The burgeoning Canadian startup scene has seen an acceleration over the last decade. However, it still pales in comparison to its next-door neighbor; Canadian businesses often lack the extra push to get their businesses to scale at the same level. Much of this has to do with resource gaps, a smaller investor base, and a lack of high-quality accelerators (in contrast to Y Combinator and Techstars in the US).
Although there’s been a proliferation of accelerators in recent years, the turnout of healthy and robust companies is shy of the expectations from the startup boom.
The government has been generously pumping resources into the ecosystem with grants and wage subsidies, though according to Maxim Atanassov, an early-stage investor, and a CPA, has resorted to more of a “shotgun approach” to selecting accelerators and promoting innovation.
In contrast to the traditional approach of “take my money and give me 10x the return”, Maxim’s approach as a general partner of Future Ventures —is more hands-on and “surgical.”
Knowing what it’s like to be through the entrepreneurial grapevine, he understands that often what early-stage entrepreneurs need to build successful businesses is genuine, tailored advice at the right time. This is far more important than having access to capital. A lot of capital and precious time gets wasted in the discovery process.
Maxim shared with us his macro-level approach to investing and returns which focuses on: the impact it generates for the whole ecosystem. Money and returns are an outcome of building outstanding companies. What is good for humanity is good for business.
In a Deep Center Research project, it was declared that one of the major challenges Startup Assistance Organizations (SAOs) face is in performance measurement and data sharing. What are some barriers that make it tricky to get transparent results from companies?
Maxim: Because of my decades of experience as a CPA and my general knowledge of the business landscape, I know that sometimes the information disclosed on companies’ websites is more hype than reality.
You can try to juxtapose information from various regulators with what’s disclosed on those websites and you’ll realize there’s no comparison.
This is interesting because, in some European countries, that information is public. For example, in Denmark, you can go to the alternative of the CRA and get the information easily. Here you can’t and gathering accurate information about companies is a bit obscure in terms of what exists to drive visibility.
As an investor, you must triangulate information and round performance from as many sources as possible in determining whether something that you’re looking at is authentic.
Particularly with private companies, there’s no audit required. In most cases, you’re getting a notice to the reader or at best a review level engagement. It’s either no assurance or a negative level of assurance. Even when you see financial information in front of you, it’s like you have to really peel the layers of the onion.
Have you had any personal encounters with VCs? What are your observations of the current VC landscape (are companies looking at scarcity or abundance?)
In the context of my own company, Future Ventures, which is a small family office company. We have nine companies in our portfolio, and at different points, we’ve had conversations with a few VC firms but we ended up almost aborting reaching out to VC firms for a couple of reasons. One, customer traction beats investor capital. Two, we find that with VC firms, the relationship is not equal. The VC is putting money at risk. But in many cases, the VC is unlocking more value than what the startup is unlocking in terms of value.
Money is important, no question about it. When we invest in a portfolio company, what we’re looking for is, how can we help the company? Can we have a disproportionate impact on the portfolio companies not just with capital, but with relationships? Can we create a value chain extension with one or more of our portfolio companies? Can we create synergies that would otherwise not be present? Can we help the portfolio company accelerate its go to market? For us, what becomes really important is how do we scale up the company as fast as possible? What I’m finding from having conversations with VCs is that they’re looking for highly de-risked companies. We are comfortable with risk if it is in a domain where we have made lots of investments and have existing portfolio companies
At that point, I don’t think investors are taking any risk; they want all the upside without the downside. Like any investment, it has the potential of failing and that’s why I think there needs to be an opportunity for more VC involvement in particular funds.
The reality is that, in Western Canada, a lot of the VCs are the same, and they’re intermingled, and their investments are not necessarily coming from LPs, rather they’re coming from institutional investors that are trying to diversify the investment risk in their portfolios.
It sounds like your value here is to actually provide the smaller players and entrepreneurs with the opportunity to succeed. Many of them can’t get a foot into the VC space.
