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SILICON VALLEY (SV) AND CANADIAN IT

VENTURES

Williams School of Business

Bishop’s University

Dr. Kyung Young Lee

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BRIEF INTRO ABOUT ME

Dr. Kyung Young Lee

Assistant Prof. in Bishop’s University, Sherbrooke, Quebec since Fall 2011

PhD in Management (Information Systems) from McGill University (Fall 2012)

MBA from U of Ottawa6 years working experience in IT and

telecom industry

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TODAY’S THEME

Silicon Valley

Canadian Environment of Tech Startups

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SILICON VALLEYHistory

Current trend

Success factors

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SILICON VALLEY Definition: Silicon Valley is the southern region of the San

Francisco Bay Area in Northern California, in the United States. The region is home to many of the world's largest technology corporations as well as thousands of small start-ups. The term originally referred to the region's large number of silicon chip innovators and manufacturers, but eventually came to refer to all the high-tech businesses in the area, and is now generally used as a metonym for the American high-tech sector. (Wikipedia.org)

Rich, young, well-educated, diversified, and growing (population & econ-index) area (SV index snapshot)

Home to many of the world's largest technology companies including Apple, Cisco, Google, HP, Intel, Oracle, etc and recent successful IT ventures (Uber, Snapchat, Airbnb, etc.)

The leading hub for high-tech innovation and R&D, accounting for 1/3 of all of the venture capital investment in the US

http://siliconvalleyindex.org/

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KEY FIRMS IN SV

http://www.scaleit.us/1404-2/

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KEY STARTUP DEALS IN SV IN 2014

2nd Q in 2014

3rd Q in 2014

4th Q in 2014

COMPANY NAME DESCRIPTIONUber Mobile car service applicationAirbnb Community marketplace for accommodations around the worldLyft Online social rideshare community

COMPANY NAME DESCRIPTIONPalantir Technologies Big data analytics and visualization

Houzz Online platform for home remodeling and design

Lookout Smartphone security software

COMPANY NAME DESCRIPTION Uber Mobile on-demand car service application Survey Monkey Online survey solutions provider Instacart Online and mobile grocery shopping and delivery Square Payments and PoS systems provider

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SV SUCCESS FACTORS

• Interaction with industry, research funding, and

creativity from universities.

• Students as inventors, disseminators, and workforce

• Encouragement of entrepreneurship on campus

• Talent pool and social networks

• Loyalty to technology (than to companies) with

unique openness

• Importance of immigrants (highly multicultural)

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SV SUCCESS FACTORS (CONT’D)

• Its many early adopters of new technology

• Job hopping culture

• Services infra with many suppliers for

outsourcing (E.g., accounting, legal, financing etc.)

• Funding: angels, venture capitalist (VC’s), other

financing infra

• Entrepreneurial spirit, OK to fail…

• Flat organizational structures / Boundary-less

discussions

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SV IN 2014 Products, services, and platforms for engineers

Technically savvy population (online) Globally connected issue-makers (online communities e.g., techcrunch)

Technical teams (still) rule the valley All things being equal, you can typically outdo competition and create

larger barriers to entry by applying additional technical expertise than you can with added business expertise (at least in the early days).

Big data: If you mix big data or machine learning (AI: artificial intelligence) in some way you will certainly get additional attention from investors.

Automated Personal Finance People get more comfortable mixing their money and new technology. A growth in personal financial technology companies that will attempt to

automate our financial lives (e.g. m-payment, personal investment svc.)

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SV IN 2014 (CONT’D) The “Sharing Economy”

The first model of ‘sharing economy’ is Ebay This turns Internet into “share and save” platform Difficult legal history but are now thriving. Examples: ZipCar (hourly car sharing), LendingClub (peer to peer lending), 

AirBnb, TaskRabbit,Etsy and Uber.

Better Communities and Support for Entrepreneurs Better access to angels and incubators (e.g., Y-combinator, firstround.com

TechStars and 500 Startups) More accessible fundraising (for both investors and entrepreneurs) (e.g.,

AngelList and Kickstarter) Online communities for tech-entrepreneurs (e.g., Quora)

Source: http://www.forbes.com/sites/rodebrahimi/2013/08/28/6-emerging-trends-in-silicon-valley-entrepreneurship/

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CANADIAN IT ENTREPRENEURSHIP TRENDS

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CURRENT TREND

Canadian start-ups are known to be; 1) innovative, 2) global scale (multi-cultural), and 3) young and better priced (?).

Foreign funds see our raw technology and the quality of our companies and think early stage opportunities are often better priced in Canada than in the US, due to less competition among VC's.

More than half deals (by numbers of deals) are toward ‘SEED’ financing

Venture capitals in Canada iNovia (http://inovia.vc/) – Montreal based Relay Ventures (http://relayventures.com/) – Toronto based Omers Ventures (http://www.omersventures.com) – Toronto based

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CANADIAN FINANCING DEALS

• Seed stage: an idea of products and services, no marketable products/services yet (prototypes are usually created)

• Startup stage: First market analyses have been accomplished and the product is on its way from the development stage to the market launch

• Series A: Scaling the product and getting to a business model.• Series B: Scaling the business• Series C onwards: More capital to scale• Series D/E/F… : other milestones accomplished.

