Disruptors

Can AI fix ER wait times?

SPEAKERS

Boris Wertz, Sid Paquette, John Stackhouse

John Stackhouse 00:00:10

Hi, it’s John here. If you’re a regular listener of Disruptors, you may have heard a recent episode with Fred Lalonde, the founder of Hopper. He’s one of Canada’s most successful and interesting entrepreneurs. It’s worth a listen. Among the things Fred shared was a need for any Canadian innovator or technologist to reach global scale in a hurry. Well, to do that, you also need global capital, or at least scale that thinks like global capital.

And today, we’re going to hear from two of Canada’s most successful venture capitalists on what they see as the opportunity and the need to support and finance a whole new generation like Fred to carry Canada into the 2030s.

You’ve probably heard enough about the problem. Yes, we can produce important technology. We’ve helped shape artificial intelligence, quantum software, health technology, and emerging areas like physical AI. But when companies move from promising startup to global contender, that’s when the challenges really thicken.

That’s the tension at the center of this conversation. Canadian companies need global investors in global markets, but if the growth rounds, anchor customers, senior talent, and exit pathways all pull elsewhere, Canada risks losing too much of the long-term value from the very companies that people like Fred create here.

Today on Disruptors, I’m joined by Boris Wertz. He’s the founder and general partner of Version One Ventures, and Sid Paquette, who’s the head of RBCx, our innovation banking arm, to talk about Canada’s growth capital gap, what founders need to compete globally, and how Canada can build more technology champions for the world from Canada.

Boris, Sid, welcome to Disruptors.

Boris Wertz 00:01:55

Thanks for having us.

Sid Paquette 00:01:56

Thanks for having us.

John Stackhouse 00:01:56

Let’s start with the challenge out there. You’ve both been around the block more than a few times. You’ve seen highs and lows in venture in Canada. Boris, how would you describe the current landscape?

Boris Wertz 00:02:09

I think, in many ways, we have made a lot of progress in the innovation economy and venture capital in Canada over the last decade. Having said all that, we are also at a moment in time where, with AI, everything is shifting again. New ecosystems are emerging. New venture capital players are emerging. And this is really a moment in time where, going forward, we play a really important role in the innovation economy, and that often starts with capital.

John Stackhouse 00:02:35

Sid, on the finance side, the numbers are concerning. We are well down as a country. What’s going on out there?

Sid Paquette 00:02:43

Yeah. So there’s not one area within the ecosystem that doesn’t have problems today. Right? If you take a look at the data the last three years, emerging managers have raised 36% less than expectations. That’s really bad. You take a look at venture capital last year. The data shows that 83% of all venture capital dollars raised last year went to five managers in this country. That’s not a good situation, especially when you look at the prior year with 67%.

So we’ve got an issue across the entire finance life cycle, and there’s a bunch of things here that we need to do. We don’t have big enough growth equity players domestically to help fund these great Canadian companies. Having spoken with a lot of CEOs of these great growth-stage companies in Canada, it doesn’t feel great to a lot of them when they’ve built a company. They’ve built it here in Canada.

They’re Canadian, and they look at their cap table, and it’s a de minimis amount of Canadian investors, especially when you consider that every single taxpayer in this country has ultimately funded most of these companies through their entire life cycle through the SR& ED program, which is taxpayer dollars, which is every single company in tech largely makes use of that program.

John Stackhouse 00:04:06

This is the research and development tax credit.

Sid Paquette 00:04:07

This is the Scientific Research and Experimental Development Program. Exactly. So refundable tax credits to ultimately help these companies grow. As taxpayers, we’ve funded that. Certainly at the early stages when it’s really highly risky, these organizations have a higher rate of failure than they do success, and that’s when we all step up as taxpayers, as we should, and we help them navigate those waters.

When ultimately they get to a less risky stage, late-stage capital, that’s when then, all of a sudden, we don’t have any domestic players who can come in. So the company is at a less risky stage of their growth. There’s no domestic capital or not a lot of domestic capital to help them grow, which means then it’s far more foreign capital that comes in, which means the lion’s share of a lot of the benefit, whether it’s talent, attrition, or its capital on an exit, exits the country. Right?

And so, that’s not a great situation for us as well. And so, certainly at the late stage, it is not a lack of capital. These companies, they’re really good companies. They can get capital anywhere they want in the world, but it is a lack of domestic capital.

