of the deal. Is the valuation reasonable? What type of ownership percentage? We can get some other terms of the deal like whether it's a safe convertible note, preferred shares, is there pro rata involved? So some of the economics and control components of the deal. 

Involving LP network in the diligence & value add process

I'm a solo GP at the moment, so I do most of the diligence myself. And then typically how that looks is I'll have an introductory call with the founder or someone refer the company to me in my network. And then we'll go through the introductory call. I'll get a good feel for the business, the founder can explain it to me in their own words, and then I can answer any or ask any questions I have right there. And then typically from that point, I'll go into a data room, I'll start to dig deeper, and then we'll go back and forth for a couple of weeks with the founder just to answer any more questions or get some clarification.

Because we're structured as a syndicate, I try and leverage our investor network as much as possible. So I have a bunch of people that are in our network who have offered to be advisors for the diligence process. So if there's a specific area where I don't have the necessary domain expertise to properly do the diligence, I can bring in someone from outside who can help consult on that diligence process. So that again, goes back to why I chose the syndicate model, because I want to try and leverage the knowledge of that group. Because we have a very diverse group of investors, and we have people who have founded multibillion dollar companies to people who are senior VP at Apple and Amazon. So really try and leverage their expertise where I can.

Then from a process time, typically because I've been through the fundraising process myself as a founder, I know it sucks. It's time consuming. You basically have to stop running your company to go fundraise. It's a full time job. So I try and keep our process time to four weeks or less and move quickly to get to a decision. Again, because we're not a fund, there's not multiple layers of bureaucracy I have to go through in order to get an approval.

And then I'll put together the deal memo, put it out to the group. They'll typically have five to ten business days to assess, decide if they want to invest or not. And then from there, it's just a matter of collecting the funds and sending the wire off to the company. Typically it takes four weeks or less. That's what I aim for in our diligence process.

Moving on to value add. There again, it comes back to the LP network. Right. So I tell founders all the time, we now have over 1400 members in our network from close to two dozen countries. And again, they have backgrounds. We pretty much have someone who's worked at every tech company or has been involved in any type of role from sales to IT to marketing.

If you have a question or you're having a problem, you're struggling with something, whether it's sales, marketing, HR, you name it, let me know. I'll put it out to the group, and then nine times out of ten, one of our LPs is more than happy to jump on a 30 minutes zoom call and just help hash it out. Leverage the power of that network compared to a typical VC fund where they have a few institutional LPs or some endowments who are not really going to be able to step up on an operations level and help that company succeed. And the other thing too, with the syndicate model is these LPs have a vested interest in the company's success rate. So they want to jump on a call, they want to help brainstorm and fix these issues and get the company to the next level. Whereas a traditional endowment or an institutional LP might just be indexing the VC market by writing a bunch of checks and spreading their portfolio across a variety of different funds. So they just don't have the time or capacity to step up on an operations level. So that to me, is the big value add that I try and convey to founders.

We've had founders that have leveraged that. For example, we had one LP who put $1,000 into one of our syndicates, and then a couple of months later, that LP was able to open doors and get the company over $400,000 in non-dilutive funding. So these investors, doesn't matter the size of the check we've had. Some of the most value comes from some of our smallest investors in some of these syndicates. So leverage the network. I mean, it's an incredible network. It's so knowledgeable and diverse. And that's our big value add that I push the founders. 

Exciting portfolio companies

One really interesting company they just finished up a trip over in Africa is a company called FonBnk. And essentially, what they do, they enable people in emerging markets to convert prepaid phone SIM cards into cryptocurrencies or stable coins. So unlike you and I, when we want to put money into our Coinbase account, we can log into our online brokerage, we can send a wire transfer, we have all that infrastructure in place. But in a lot of emerging markets, Fonbnk lets people go down to the local corner store, store or gas station, buy a $10 SIM card, and then through their mobile phone, they can essentially convert it into USDC, which is massive, or bitcoin or whatever cryptocurrency they want. So I'm super excited for those guys. Chris and the team, I think, are doing an incredible job over there.

Another really interesting company that I'm excited about is a company called GroWrk. And essentially, what they do, they've really taken off since the Pandemic began with the whole remote work thing that's going on. So they do IT hardware logistics for remote workers. So you used to have your IT department, if you had a remote worker, they would have to send out your laptop and your keyboard and your monitors and manage all that equipment. And it was such a headache. And especially with the Pandemic now, IT departments are just not equipped to deal with 100% of their staff being remote. So GroWrk manages all that on the back end for these companies, and they're doing incredibly well.

Another really interesting company I'm excited about is a company called Vint, and you may have heard of them, they essentially democrat access to fine wines and whiskeys. So they've built a platform where any investor can go in. You don't have to be accredited, and you can buy shares in rare wine and whiskey collections. And it's actually proven to be an incredible inflation hedge. Over the last six months, as financial markets have been going down and down, the wines and Whiskies have actually been going up and holding their values. So it's proven to be a great inflation hedge, and those guys are absolutely crushing it right now.

And then I guess the last company I'll mention just going back to enabling access to people is a company called Edley, and they're one of the largest marketplaces now for ISAs and income based repayments. And they focus on high value careers, like healthcare, like teachers. So essentially it's a marketplace where investors can go like a fixed-income investment. Instead of investing in bonds, they can go and invest in a portfolio of students that are going through post-secondary education to become nurses, to become doctors, to become education professionals and help them pay for their education. And those students don't actually have to pay the loan back until they get a job and start working and start making over a certain amount. So it's not like they graduate and then they can't find a job. They're struggling, they're living on Ramen, but they still have to make these tuition payments. So I think that's a really exciting company. I mean, you've probably heard of the student debt crisis in the US. It's absolutely crazy. It's getting out of control. So these guys are really working hard to solve that. So I'm very excited for them. 

Rapid Fire Round

What industries and regions you invest in?

Industry agnostic, except health, bio and climate, and in geographically North America, so Canada and the United States.

What stage you typically invest in?

Seed to Series A.

What's the typical check size?

100k to 350,000 USD.

Where can founders pitch you?

So the best place is on our website, Allied.vc

Where can our listeners follow you?

Follow me on LinkedIn or Twitter. My name is at Matt Wilson YYC.


Allied VP website: https://www.allied.vc/

Follow Matt on Twitter- https://twitter.com/MattWilsonYYC

Follow Matt on Linkedin- https://www.linkedin.com/in/mattwilsonyyc/

Hosted by Prashant Choubey- https://twitter.com/ChoubeySahab

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