Maxim: Correct! The other reason why we’re doing it differently is that we have teamed up Future Ventures with Exalto Ventures, our venture studio, and with IUVO Consulting, our business and digital transformation consultancy.
What we find in this space is that when a company comes to you for help, they may be looking for different ways to help. Of course, money is important, but we mentor companies without taking any investment and it’s our way of giving back.
In some cases, they have a specific gap, maybe it’s on go to market, maybe it’s on the technology, or they’re accumulating debt, so they need a fractional CTO.
We try to leverage our expertise where we can when it comes to the aspects they need help with, rather than just hand them the money and expect them to figure it out. Our approach is much more surgical. Are we getting paid for all our time? Absolutely not, but we feel that over time, this is going to pay dividends.
Future Ventures does not always have an equity stake in the companies they mentor. In terms of the benefits accrued by the company for mentoring early-stage companies, Maxim responded “we’re helping the ecosystem become stronger and healthier.”
On the investing side, it’s also a way for them to do their due diligence on a company before fully investing capital. “We’re building the relationship, we’re watching them. If it’s really exciting and we’ve been there throughout the journey, they’re more likely to invite us to participate in rounds,” says Maxim.
I bet it’s exciting work being able to have your boots in the ground and see different types of innovations come about and be a part of that.
Maxim: My personal mission statement is to be a change-maker for change-makers. I feel like all of the founders of these technology companies are change-makers and they’re fanatical believers that what they’re doing has a big impact. It brings me just as much joy seeing them succeed, as my personal success.
Can you explain a little bit about the difference between the family company and the venture studio?
Maxim: Essentially, there are three types of investors. There’s the angel investor, which is one individual who sprinkles money wherever they want and the check sizes tend to be smaller, anywhere between $10,000 to about $100,000. Then there’s a consortium of angels, that just pulls the money. Then there are family offices, where the money comes from one family and we invest it. It’s very similar to private equity, it’s just that in our case, we’re like a hybrid between venture capital and private equity. In some cases, we have 50+% ownership and in others, our investment gives us significant ownership but not control. Unlike private equity, we don’t necessarily have to have the controlling interest in a company. We want the founder(s) to have the biggest share of the company and as much skin in the game as possible to keep driving forward to make their dream a reality.
Do you agree with the statement that “more exits in Canada will result in a huge shift in the system and culture in both investing and entrepreneurialism?”
We’re seeing this across Western Canada, the most evident example is that everybody talks about the valuations and the multiples in Canada versus let’s say Silicon Valley. It’s still very much a burgeoning scene here, particularly in Western Canada, Vancouver is a bit of an anomaly because it has had a stronger tech sector for a while. Toronto is the same way, as Montreal to some extent. The more companies that we have that can scale up and have some form of a liquidity event where there’s a significant exit, the more capital is going to be created.
With more exits and companies scaling up, it’s going to be ‘a rising tide that lifts all boats’ scenario. That’s the impact on the overall economy and ecosystem, is like the more that we have, the stronger it becomes.
Do you think the obsession with hypergrowth (focus on raising money) can be harmful in some cases? What are some hurdles entrepreneurs face when trying to grow their businesses sustainably?
Maxim: Absolutely. At Future Ventures, we’re fully aligned with the Principles for Responsible Investments (PRI), and also with the United Nations Sustainable Development Goals (SDG). We want to get to a point where all our portfolio companies are B-Corps. We’re very much focused on doing things the right way and one of the key dimensions is the positive social impact
One of the hottest jobs at the moment with technology companies is the Chief Ethicist. This is someone who creates ethical behavior standards for technology companies because they’re more or less making decisions for the general population. At this moment, there’s a concentration of power in the hands of technology entrepreneurs, because they’ve become the richest people in the world. They actually shape cultures and political regimes.
Hyper-growth, in many cases, implies that if you go faster, you’re perhaps breaking either ethical or regulatory barriers. You’re essentially saying “Okay, well, there’s going to be casualties along the way, and I’m comfortable with it.”