John Stackhouse 00:05:17

Take us deeper, Sid, and then, Boris, in terms of why there is not those stages of capital, because we did this report called Capital Gains that looks at the trillions of dollars that Canada needs, 1. 8 trillion to be specific, but that’s largely for resource development. Canada and Canadians may not appreciate this as actually one of the world’s best pools of capital.

Sid Paquette 00:05:40

We have a lot of big capital pools here in the country. Right? Our pension plans, our large corporates, et cetera. But by virtue of the size and scale of those capital pools in order to move the dial on their investment strategy, they’ve got to be able to deploy really, really big pools of capital as well, and Boris talked about it in terms of what’s happening with AI and the changes in our ecosystem.

You can build companies now far more efficiently with far less capital outlay and drive far greater amounts of revenue than ever before in history. And so, you don’t need all that much. You do need capital, but you don’t need as much historically as you used to. So then where that shifts, and this is in tech, where that shifts is, when you’ve got these large capital pools, they end up looking at more infrastructure-type investments. Right?

John Stackhouse 00:06:27

Like data centers.

Sid Paquette 00:06:28

Data centers. It could be anything to do with infrastructure. It could be building highways. It could be airports. It could be ports, whatever it is. Those are big investments that they can make. They can deploy off of a bigger balance sheet. Tech kind of falls to the wayside a little bit, but we’ve got to solve for that problem, because Canada is historically a resource economy.

We just can’t take a finite resource out of the ground, send it somewhere outside of Canada to be processed, buy it back at a premium, and then ultimately all of us consume it. That’s not a sustainable business model in any world. Right? And so, we’ve got to start solving for that. So there are infrastructure things here that we need to invest in to drive those outcomes, but then we’ve also got to go, “Hey, let’s think about what’s happening on the AI side. What is the potential that’s going to be there?”

We do not, today, have any sense really in terms of the business model changes that are coming down the pipeline, the opportunities that are coming down the pipeline, the talent requirements that are coming down the pipeline. These are things we have not seen. And so, for those of us who have been around for a bunch of these changes, whether it’s the internet or it’s the cloud or now it’s AI, there are roles that individuals…

There are opportunities that are going to be solved with software that we just don’t even have visibility to today, and this is moving so fast that it’s going to come to us really quickly. We’ve got to start thinking about the art of the possible, and we got to think about the world that we live in today is going to be very different tomorrow.

John Stackhouse 00:08:06

And I think, Boris, this is what you were getting at off the top in your reference to AI and how it is leading to a massive concentration that is obviously a big opportunity for those who have that ability to scale very quickly.

Boris Wertz 00:08:20

Yeah. I think we’re really entering a world where we’re going to see exponential growth in some of these companies, and that’s going to lead to more outlaw outcomes. Right? More value being accrued in the top 1% of all companies. So I think before, tech was always, in a certain way, nonlinear, but I think we’re now hitting a real exponential phase, and that will just create more concentration in fewer assets and fewer founders and fewer companies, and fewer VC funds.

And I think we just have to be clear that it’s a different phase of development, and we can’t really play the game that was perhaps appropriate a decade ago in a new phase that is now driven by AI and exponential outcomes.

John Stackhouse 00:09:03

How does a smaller country like Canada take on that epic challenge? It makes me think of the hegemons, as Prime Minister Carney likes to call them, but we’re seeing in AI. It is the U. S. versus China and then a whole bunch of other countries back in the peloton, and Canada is one of them. Do we just accept our place back there well behind the leaders, or is there a way to jump ahead?

Boris Wertz 00:09:27

I think Canada is starting to kind of recognize that we can’t just continue what we’ve done in the past. We need to change our playbook. We need to lean into our strengths. A country of 40 million people can’t be great in every single sector, but there’s many where I would say we have a real advantage. Energy is one of them. Mining is another one. When you think about the whole AI boom, it really comes down to ultimately energy as the input.

Sid Paquette 00:09:52

Just to jump in on that comment, I think we’ve just got to make sure that we don’t get overwhelmed by the volume of things that need to change in this country. We’re not going to solve every problem, and we can’t solve every problem given the size of our country. In some cases, it may be 10 years before we’re able to have the outcome that we would like to have had already, but if we don’t start today, every day is an extra day that we add onto a 10-year or 20-year cycle. We’ve got to lean into our natural strengths. This is looking at what we’re really good at today and where we’ve got some commonality and some natural aggregation of skills, resources, capital, and leaning into that.

