Bay Street & Natural Resources – FinTech in Toronto

TL;DR

Toronto is a center of gravity for financial services. There aren’t a lot of financial technology startups in Toronto. There is a new Toronto FinTech Meetup. FIrst meeting is Wednesday, April 10, 2013 at the MaRS Commons (Suite 230, 101 College St.) hosted by Blair Livingston of Quantify Labs.

Bay Street and Natural Resources

[Editor’s Note: This is a guest post by Blair Livingston LinkedIn , founder of Quantify Labs. Full disclosure: I’m an investor in Quantify Labs. Blair and I share a view that given the technology and talent available on Bay Street there should be a strong financial tech and startup community in Toronto. It is sad that my typing “toronto fintech” into Google results in a Montreal conference as the first result. ]

Google Search for Toronto FinTech

Great cities prosper and thrive, in part, because of their proximity to valuable resources. Arguably, the nearby resources were likely the main reason the city or village was situated in that location to begin with. However, it’s not enough to simply be near resources – gold still has to be mined – and we need to put those resources to work. Indeed, Canada is a country rich in resources; we have diamonds, gold, lumber, oil, gas and everything in-between. Canada’s strong economy is fuelled in part by this abundance of resources.

However, over the last hundred years (or so) new types of resources have emerged – communities, technologies, groups, industries and people. Many of these resources don’t take the familiar form of something tangible and malleable, and for that reason can go unnoticed for a long time.

One Hub to Rule Them All

When we talk about finance, we invariably talk about New York City. We talk about Wall Street, the 1%, and a concentration of capital, services, people and technology that makes NYC one of the financial industry capitals (if not THE capital). It is the density of entrepreneurs, emerging companies and people that are one of NYC’s greatest resources. Consider the effects on start-ups built to service financial companies – this industry has supported, nurtured and allowed some of the biggest financial technology companies in the world to grow and flourish in its ecosystem.

Bloomberg LP, with estimated yearly top line revenues of $10 billion, was started in New York. The city is host to a number of trading venues, back office technology providers, data aggregators and other interesting and innovative companies built on the resource of this community concentration. They even have an accelerator dedicated solely to financial services technology (appropriately named the FinTech Innovation Lab).

In New York, FinTech flourishes by connecting the community and building an ecosystem that leverage existing resources. Financial institutions play a role in supporting the new ecosystem by acting as customers, acquirers of startups and hiring talent that develops in each of the early stage companies. Demonstrated by the support, both financial and at very high management levels, that FinTech Innovation Lab receives. It’s no wonder a large portion of all leading financial technology, especially institutional tech, is coming out of New York.

Where is FinTech in Toronto?

Toronto has a booming financial industry. Our banks are in excellent shape. The combined market capitalization of Canada’s six leading banks is more than $323 billion. And with that kind of market capitalization comes new problems, new opportunities and potentially new tech. The difficulty lies in the regulation, legislation, risk standards and software/hardware requirements. This poses challenges for developers and entrepreneurs in selling to financial services firms. It doesn’t matter if the solution is aimed at the retail (bank branches or individuals), corporate (the mother ship) or institutional (sales & trading, investment banking). Selling to financial institutions is not an easy process. It requires assistance in process, guidance (legal, technical, financial), support, experience and a depth of knowledge that is greater than just hustling.

It is because of the complexity in the go-to-market and technical requirements, why very little innovation happens in financial services technology (aka fintech). It’s like the shadow cast on a wall – it looks menacing, like a panther or some dangerous beast – but in reality it’s only a little kitten. If you understand how to deal with the issues, and properly approach them, they aren’t all that scary (and a little help never hurts).