But easy come easy goes. If you focus on doing it the right way, on longevity and sustainability, then you will have this permanence factor. I understand it from a VC perspective, there’s a bit of the mentality that the first to scale, is the first to win. We’ve continuously become such a diversified technology society that in many niches, people are obsessed with becoming the next ‘minicorn’, ‘soonicorn’, ‘unicorn.’
Absolutely, it’s a nice achievement badge to say, “I’ve built a unicorn,” but it has to come back to what drives you personally? How can you have an impact? In my mind, it’s better to have a smaller community of users that’s highly engaged than to have a large community of users that aren’t.
The competency of management is critical for effectively scaling a company. What challenges have you had personally with building a team?
Maxim: From my perspective, the biggest challenge is always finding what drives the individual. I’ve spent a ton of time understanding this and reading about the psychology of how to build highly effective teams and following the studies of Patrick Lencioni, who is one of the famous thinkers in the space. Ultimately, it comes down the pyramid, like Maslow’s hierarchy of needs. The first part of the pyramid is the basic needs like safety, security, and income.
Once you establish this, then the second and third tier of needs become more social or mental, and this is where it becomes important for people. Once you have necessities (income, salary) met, the other things become ultra-important. Such as, am I doing something that is good for society? Am I doing something that’s good for me, is it feeding my soul? Am I getting challenging work? Am I working with people that I enjoy? What we try to do is create an environment where we’re adding tools to people’s tool chests, so we want them to become as marketable as possible.
This is part of the career conversations, we ask them where they see themselves in 1,3,5 years. We do this because we want to help them lay the paving stones to achieving their career aspirations.
There’s a book by an author called David Epstein called Range.
The whole premise behind Range is that disruptive innovation comes from people that have a breadth of experiences and skill sets. What we try to do is introduce people to adjacent disciplines, so they can get this range of experience, and that way, they get to see what happens from the other side of the fence. Then, they can empathize better, they can appreciate the problem, and they could look at a problem holistically from different facets. We tried to build a career plan that is custom-tailored to them, including what matters to them, and then try to give them the range of experiences to round them up.
Can you describe your thoughts on the current proliferation of accelerators? And how venture studios can drive change across the investing landscape?
Maxim: We try to help entrepreneurs by providing them with advice. The reason for this is because at the moment there’s a proliferation of accelerators that have been supported by the Economic Development Corporations or the Provincial or Federal agencies. The type of content and advice being dispelled is fairly generic.
I love to see some amalgamation of accelerators, and only for the good ones to stay. To your point about the more successful exits. Yes, that’s going to be hugely important because the more success we have, the more possibility there is to bring in more competent advisors.
Venture Studios have a huge role to play. I think the government has to get involved in a limited way, because to them, it’s a bit of a shotgun approach—‘We’re going to find all of these accelerators and see which one survives.’
The government has lots of programs and resources in place for entrepreneurs, but the money tends to go towards people who have the patience to fill out grants and applications, and not necessarily to the best companies. There has to be some kind of “one-stop shop” where the government works with the private sector to figure out a better solution.
What does success mean to you?
Maxim: For me, it’s three-part. I want to have geographic independence, financial independence and I want to be remembered by my family and the people around me, as somebody that was a good human. We have two girls, almost 9 and 11 and for us, the first and foremost values and principles we try to instill in them is first to be a good human. There’s nothing wrong with having materialistic aspirations, but not at the compromise of your morals. To me, this is more important than if you have $1 million or $100 million when you die. When that time comes your material wealth doesn’t matter; what matters is the impact you’ve had and what relationships you’ve built during the course of a lifetime.
Arising from a career background that was not traditionally attuned to values and having an ethical compass; Maxim is eager to make his own disruptions across the investing ecosystem in Canada. Helping build a fortress of innovative and highly valuable companies is the first step to realizing his ultimate dream of making a greater impact on the entire ecosystem and supporting the dreams of others. According to him, hypergrowth is not the only part of the equation but should be a consequence of the compounded effects of constructing a company the right way; starting with transparency, relationship-building, and exceptional teams.