John Stackhouse 00:10:36

So tell us a bit more about what our natural strengths is. If you had to bet on one thing, what would it be, and how would you execute on that bet?

Sid Paquette 00:10:44

Energy. That’s a strength of ours. Right? We’ve had that strength. We’ve had that for a long time, but there’s other strengths that are coming out of the woodwork now. If I think about a recent strength of ours globally, quantum is one of them. That was not an initiative to create a quantum center within Canada. That was just a gravitation of really smart people in this country working on a problem set, and you’ve now got this cluster that’s just naturally happening. AI obviously is another one that we’ve had in recent years as well.

John Stackhouse 00:11:14

Boris, help us understand how we fumbled.

Boris Wertz 00:11:17

AI came out of Canada, and not only one place, but literally Toronto, Montreal, Edmonton. So we had a really strong research history, but ultimately, we didn’t really have enough of an ecosystem where companies in that ecosystem took the new research, commercialized it, scaled it up. At least I would say, today, we have, with Shopify, actually one at-scale tech company that is very advanced in AI and applying it in their own business, but it’s obviously nothing compared to what you’ve seen in the Bay Area with Google and Meta and OpenAI and Anthropic and so on.

John Stackhouse 00:11:53

And I think in the case of Shopify, the main reason it’s still here is Tobi and maybe some others, but that is a leadership decision, not a natural advantage of Canada.

Boris Wertz 00:12:05

100%. 100%.

John Stackhouse 00:12:06

So thank you, Tobi.

Sid Paquette 00:12:07

I agree. You’ve got the Wessingers at PointClickCare. They’ve built a really big company here. You’ve got Jane. You’ve got Clio. You’ve got Xanadu. He’s probably the most Canadian non-Canadian I’ve ever met, wants to build a company here in Canada. And so, you do have these examples here. This is a great place to build. We’ve just got to put the right resources around these entrepreneurs to enable them to build really big companies. We can do this in Canada.

John Stackhouse 00:12:37

So let’s talk about what would help on that front, procurement. What do we learn from others on procurement that we could apply better here?

Boris Wertz 00:12:45

It’s both procurement from private companies as well as from the government. Canadian private companies haven’t really been praising new technology, being the first customer, et cetera. So I think we need to have a change in culture there, embracing technology. It has been very tough to sell to the Canadian government. We need to be just much more aggressive in leveraging procurement from the government, from private companies to get these early-stage companies and later-stage companies real revenue traction that they then can fundraise against and raise more private capital against.

Sid Paquette 00:13:16

Yeah. I agree. I think another big unlock here in Canada is on the private companies. They often don’t even consider Canadian companies in an RFP process for a particular software deployment, hardware deployment, what have you. They just go to the name that they know that they’ve done some research on that maybe Gartner or Forrester has highlighted without even looking at Canada, and I think that’s a mistake.

Canadian companies will not necessarily win out day-to-day against a U. S. competitor or a foreign competitor, but in Canada, we’ve got to give them an opportunity to at least be at the table, because most times, you are as good as the foreign competitor, and you’re based here, which means you have better connectivity with the client here.

You’ve got a team here. You’re more accessible here. There’s a lot of really good things there, and they don’t even get that access. So it is a behavior change, which is, ask the question, if there are no Canadians in an RFP process, that should be a red flag to go, ” Hey, have we really scoured the market here to see if there is a Canadian company which should be in this process? And let’s invite them in.”

John Stackhouse 00:14:25

How do you change that? Because I’ve heard this challenge for years and years.

Sid Paquette 00:14:29

This has to come from the top. This has to come from senior management teams. This has to come from boards of directors. This is not going to be a grassroots, bottom-up change. This is behavior change, which I believe behavior change, we have to reflect that at the top of the house at the executive level.

Boris Wertz 00:14:44

Yeah. You definitely see it like a change of behavior in government. I mean, it’s still early, but you feel like there’s first really important signals that government is thinking about being much more aggressive around procurement and opening up government to these opportunities.

John Stackhouse 00:15:01

One of the levers that we may be missing is sophisticated VCs, especially on the go-to-market side of it. So I hear from entrepreneurs, both of you have introduced me to many of them, who will say, sure, they’d love a Canadian as their lead investor, but if you have Andreessen Horowitz or pick your Valley investor, it’s not about the money. It’s about the talent that they have. And frankly, they’re going to ensure that you are getting in front of all the right corporates in the United States, probably beyond. How do we solve for that in Canada?