But, with little innovation comes massive opportunity – there is so much opportunity in financial technology that it’s hard to decide where to begin.
What Toronto needs is to start taking advantage of these resources – a thriving financial services industry. It’s already happening in pockets around the city, but it’s about time we started getting aligned to make a consolidated push together. I have had the opportunity of meeting with/hearing about/noticing some interesting financial tech companies in the city, who include:

  • D+H (payment/lending solutions)
  • Market IQ (data/social sentiment analysis)
  • FINMAVEN (data/social sentiment analysis)
  • eDYNAMICS (salesforce integration and consulting/cloud computing)
  • OANDA (FX trading platform)
  • Quantify Labs (institutional content/CRM platform)

Who else should be on this list? Who are the startups, developers, investors and entrepreneurs that are interested in FinTech in Toronto? If the community is the framework, let’s get the community going. Let’s share stories and guidance on selling, building and launching financial technology. Let’s offer insight and experience into usage and problems. Let’s discuss. Let’s take advantage of one of this city’s most abundant resources. That’s what we want to do, and if you have any interest in financial technology, I would encourage you to sign up for the Toronto Fintech Meetup. We’re having our first ever meeting next Wednesday, April 10th, at the MaRS Commons, just a ‘get to know you’ – no speakers, no schedule, just an introduction to the financial tech community in Toronto.

When I started in finance ask a desk analyst, I was repeatedly told – “it’s too bad, the low hanging fruit is gone” – well I took a walk out of that orchard, down the lane, and stumbled into another called Financial Technology. The fruit just isn’t low hanging, it’s on the ground – we just need a few more people to come help us pick it up.

 

The scarcest resource: successful companies

CC-BY-20  Some rights reserved by Michael Scheltgen
Attribution Some rights reserved by Michael Scheltgen

I feel like I keep having the same two conversations: either about “the lack of venture funding in Canada” or “how we build a better startup ecosystem”.

Often the conversations happen, one right after the other. The lack of venture funding is about how Canadian VCs don’t get their business because they can’t raise money. And that VCs in Silicon Valley are funding companies in the same space as theirs. Therefore Canadian VCs are conservative and because others in a similar space are getting funding in Silicon Valley/New York/Boston, they are able to raise money there too. This is proof that the ecosystem in Canada is weak. And further evidence that even with the new $400MM in funding for venture funds, that because of the conservatism in VC the ecosystem will continue to remain weaker than the ecosystems elsewhere.

<sigh type=”le” />

I am reminded of the comment that I wrote on Mark Evans blog.

“I have a weird role, because I work for a VC now, but I have always believed that it is by building better founders that we will save ourselves.

A healthy ecosystem is one where you are building successful companies. These companies make money. They have growing customer bases and revenues. Because if you aren’t building successful companies you can’t do the other things.

Successful companies are run by successful people/founders.

Successful companies hire people and put them in roles enabling them to succeed.

Successful companies need lawyers, accountants, agencies, design firms, etc.

And successful companies eventually realize they could grow faster if they didn’t have to amass the profits from operations to do bigger, bolder, crazier things that allow them to be more successful.

This is where investment comes in. The opportunity to grow more successful.

It’s not about giving money to starving entrepreneurs because we have an entrepreneur shortage. We have a successful company shortage. We have an abundance of entrepreneurs. The question is how as an entrepreneur I do the things to demonstrate I understand the risks related to building a successful company. And at different points through out my corporate development, there might be a reason to raise money to go for something bigger.

There are a ton of resources to learn what successful companies at different stages look like. Check out http://StartupNorth.ca I’ve tried along with @jevon @jonasbrandon to share my opinion, as an unsuccessful entrepeneur, what I’ve seen the successful entrepeneurs and companies do.

You need to build something that is worthy of investment. Go bigger. Go further. Demonstrate that you can build a successful company. And mitigate the risks of growth. But only when you demonstrated you know what a successful path is, should you think about raising money to grow.

The risks change at different stages of investing. It’s riskier the earlier you go, i.e., the are more risks and each risk might be unknown. But overall it’s about building a successful company.” – David Crow

Successful companies…

“If we want more entrepreneurs, how about we teach them to be, you know, entrepreneurial: self-reliant, innovative, customer-focused, not a bunch of browners trotting off to Ottawa for a pat on the head?” – Andrew Coyne, March 21, 2013 in National Post

I am still boggled at the number of entrepreneurs that tell me that “Canadian VCs just don’t get what we’re working on”.  It’s your responsibility to clearly and effectively communicate why your company is successful given the current stage of corporate development. And if you think that it is easier to communicate this to foreign investors, then you should front the $600 and buy a plane ticket, and head to Boston, NYC or Silicon Valley and go through the exercise there. Raising money is hard. I think it gets harder the further away from the money you are, and the earlier in corporate development.

