The godfather of B.C. digital media on the waning state of local VC—and what he’s going to do about it
As Vancouver has transformed itself in the past decade into one of North America’s premier technology hubs, few have played as pivotal a role as Paul Lee. The former president of Electronic Arts jumped into the venture capital business in 2010 as founder and managing partner of Vanedge Capital, a $100-million venture capital fund initially focused on digital media companies. Through Vanedge, Lee has backed local tech success stories including D-Wave Systems (where he sits as chair of the board) and Recon Instruments, which sold to Intel last June for an undisclosed amount. The 51-year-old Burnaby native has deep roots in the city’s technology scene and currently sits on the premier’s Jobs and Economic Investment Council.
How do you go about choosing the companies to invest in?
We think there are a number of big trends that are disrupting a lot of businesses and adding to what consumers expect. Whether it’s a smartwatch, your laundry machine or your Fitbit, all of that is going to start connecting to the Internet, which dramatically increases the security footprint that companies are going to be responsible for. So cyber security is a big sector for us. Secondly, a lot of things we now take for granted can only be done because of all these connections and because of the cloud. Systems like Siri or self-driving cars only work with massive computing resources and a strong Internet connection. Consumers and companies are also turning around and saying, “I’m not willing to buy this as a one-time service—but if you maintain security and update that product, I will pay you monthly to use your service.” Finally, consumers expect things to be easy to use. Apple really fundamentally changed that: if I can’t figure it out, you didn’t design it properly.
When you launched Vanedge, did you intend to focus on investing in B.C. companies?
We didn’t, but I started at a local company that I thought could become a lot bigger—if we had the capital. Fundamentally, we suffer from a lack of venture capital in B.C, so when we launched Vanedge, we decided that we wanted to be the venture fund that we couldn’t find when we were on the other side, looking to raise money. Our goal is to build a stronger venture capital industry here; we want to be able to build those companies that will be worth $1 billion.
How bad is the local VC scene?
Eighty-seven per cent of Canadian venture funds are based in Ontario and Quebec, so there’s no doubt that we suffer from shortage of capital in B.C. And that hurts. Institutions tend to invest in people that they know and trust, and it’s a problem if a company doesn’t have someone to vouch for them on their home turf.
Despite that, a lot of big U.S. tech giants—Microsoft, Sony, Salesforce and Amazon—are setting up shop in Vancouver. Why is that?
Silicon Valley is starved for talent; salaries have skyrocketed and they are having a very difficult time finding people. The top companies try to find the best people globally, and are hiring them globally, but U.S. immigration policies are limiting their ability to bring them to the States. As a result, these companies have opened up a number of small offices all over the world to house these people. Having a bunch of small offices is not particularly efficient, especially for big projects where people need to work together, so some companies are starting to consolidate their small offices into larger ones and they are looking to Vancouver. We are the closest international city to all the largest tech companies in Silicon Valley and Seattle. We also have a great base of technical talent, are politically stable, and B.C. is a great place to live—so people want to come here. Plus, the Canadian dollar is suddenly 30 per cent cheaper, and the Canadian government has been happy to welcome these high-paying tech workers to Canada.
You’ve had a bit of a peripatetic career. You got into fund management after a successful career in digital media—pairing up with Don Mattrick in the mid-’80s to launch Distinctive Software, which you eventually sold to EA. But you also almost went into the restaurant business.
Don and I went to high school together—and truth be known, Don and I skipped a lot of school. We had a passion for video games. My dad had a restaurant—Chinese smorgasbord, which I don’t think even exists anymore in Vancouver—and I knew it was like a 70-hour work week with no time off. I had to go figure out something because there was no way I was going to run the restaurant. Luckily for me, Don knew games. Don had the ability to intuitively know if a game was good enough and what needed to be fixed. We sold Distinctive in 1991, but it wasn’t until 1995 that I had to have the hard conversation with my dad that I wasn’t going to run the restaurant. Thank God I couldn’t cook or I’d still be there.