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CANADIAN TRENDS According to Industry Canada, venture capital investments in Ca

nada totaled over $1.5B in the last four quarters (Q3’13 to Q2’14).

Early-Stage (Seed & Series A) Makes Up Over 3/4 of Deals Ottawa-based Shopify raising a $100M Series C this past December,

which valued them at $1B Vancouver-based Hootsuite raising a $165M Series B in August 2013.

Internet and mobile: In the past two years, VCs have invested heavily in both Internet and Mobile services, (approx. 50% of all deals) Wattpad, read and write SNS, who closed a $46M Series D investment

from Union Square Ventures among others Triggerfox, a mobile address book company that raised $1.8M in seed

funding from Dharmesh Shah and Wayne Chang. E-Commerce: came in second (approx. 15% of all deals)

BuildDirect.com’s $27M Series B AskForTask’s $500k Seed round financing

http://www.cbinsights.com/blog/canadian-vc-startup-funding/

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CANADIAN TRENDS

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CANADIAN TRENDS

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CANADIAN TRENDS

The largest investment over the past 2 years for each of the top 5 cities is below:Vancouver  - Hootsuite – 08/2013 – $165M Series BToronto - Wattpad – 04/2014 – $46M Series DOttawa - Shopify – 12/2013 – $100M Series CMontreal - Enerkem – 06/2013 – $48.2M Series EBurlington - Anaergia – 10/2013 – $46M

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KEY TECH VENTURE TRENDS IN CANADA (YEAR 2015) Industry trends

Venture capital activity will be at a record high At least one big Canadian IPO: candidates are Shopify,

Hootsuite, and Vision Critical.

Technology trends Wearable devices - a few flourish, many fade: the rise of

complementary products for Wearable devices! IOT (Internet of Things): Even more stuff will be connected

in 2015. LIVE FROM CES 2015 Payment systems (Bitcoin, P2P services, Mobile payment) VR (Virtual Reality) will expand from its role in gaming into

other key areas like healthcare and education

http://www.techvibes.com/blog/jim-orlando-predictions-omers-2015-01-06

http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/biz-categories-technology/five-predictions-for-canadian-tech-in-2015/article21991603/

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A CASE - SNAPCHAT

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CASE– SNAPCHAT (HISTORY) Problems of potential customers: “I wish these photos I am

sending this girl would disappear!” Founded in July 2011 as its first name “Pictaboo”, later the name is changed to “Snapchat”

Product description (WE DO NOT STORE USER’S INFORMATION!!!) A photo messaging application : Users can take photos, videos, and

add text (called ‘snaps’), and send them to a controlled list of recipients.

Users set a time limit (1to10 sec) for how long recipients can view their Snaps (as of April 2014, the range is from 1 to 10 seconds), after which they will be hidden from the recipient's device and deleted from Snapchat's servers.

Brief history In Dec 2012, Video snap launched. In Oct 2013, Snapchat Stories launched. / Evan Spiegel declined $3

B buyout deal for Snapchat (with no revenue) from Facebook. In May 2014, Text chat and video chat added to the app. In Oct 2014, Snapchat introduced their first ads to Snapchat stories In Nov 2014, partnered with Square, they introduced Snapcash http://techcrunch.com/gallery/a-brief-history-of-snapchat/

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CASE– SNAPCHAT (CURRENT)

http://www.digitalinformationworld.com/2014/09/the-history-of-snapchat-infographic.html

Success factors• Potential customers’ problem solved!

(Ephemerality)

• Technological environment: Smartphone & Mobile internet penetration

• Users’ privacy protected.

• The most natural way of telecommunication!

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CASE – SNAPCHAT (BIZ MODEL)

Product/Service model: Key users are mostly younger generation Current cost for the business: Snapchat is believed to be

spending $30 million a year with $15 million of that going to Google for hosting its photos. The company is rumored to be paying $3 million a month in legal fees for co-founder lawsuit.

Revenue models in 4th Q 2014 Untargeted ads (disappear within 24H) :Not on snaps but on

Stories Snapcash (partnered with Square): Their Snapcash (P2P payment

service) isn’t generating any revenue, just like Venmo (eBay) Financing history (Most recent funding from Alibaba at 15B)

Then, why is this almost revenue-less company valued over 10 Billion dollars?

Stage Seed A B C D or EMon/YR Nov 2014 Feb 2013 June 2013 Dec 2013 Aug 2014Raised $0.485M $13.5M $80M $50M $485MValuation $4.25M $60~70M $800M $2B $10B

http://www.bloomberg.com/news/2014-08-26/snapchat-said-to-near-funding-with-kleiner-at-10b-value.html

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QUESTIONS?

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C100

C100 http://www.thec100.org/A non-profit organization that supports

Canadian technology entrepreneurship through mentorship, partnership and investment.

Formed in 2010, by a group of ultra-successful Silicon Valley business people from Canada

C100 supports the next generation of Canadian entrepreneurs and help build the next billion dollar Canadian tech company.  http://www.thec100.org/our-network/funding-partne

rs

http://www.thec100.org/companies