THE VIEW FROM HERE | Boris Wertz thinks Vancouver can do a better job of generating and supporting tech talent
Boris Wertz is B.C.’s best-known venture capitalist and a guiding force for the province’s burgeoning tech sector. But an industry cheerleader he is not
There’s a second-storey office on Vancouver’s West Pender Street, across from Pacific Centre Mall, that seems to illustrate the way that tech startups are rescuing a British Columbia economy that would otherwise be teetering on the edge of a resource-industry cliff. Three years ago the floor was home to BuildDirect Technologies. That company connects global building supply manufacturers to the U.S. construction industry and has revenues projected to reach $150 million this year, but it’s grown to 330 employees and there’s space here for only 100 or so. Accordingly, BuildDirect moved on to larger premises and its place was taken by Unbounce, which creates technology that allows marketers to build their own web landing pages. Unbounce wanted a space that gave its 115 Vancouver-based employees a little room to stretch out, so it too moved on, making room for Bench Accounting—an online bookkeeping startup geared to small businesses in the U.S. But over the next year or so, Bench expects to double the 200 people who are currently divided between here and a second office, so it too is looking for new space.
All in all, tech companies like these are estimated to account for 40 per cent of the current demand for office space in downtown Vancouver. There’s even a growing consensus that the city’s technology sector has achieved critical mass. Some of the most optimistic observers believe that, although issues such as a lack of venture funding and a shortage of senior executives can’t be dismissed, Vancouver is poised to leap into technology’s higher echelons. Not on a Silicon Valley scale, but in the same spectrum as centres such as Seattle, New York City and Toronto/Waterloo.
Except that, uh-oh, there’s also Boris Wertz, who happens to be one of both British Columbia’s and Canada’s most grizzled tech hands—even if he is only 42—and highest-profile venture capital investors. He helped build a company that Amazon paid $90 million for, and, since that sale, he has raised more than $50 million in venture capital funding and seen companies he’s invested in sold off to Google, Salesforce, Groupon and Twitter. So what does Wertz think? Well, it’s not such a pretty picture.
Sure, he allows, there have been some small- and medium-scale success stories, but those are more a result of random probability than anything else. “What I’ve observed over the years is that there is no place where we consistently create greatness,” he says. “Tech companies happen because of the genius of entrepreneurs, but ours all have different backgrounds. Sometimes they move here; sometimes they’ve come out of SFU and sometimes UBC; sometimes they’ve come out of bigger companies.”
By contrast, says Wertz, the places that Vancouver’s tech industry needs to emulate all have reliable generators of startups. Silicon Valley is on another planet altogether, with its world-beating combination of educational institutions, companies big and small, and well-established networks and venture capitalists. But Seattle too has massive companies such as Boeing, Microsoft and Amazon that can groom and then spin out entrepreneurs, while Ontario leans on universities like Waterloo and the University of Toronto, with their exceptional computer science programs.
Here, there’s a little bit of everything and not enough of anything. “Creating a tech company is very hard, and most of them fail,” says Wertz. “You need lots of shots at the wall to actually create one.”
While it's true that Wertz seems to have personally proved himself wrong, riding the tech wave from win to win, it’s also true that there are people with much more optimistic opinions about the local tech ecosystem. But before hearing from some of those people, it’s important to understand who Boris Wertz is and why people listen to his every word.
The sole proprietor of Version One Ventures, one of B.C.’s largest venture capital companies with more than $50 million raised since 2012, Wertz grew up near Stuttgart, Germany, the son of two pharmacists. After graduating with a PhD in logistics, he was set in 1999 to join a German telco but instead was seduced by the tech boom into launching a startup, Justbooks, which quickly became the major European online market for used book sales. In late 2001, the company was purchased by its North American equivalent, Abebooks, based in Victoria. Wertz and his business partner stayed on and soon ended up moving to Victoria, and later Vancouver, to run the company; they continued there until 2008, when Abebooks was purchased by Amazon—with an exit reported to have netted Wertz about $5 million.
That, says Wertz, is when he stumbled into the world of venture capital. “After I sold in 2008, I wasn’t ready to do another startup. I got involved with some companies as an angel investor, did that for four years and developed a track record.”