Sid Paquette 00:15:35

In the U.S., they have a process that they have been executing that playbook for a long time, and they understand when they make an investment, they’re committed to that investment, and they’re going to do everything they can to make that investment successful. They also have far more at bats than we have here in Canada.

They’ve had more successes. They’ve had more failures, which they learn a lot from as well. Let’s be frank, they’ve got a far bigger talent pool for all of the requisite talent that we need. There are really good reasons to take U. S. funding, and I am not a proponent of Canada-only funding rounds. Right? I actually think that’s a bad way to build a business.

John Stackhouse 00:16:12

Why is that a bad-

Sid Paquette 00:16:36

I just think, John, I think you lose access to networks that you’re not connected to. You lose access to talent you’re not connected to. And quite frankly, you lose access to markets that you’re not connected to. A cap table for a large, successful Canadian company shouldn’t be 5% or 10% Canadian ownership. Should it be 60%? I don’t think so, but it’s got to be somewhere in between, and it helps that company scale.

You’re going to go where you can get talent, where you can get customers, where you can get capital. There’s a lot of benefits to that domestic capital as well, but I’m a proponent of actually both. I don’t think just taking Canadian capital is a smart thing, not if you’re building a global franchise.

Boris Wertz 00:16:54

Ultimately, the Canadian VCs that want to be successful need to be globally competitive. You can’t just build your business on Canadian deals in the Canadian ecosystem, and we actually have a bunch of them here in Canada that are globally successful. We just need way more of them.

John Stackhouse 00:17:11

And you’re one of those successes, Boris. What has helped with that?

Boris Wertz 00:17:15

It’s two things. The first one is realizing that the world is much bigger than just Canada. You need to recognize what great looks like. And then secondly, it just means you have to be on the road a lot. I mean, you just can’t just run this from Vancouver or from Toronto. You need to be in the Bay Area, in New York all the time, and just need to put in that time to connect with the best in the game, meeting great founders, really understanding what needs to be done.

Sid Paquette 00:17:45

Can I comment? Because I’ve known Boris a long time. And so, maybe I’ve got an add-on I’d like to just make in terms of Boris’s success. Boris and Angela have done a phenomenal job at Version One of investing ahead of the hype cycle, coming in, identifying opportunities early, investing with conviction in those opportunities, and then those tend to be the ones over time that have the biggest return.

You’re doing it long before everybody is interested in it. You’re kind of setting the path in a lot of ways, and you’re almost acting like a queenmaker or kingmaker fund at the seed stage, because nobody else is investing in that space.

John Stackhouse 00:18:25

So, Boris, if that’s true, where is the next hype cycle?

Boris Wertz 00:18:30

Two things are always on my mind. I think the overlooked opportunities are getting rare and rare. It feels like whatever is an emerging category is perhaps there for half a year and a year and then it becomes almost mainstream. The innovation cycles are much, much faster. So you have to look harder, and you have to change your themes much, much quicker. The thing where we spend quite a bit of time on right now is physical AI and bio actually. We think at the intersection of atoms and AI, and that includes both biology as well as robotics. It’s a really interesting area.

John Stackhouse 00:19:08

Tell us a bit more about physical AI. What is it, and where are you seeing the opportunities?

Boris Wertz 00:19:14

Physical AI is very different, because the real world is messy. Right? Every manufacturing floor, every logistics center looks slightly different. Right? And so, data collection is going to be much more use case by use case, factory by factory, and making that work is much harder than scaling up a foundational model based on all the data that’s available. So we’re interested in that messy world. Biology is a similar theme. The human body is very complicated. There’s never perfect data collection. So we feel like the combination of AI and a much messier data collection, use case-specific application is super interesting.

John Stackhouse 00:19:58

I wonder in our remaining minutes if we can talk a bit about what Canada should do in the coming months and maybe years. Clearly, we’re coming to grips with our existence as a country and what we want to be. All this is going on while we have tons of billions of dollars coming into the country, staying in the country, looking for opportunities. We’ve got to also think about building the little companies that become big companies. So amazing time to be in business, to be in investing. What should we come to grips with in the near term to make all that possible, Boris?

