Paving the Way in Canadian Tech: A Chat with Owen Matthews (Part One)

Forbes Books presents the Startup Science Podcast with Gregory Shepard, brought to you by startupscience.io. Greg is an entrepreneur who has built and sold 12 businesses. He's a recipient of 4 private equity awards and is a featured TEDx speaker and Forbes author. Here's Gregory Shepard.

My guest this week is Owen Matthews. Owen is a pioneering tech investor and entrepreneur. He chairs the Alacrity Foundation, which has brought over $225 million into Western Canada's tech ecosystem and employed 300+ people. Owen is a true community builder, supporting technology education, serving on numerous boards, and giving back. Owen, welcome to the podcast.

Thanks, Greg. I really appreciate you having me on.

Yeah, it's a big deal. This is a, a very special guest today we have. Owen is one of the, if not the leading thought person in Canada, also in the UK, and he's got offices all over the world. Owen, maybe we could start out by you sort of explaining what you're up to right now.

Right now we are running an organization called Alacrity. Alacrity is a support organization for entrepreneurs. We build companies, we, uh, you know, understand demands that are in the marketplace and support entrepreneurs to make as many companies as possible successful. That started out here in Western Canada, in Vancouver and Victoria, where I'm based, and we have spread around the world. So we have offices in the UK, in India, in Turkey, in Mexico, France. We've had just an amazing sort of global support organization for helping entrepreneurs to succeed.

You seem to have been bitten by the entrepreneurial bug real early. While studying at the University of Victoria, you ran a web design firm and a graphics art studio, among other startups. Can you give people a background on your days as an entrepreneur? I mean, you're unusual because you're naturally an entrepreneur and you're running programs, which is, which is pretty rare.

Yeah, I think it's important if you're going to give advice that you should probably have some of that real experience. So, you know, it was critical to me when, you know, I was supporting entrepreneurs that I had the experience of being an entrepreneur and still, you know, build and start companies and treat Alacrity like it is, you know, an entrepreneurial organization, which it is. But coming back to your question, in the early days, you know, I actually was involved in startups, you know, as a very young kid. My father was a very successful entrepreneur. He's a guy by the name of Sir Terry Matthews. And as a kid, all I knew was going into the office and hanging around with engineers and soldering together prototypes. And even, you know, at 15 years old, I was in startups with him. A number of those turned into very, very successful companies. And it was what I was accustomed to doing. So it wasn't really a surprise that when I went out to university, a long way away, 2,000 miles away from my home in Ottawa, I ended up, uh, on the West Coast of Canada. When I was in computer sciences, I, I ended up starting a company. The idea of having websites and building websites for people was a, was a pretty easy step for, for a computer sciences, you know, student. And so that's what we did. Uh, it was called the Design Corps. I mean, it was technically an office, but, uh, it was below the gay men's steam bath and, and behind a pawn shop. So it wasn't exactly the most glamorous of places down an alley, but it was a place of work for me. And we did some decent work and I learned an awful lot in those early years.

It's not an unusual story that you had an office hidden off back in the middle of nowhere. It seems like that's a lot of folks. I had one on top of a barn at one point.

So that's part of what you do, right? Save money.

Yeah. Yeah. You do what you can. So you have not only started companies, but you've also funded companies and you also run accelerators. This is an unusual blend of things. Out of those things, what's your favorite thing to do? Like, what do you enjoy the most out of all of that? I mean, you're at the center of, of this whole startup experience.

Yeah. So it's easy to understand that, uh, for me, what I'm most passionate about is supporting early-stage companies, you know, directly involved in, uh, technology companies. So all of the things that you described have one thing in common. They are directly involved in startups. So as a founder, you're obviously very directly involved in startups. You know, as a support organization, I get to help lots and lots of startups. And as an investor, you have a very strong opinion and are actively involved in startups as well. So, you know, I do all of those things because I love what I do. So, you know, I could go from startup to startup and be actively involved in one, or I could use my experience and apply it across a broad base of startups, which is what I ended up doing. When I was younger, I was very focused on making the companies I was involved in successful. As I got older and I had a lot more experience, I applied that across a broader group of companies. But ultimately, I'm the same person doing the same thing that I love, which is Being actively involved in startups, loving what I do, helping as many people as possible, teams, you know, grow and succeed. So I'm really doing the same thing I've always, always done. I just have a broader platform to do it.

