As January’s Startup Grind Toronto guest, Alex Baker of Relay Ventures set a very high bar with his candor and honesty. During Matt Golden’s February fireside chat, he matched Baker stride for stride.
Golden is founder and managing partner of Golden Venture Partners, focused on micro-VC. That is, seed funding and early A-round investments. Golden is particularly interested in startups exploring opportunities in security, marketplaces, Bitcoin and the blockchain.
The path Golden took was unusual at the time, but is much less so now.
After earning a BA in economics, and a joint law/MBA degree from the University of Ottawa, Golden practiced law at Osler Hoskin & Harcourt. He discovered that his startup clients had something he didn’t. Their domain knowledge, operating experience, and deal-doing scar tissue couldn’t be learned in class.
Instead of blaming founders for their ignorance of law, Golden did something about his ignorance of tech startups. Golden chucked his law career to be a co-founder of Tira Wireless. Despite launching in the darkest days of the Dotcom Implosion, Tira grew. Over an eight-year period Golden helped to finance and build Tira as senior vice-president of sales, business and corporate development.
That experience is evident today. Golden is a founder advocate.
“Our job is not to miss great deals – particularly in our own ecosystem,” said Golden at a Startup Grind Toronto meetup in February.
Golden is blunt about the past struggles of the VC community. “Venture has been underfunded in Canada… it was kind of good to shake it out, and retool, and look at venture capital again with a fresh approach.”
He sees a big change in the community. “They (the previous VC generation) had to retool through that process. It’s not necessarily the people, it’s the perspective. (We needed to) look at venture in a different way. Look at Relay. They’ve been innovative. They’ve opened an office in the Valley. Super innovative.
“And Dave (Unsworth) and Rob (Antoniades) have done a great job on their previous fund which has attracted investors to this fund (Information Venture Partners). Because they were smart enough to navigate those waters.
“It filtered out the people who really need to be in venture, how to view venture, how to work more closely and globally. And I think that’s been a really important thing.”
For those of us who were there, Golden’s views of the old days are spot on. “If you look back at venture in Canada, it was really done in a vacuum. It was like there were five funds in Canada, (and those VCs said) ‘don’t touch my deals because they’re in Canada, I’m the Canadian VC, so I get those deals.’ And that’s the worst thing you could do.
“You never learn from co-investing with these really seasoned funds who have domain expertise, 30 (and) 40 years of investing (experience) and imparting that wisdom on emerging managers like myself. I get to learn from them. Previously that didn’t happen and now it’s happening all the time. That’s great for our entire ecosystem.”
Golden is not a fan of reverse takeovers as a way to finance tech startups.
Reverse takeovers are a method for raising capital that is a hand me down from the mining industry. It too has many idea-rich, cash poor companies. Here’s how it works. An exploration company, let’s call it Rabid Moose Goldfields, finds a property with promising signs of gold. To prove that the gold is worth mining Rabid Moose needs to explore the property. They will survey, drill holes, extract rock samples, and get a lab to assay the mineral concentration in the drill cores.
So, Rabid Moose merges with an inactive company that is already listed on a stock exchange such as the TSX. That is the reverse takeover. The now-public Rabid Moose Goldfields sells shares, and the proceeds fund the survey, drill and assay program. Sometimes mine-able concentrations and quantities of gold are proved, often not. It works in mining because the risk profile is fairly similar from deal to deal and investors can educate themselves about the risks.
In tech startups, risk is harder to compare between deals.
So, when you use reverse takeovers to raise money for tech startups, “technology gets promoted to retail investors who don’t understand the risks,” says Golden. There is a “40 per cent loss rate with retail investors in the public markets, which does tremendous damage.”
Golden believes the Venture Capital Action Plan (VCAP) will help improve the venture finance picture. In case you missed it, in 2012 the Federal government allocated “$400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.”
Golden believes that “(VCAP is) going to release a lot of money into our ecosystem… That $400 million will get levered up by the pension funds, banks, and so on, to create $800 million to $1 billion of capital funneling into funds in Canada.”