Did he ever. Among his 35 angel investments (very early-stage investments, often sub-$100,000) were Unbounce, social publisher Wattpad, crowdfunding platform Indiegogo, educational network Edmodo and online bespoke suit marketer Indochino. Wertz tallied six lucrative exits while gaining a reputation as an active investor who functioned as a trusted partner that could be leaned upon by first-time entrepreneurs with limited experience. “We’re maybe later-stage than most,” says Unbounce co-founder and CEO Rick Perrault. “But I meet with Boris regularly because he’s got a great global perspective and always has good advice.”
In 2012, Wertz decided to take the next step, transforming his W Media Ventures into a full-fledged venture capital firm, Version One Ventures. It floated an $18-million fund invested in by Jeff Mallett, a former president and COO of Yahoo, and local stars including Hootsuite’s Ryan Holmes and Markus Frind, founder of Plenty of Fish. The kind of investments it was geared to ranged between $250,000 and $500,000 in a seed or Series A financing round, within a field such as consumer Internet, e-commerce, software as a service (SaaS) or mobile.
Back then, Wertz was regarded as a booster of Vancouver and Vancouver-based startups. Many of the companies he’d invested in as a private “super-angel” (one of only three such professionally oriented and larger-scale angel investors in Canada, according to a U.S.-based survey of the species) were locally based. But only a couple of the 20 companies invested in by the 2012 fund—which has been returning an impressive 50 per cent annually to its investors—originated in B.C. (although each—Clio, which produces practice management software for small law firms, and Talentbuddy, recently sold to San Francisco-based Udemy—proved to be winners). Today, Wertz says that none of the $35 million raised for a second fund in 2014 has gone to a B.C. company.
What happened along the way? Several things. To clarify, Wertz remains someone who happily gives big chunks of his time to local tech entrepreneurs and initiatives. He’s been a director of industry association DigiBC and he helped found GrowLab (subsequently merged with Toronto-based Highline), which operates an accelerator program to help startups get up to speed. He’s passionate about the need to transform the provincial economy from one dependent on extracting resources to one based on innovation, entrepreneurship and human capital. But he has reservations about Vancouver’s tech ecosystem—and, in any case, he doesn’t believe that a fund like his should have a geographical orientation.
It’s perhaps also germane that Wertz himself has graduated from local hero to status as one of the continent’s higher-profile and better-connected venture capitalists. During his angel investor years, he interned with New York- and Silicon Valley-based venture funds, and in 2014 was named a board partner by Andreessen Horowitz, a $4-billion Silicon Valley VC firm that has backed startups such as Facebook, Groupon and Twitter. His role is to bring potential deals to the firm and to sit on boards that the company has invested in as their representative. It’s widely accepted that no British Columbian, and perhaps no Canadian, has a tech world network to match that of Wertz—and he works hard to keep it that way. “I spend two or three days every two or three weeks in the Valley,” he says. “Connecting with our portfolio companies, connecting with investors, understanding the scene.”
Another speed bump is the changing nature of the sectors Wertz looks to invest in and the shortage in Vancouver of appropriate targets.
There are definitely local startups tilling in the fields described in the 2012 prospectus (e-commerce, consumer Internet, SaaS), but Wertz says that verticals like those are no longer at the top of his list. “We’re probably at the tail end of the Internet cycle,” he suggests. “Or look at mobile—you feel like most of the opportunities are gone.”
Instead, Wertz finds himself looking hard at Bitcoin and alternative currencies, virtual and augmented reality, perhaps security. “You can’t compare them to the Internet in 1993,” he admits, but since the nature of venture capital is that there are many losers, the winners have to be big ones—and those are less likely to be found in mature sectors. Of the nine companies his 2014 fund has invested in to date, two devote themselves to machine learning and artificial intelligence, and another involves drones—all fields that are largely foreign to the local tech scene, which, in general, says Wertz, “lacks technical depth.”
That leads into another reservation about investing in Vancouver: it’s just a little further from achieving the critical mass that it’s increasingly given credit for, Wertz believes—and that can have real consequences for an investor. “Vancouver is an attractive place to start a company,” he says, but too many fall victim to a vicious cycle. “First of all, it takes longer to raise the money. It starts scaling but has a really tough time hiring senior execs. You lose time and quality. Ultimately you have a soft outcome: you sell too early, you don’t make it that big, and so the entrepreneur doesn’t have the money to invest back in. Or the investors don’t really get the returns.”