So let me ask you a question that applies to 3 different areas, okay? From an entrepreneur perspective, from as being an entrepreneur yourself, and then also from an investor perspective, and also from an accelerator perspective. perspective, what do you think the most difficult initial challenges are for founders?

I would say the most difficult thing is that initial leap of faith. You know, we've done a lot to try and reduce that, to make it easier for founders to get actively involved in founding companies and doing startups. But having someone decide they want to be a founder And take that leap of faith. It's a very daunting thing to do, especially when you have no experience having done it. You don't necessarily know what the market needs, and you've decided to just sort of do this thing without without context. You know, if you want to be an engineer, you want to be you know a data scientist. There's there's courses and paths. There really isn't that for for entrepreneurs. There's certainly programming and and You know, there are startup studios and there are, you know, accelerators and incubators, but ultimately it relies on someone taking a leap of faith to do it. And that's, that's hard, especially when there's no obvious path. And, and if you understood how difficult it would be, maybe you wouldn't make that choice.

So I've thought about that a lot.

We try and, we try and make it less of a leap of faith and bring market experience, market knowledge. So somebody who is thinking about doing it has a much better chance of succeeding when they see that there's a market need and they hear very clearly that if that market need is addressed, they'll get a customer out of it or investors. It's much— it's just much more likely to succeed. It's a much easier path. than thinking you know something and you don't really have that much market experience and you're just going to jump in anyway. You're just asking, you know, to get beat up for, for 2 or 3 years until you learn enough about that market to actually be successful. Not that you can't do it, but it's a really big leap of faith and that's tough.

But you're a little different. I mean, in your world at Alacrity, you do things completely different. I mean, you guys actually Do the market research, you help them commercialize what they're doing. Can you talk a little bit about the uniqueness of Alacrity as compared to the other accelerators that are out there? Because I found it to be just extremely novel.

Well, thanks for that. I don't feel like it's novel. To me, it's pretty obvious. If you're going to support companies, you want companies to be successful, understanding what the market demand is, understanding what customers want is really the only way to do it. So I've never known any other way. But you are right. I come across accelerators and incubators and other organizations that support startups, and they have very specific agendas. Like, you know, we're going to teach you for 3 months how to pitch. You're going to pitch, you're going to raise money or you're not. If you raise money, good for you. You're one of our poster children and we get some equity in you and good luck. You know, because they have a very specific thing that they need to do. That I'm sure is helpful. And certainly there's a community of people that are, you know, offer a great deal of support to companies that go through that. But it's not really what the companies need to be successful. Really, they need a more holistic approach. They need to, you know, do the market research before they decide on what they're going to do, before they've settled on a particular idea. that they're going to work on. They need market development support. They need fundraising support. It's not a 3-month come into our program, learn what you can and get out. The truth is it's years and years of development, typically more than 5 years of support to get to a startup to the point where it's reasonably successful and can attract significant funding. So for us, You know, it is the way in which we've always done our work, the way we've been involved in startups. It doesn't seem like a particularly creative or particularly novel approach, but you're quite right to, to have an organization that is focused on supporting people who are thinking about being entrepreneurs, giving them an opportunity to, to evaluate, you know, products, ideas that are based on sort of known quantifiable customer demand. And helping them develop that, helping them attract funding, you know, helping them get traction in the market, you know, doing that over a number of years is unusual. And a lot of organizations, you know, don't do it. It's ultimately what we need to create more companies and support companies that have a high likelihood of success. But you're right, it's unusual, but it didn't seem that way to us. It seemed just like the obvious way to do what we needed to do.

You have your pulse on the entire startup ecosystem from multiple different perspectives. When you look at what's going on and you see, you know, the market closed down on all the overvaluations and all these companies lost money, all these VCs lost money, et cetera, et cetera. When you think about it now and you have your pulse on what's going on, what sort of changes do you see happening in the startup ecosystem over the next, you know, year or so?