Being a successful company takes more than just saying “we’re the next Facebook”. You need to understand your stage of corporate development and the risks in getting your business to the next stage. Event better if you can communicate this effectively (eloquently) to people that might want to make an investment. But just saying “we’re the Facebook of <x>” doesn’t mean the company is fundable.

We have a successful company shortage

Successful companies are the scarcest resource in the ecosystem.

What’s common when we talk about one Microsoft, one Yahoo, one eBay, one Amazon, one Google, one Facebook, one Twitter is that there is “one”. It’s the prowess to build great products, great teams, great marketing, happy customers that make for lasting companies. It’s is not the opinion that makes these companies great. It’s market cap, revenues, platform penetration, customers, users, etc.

Here is a game: How many billion dollar Canadian technology companies can you name without saying RIM or Nortel?

“It is the increasingly important responsibility (of management) to create the capital that alone can finance tomorrow’s jobs. In a modern economy the main source of capital formation is business profits.” Peter F. Drucker, 1968 (from Drucker in Practice)

Traction, in all it’s shapes and sizes, is very hard to argue with. There are strong treatises ranging from Dave McClure’s AARRR: Pirate Metrics for Startups to Ben Yoskovitz & Alistair Croll’s recently released Lean Analytics. But it is hard to argue with companies demonstrating traction, assuming that you are knocking down the right milestones to raise a round. But this is all key to understanding, for many companies you don’t raise money because you can raise money, you raise money so you can go faster, go bigger, go further than what you would on profits alone. (Not sure what metrics you should be presenting, check out Ben & Alistair’s metrics for different types of companies at different stages of corporate development).

Lean Analytics at Different Stages by Alistair Croll and Ben Yoskovitz

(Image originally published by Eric Ries on Startup Lessons Learned).

So rather than focusing on whether or not the people involved have the skills, experience or track record to be in the positions they are in. It’s better as entrepreneurs that we focus our energies on knocking it out of the park. Stop focusing on the politics of the ecosystem and start trying to demonstrate real success metrics for your company. Ultimately, it’s not a beauty contest  nor is it about favouritism or cronyism or nepotism. It’s about demonstrating that you can build something successful.

You want to build a stronger ecosystem

If you want to make Toronto and Canada a stronger ecosystem, the go build something successful. Don’t worry about the pundits, the bloggers, the opinions. Worry about your existing customers, your potential customers, your market, your competitors, your employees, your bottom line, etc.

Since I already said it: You need to build something that is worthy of investment. Go bigger. Go further. Demonstrate that you can build a successful company. And mitigate the risks of growth. But only when you demonstrated you know what a successful path is, should you think about raising money to grow.

Mission Accomplished – StartupVisa Canada

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AttributionShare Alike Some rights reserved by Marion Doss

Remember back in 2011 when I was xenophobic and wasn’t supporting Startup Visa? To the credit fo the incredible StartupVisa Canada Initiativea team, which I was lucky enough to join and support, the Federal Government is launching a new class of immigration visa with the participation of CVCA and NACO. Check out Christine Dobby’s summary from the press conference (it’s where all my statistics and data are from). Go read Boris Wertz’s story about Summify founders and the impetus for Startup Visa Canada.

“We believe startups to be the driving force behind job creation and prosperity,” says executive director Richard Rémillard. “We need to be pro-active in attracting foreign entrepreneurs.”

The new visa is replacing the old “entrepreneur class” visa, which required the applicant/immigrant to hire one person for one year. In 2011, the federal government issued approximately 700 of the old entrepreneur class visa. The government is making 2,750 visas, issued to immigrants based on selection and funding by venture capital investors. Immigrants receive immediate permanent resident status. Looks like a pilot program with a 5 year lifespan, with the opportunity to make permanent depending on uptake.

Thinking by Zach Aysan (zachaysan)) on 500px.com
Thinking by Zach Aysan

My issues back in 2011 and previously, were not with the intent of the program. But in the proposed implementation details. One of the biggest assets, in my not so humble opinion, is the population diversity, with 46% of Toronto’s pouplation being foreign born. It is the creative tension between differing viewpoints that makes Canada an amazing place. The implementation of startup visa makes Canada an even more attractive place to recruit foreign born scientists, engineers and now entrepreneurs. I love it!