Wertz’s pessimism is not universally shared, of course. Indeed, some of his views are almost universally disputed. Bill Tam, president and CEO of the British Columbia Technology Association, chuckles and says simply, “That’s Boris,” at the mention of some of his misgivings. The official view is that it’s full speed ahead for B.C.’s tech sector, and there’s data to support that. True, the seven per cent or so of provincial GDP that tech accounts for is only average by Canadian standards and lags well behind most other advanced economies. But the B.C. industry has been showing respectably rapid annual revenue growth (in the five per cent range) and is definitely moving up in the ranks of Canadian provinces—still well behind Ontario but gaining on Quebec as a home for tech jobs and companies. Some of this is due to the recent arrival in Vancouver of several multi-nationals, but startups also deserve some of the credit.
Despite Wertz’s own reticence, B.C. firms have been attracting a disproportionate share of Canadian venture capital, netting $450 million or 20 per cent of the national total in 2015, according to the Canadian Venture Capital Private Equity Association. Veteran industry observer Brent Holliday of Garibaldi Capital Advisors suggests that starting from a smaller base, where everyone knows everyone, can even be an advantage. “You can get 20 of the top people together for a dinner. That’s not something you can do in Toronto.”
Meanwhile, if that building on West Pender can be regarded as a microcosm of Vancouver’s startup scene, the reaction on the ground to Wertz’s views runs the gamut.
Ian Crosby, CEO and co-founder of current tenant Bench Accounting (a 2015 “30 Under 30” winner in BCBusiness), brings some perspective in that his company briefly based itself out of New York City before moving back to Vancouver, where three of its co-founders are from. “It was incrementally harder when we moved to Vancouver,” he agrees, due to the problem of raising money. “But if you can survive the seed stage, it’s not that much more difficult,” he continues, because by then a company has something to show, and venture capitalists will take a look regardless of where they’re based. Once capitalized, he thinks, a company in Vancouver even has advantages over an equivalent in an overheated locale like New York or Silicon Valley in that it’s easier to recruit and retain talent—even senior talent, thanks in part to the proximity of Seattle, a train commute away. As for networking, “There aren’t as many ex-founders here, but everyone is happy to help.”
Unbounce’s Rick Perrault has a similar analysis, allowing that “mentorship and experienced money” may be lacking to some degree, but that finding talent isn’t a problem and there are otherwise few obstacles to running an SaaS startup like his out of Vancouver.
It falls to the most ancient of the Pender Street tenants to disagree most strongly with Wertz’s thesis. “I have the completely opposite point of view,” says Jeff Booth, co-founder and CEO of BuildDirect Technologies. “It’s up to the entrepreneurs to go against the grain to create the outsized wins that will bring the ecosystem and the capital here”—outsized wins that are on the threshold of happening, he adds. Generally, Wertz is completely wrong to categorize Vancouver as something of a tech backwater, Booth thinks. Rather, it’s at a slightly earlier stage, which in fact creates the opportunity for greater triumphs. “Some of us are going to win big, and that’s going to throw a lot of money back into the market,” he says.
So yes, there are people who are working very hard to prove Boris Wertz wrong. Of course, Wertz too would like to see himself proven wrong—and he has some ideas about how that could happen. The key to greening our tech ecosystem, he thinks, lies mostly in developing or attracting more and better talent, and he suggests three ways of doing that. In the long term, he says, we need to rework the school system, “to inspire kids to become entrepreneurs or pursue tech-oriented careers.” On a medium-term level, he’d like to see our universities become more creatively responsive to what’s going on. He cites the way that the University of Toronto’s Creative Destruction Lab, with which he’s involved, helps students scale up their own companies, whereas UBC (the equivalent, to the extent that there is one) has students developing fictional business plans. Finally, he says, in the short term, foreign talent could fill some of the holes, but barriers within the immigration system keep too many of them out.
Lots to do, but Wertz remains hopeful—and he has kind words for the provincial government’s apparent conversion to the idea that R&D, as much as LNG, is the key to the future, with its recent announcements of a $100-million venture capital fund and a tech strategy involving education, talent development, business promotion and other elements.
“If you try a lot of things, some of them will work out,” Wertz says. “Just like a tech startup.”