Thank you for being so complimentary. I feel like I've got a decent understanding, but it's a very complex marketplace and I don't think anybody can fully wrap their head around it. I think important thing to understand in venture is the cycles. The most obvious cycle that I can point to is when Alacrity started, which was 2009, which you remember was not a great time for startups in general. Cash was extremely tight. In 2009. So having a support organization to help startups seemed like a pretty good thing to do. We dove in to try and help as many people as we could, and we created about a dozen companies in a program that have valuations in excess of $1 billion today. So these are companies we started from scratch with people that had no experience as entrepreneurs. They were just engineers that we gave some important market knowledge to, and that market knowledge led to Companies that, that, you know, all of them did $3 or $4 million in revenue as a minimum. So, so that was a successful program, but it was part of a cycle. If you were an investment fund and you were raising money and you had a history of successfully raising money and you were out to market in 2009, your investors would, would give you a very clear message, which is no, not today. So you would've held off if you were raising money in 2008, Certainly the last half of 2008, you wouldn't have been raising money. 2009, you wouldn't have been raising money. The market opened up a little bit in 2010, and most were back in the market and raising money in 2011. And they've got a 5-year investment period. So if you remember back to late 2015, 2016, you had this sort of VCs behaving badly, where they were fighting over deals and they were overpaying for deals and valuations were quite high. There was a very specific reason for that. There was a glut of capital that was raised in 2010, 2011, and they have to deploy that capital in by the time 2015, 2016 rolls around. Otherwise, they're returning it to their LPs without having done their job, which was to invest it. So better that you overpay by 20 or 30% and you deploy the capital than not, and you don't have the portfolio you're supposed to have. So that created a glut and overvaluation. You know, tack on another 5 years in the cycle, what do you have? Well, you've got pretty strong valuations in, you know, 2021, 2022. You know, yes, pandemic, you know, certainly had added a little bit of pressure and a lot of government stimulus added more pressure. And then you have the current environment where we in, which is a little bit of a hangover from that. However, The venture funds that were in the early part of the cycle are always the ones that make the most money. So capital is tight, but deals are also much better valued. I didn't like looking at deals in 2021 because I thought they were overvalued. We were busy selling secondaries and selling companies at that time because it was a really, really strong market. And in a really, really strong market, it's good to be a seller, not a buyer. And now we're back being buyers. So it is difficult to raise money. Companies that possibly shouldn't exist are going to really struggle raising money. And companies that would've gotten funded 3 or 4 years ago, maybe they shouldn't have gotten funded in this environment, aren't going to make it. So it's not a time where I think You know, we should all be depressed and, you know, pack up our toys and go home. It's the time when, you know, I'm excited about looking at deals and supporting companies that I think are real companies that are really focused on revenue and can grow quickly and their competitors are busy falling by the wayside. It's the right time to be a good investor.

So when you look at the current market and you look at, you know, to your point, the opportunity, right? The opportunity isn't when it's hot, it happens before that. If you jump in when it's hot, you already missed A lot of it. So if you're a founder in this market right now, your recommendation is build, build, build, and get to the point when the cycle starts to go back the other, when the pendulum swings the other way, you're ready for that. Or what would you say?

Well, it always comes down to revenue, right? The value of any company, whether it's to an investor or to an acquirer, is how do I value your business? I value it based on revenue. It's a multiple of revenue, right? Oh, you're getting a, you know, you're getting a 10 times multiple on your revenue. Revenue drives value. So if you don't understand product market fit, if you don't understand who your customer is and you're not growing with customer dollars, then it's much more difficult to attract investor dollars. So, you know, thinking like the investor is going to save you or it's the investor's environment, you know, which is the problem is really backwards thinking. The investment is an outcome. The investment is not the goal. The goal is to build a successful and valuable business, and the investors will come to that recognizing there's a successful and valuable business. And you don't necessarily need a truckload of money to do it. You might need a truckload of money to grow, but that's because you have a business that's working, that has product-market fit and has customers. Thinking the investor will save you or help you create that is a ridiculous expectation. So Know your customers, focus on understanding what they need, make sure you're giving it to them and they're paying you, and investors will come to help you grow that. And the cycle doesn't change that. In fact, it makes it more disciplined, which is exactly what you want. You want good disciplined companies that are going to be successful, and cash just sort of hides the inefficiencies. So I'm perfectly happy in these environments. I like listening to customers. I like understanding markets. And the idea that, that, you know, well, it's a tough investment market suddenly means that we can't do our job is— it's crazy. You know, of course, do your job. Understand customers. And, you know, as, as a founder, work hard to get those customer dollars. That's what creates the opportunity for investment.

I love that. And I want to get into all those exciting projects we're working on, including the Canadian Fulbright Entrepreneur Initiative, but we have to stop right there. Next time on Startup Science, Owen Matthews, the chairman of Alacrity Canada, talks about his role as a humble thought leader in the global tech ecosystem.

We've been pretty quiet about what we've done. Maybe that's just sort of default Canadian humbleness, but, uh, we have done a really, really remarkable job in, in building technology companies from scratch. Primarily, I just love helping the companies, and, and I've got a great platform to do that for a long, long, long time.

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