Boris Wertz 00:20:31

I would love to see a culture shift in Canada. Canada has been known for building amazing companies, being really entrepreneurial, and we lost it a little bit in bureaucracy and regulation and just taking it for granted that our economy would work. We just have to go back and be more entrepreneurial, and that starts with obviously government embracing that, big companies embracing that, individuals embracing that. Now, we need to kind of double down and start building again, not just harvest what past generations have built, but really build for the future.

John Stackhouse 00:21:03

And how would you design venture capital, especially government interventions as well as corporate interventions, to be more effective in the decade ahead than maybe we’ve seen in the past?

Boris Wertz 00:21:14

I think we need to unlock a lot of the private capital that we have in this country, the pension funds, hundreds of billions of dollars that are there in terms of assets. We need to make sure that part of those assets are going to flow into the innovation economy. I’m not a big fan of just having government- sponsored programs, but there’s lots of private capital that is there, sitting on the sidelines, that we need to kind of activate.

John Stackhouse 00:21:39

Sid, what would you do in the next six months?

Sid Paquette 00:21:42

Wow, six months. I think we just have to start, and I say that not flippantly. There are a lot of things that we have to solve for, and we’re not going to solve for all of them, and we’re not going to get them all right, but we’ve really got to think about what do we want this country to look like in 10, 20, 30 years, and we’re going to have to make the investments today to make that happen, and we haven’t made those investments probably for the last 30 or 40 years.

We’ve got to fix the capital allocation issues that we have across the ecosystem. We’ve got to support the companies that are naturally building companies here. We’ve got to provide the fertile ground to enable others to continue to build. We’ve got some of the biggest organizations in the world in this country. How do we leverage them to help those who are building feet on the street build the next generational company?

We’ve just got to start, and we’ve got to just start chipping away at some of these problems. That’s what I would do in the next six months, and that’s what we’re going to continue to collectively do, because a number of us are working on a bunch of these things.

John Stackhouse 00:22:47

Now, maybe a final question. You’re both investors, and one of the things I love about investors is they believe in the future. That’s why you invest. What are you most excited about in the future? Sid, start with you.

Sid Paquette 00:22:58

The world that we’re in today, it is a moment, and it is a moment that we don’t fully comprehend today. I am excited for what I actually don’t know about the future, and I know that’s maybe not the answer you’re looking for, but it’s the reality. And I think anybody who thinks they know what this is going to look like five years from now, I would question that we actually do, because I don’t think we do.

There’s a lot of unknowns. This is moving faster than it’s ever moved, certainly since I’ve been alive, and I’ve been through a bunch of these technology shifts and changes over the years. This one, this is faster than anything I’ve ever seen. I think with change comes opportunity, and I’m just really excited, quite frankly, for what I don’t yet know.

John Stackhouse 00:23:40

A great answer. It makes me, Sid, think of what you and many others have done in quantum.

Sid Paquette 00:23:45

Right.

John Stackhouse 00:23:45

We don’t know what quantum is going to lead to-

Sid Paquette 00:23:46

No.

John Stackhouse 00:23:46

… but it’s leading to some pretty cool things.

Sid Paquette 00:23:48

It is.

John Stackhouse 00:23:48

And it’s getting better and better, and we, as you said earlier, have incredible strengths in Canada. So we need to continue to invest in those strengths, not really knowing where it’s going to take us. So I love that idea of being willing to bet on what you don’t know, because it excites you. Boris.

Boris Wertz 00:24:07

I’m really excited about what’s happening at the intersection of biology and AI. Everybody is obviously worried about, “Is AI replacing my job?” Let’s look at the upside, and the upside is that lots of the stuff that takes loved ones away way too early has a good chance of getting eradicated within the next decade, thanks to AI. So that’s where I’m personally super excited about, and hopefully, we’ll see some progress in the next little while there.

John Stackhouse 00:24:32

What a great note to end on. This is not the end of the world. It’s the beginning of some incredible things. We just don’t know it yet, and it’s all about discovery and investing in the people who can scale that discovery. Thank you both for doing so much of that over the years, doing that here in Canada, and thank you for being on Disruptors.

Sid Paquette 00:24:50

Yeah. Thanks for having us.

Boris Wertz 00:24:51

Thank you.

John Stackhouse 00:24:54

That was Boris Wertz of Version One Ventures and Sid Paquette of RBCx.

The takeaway is clear. Canada and our greatest companies need global investors, global customers, and global ambition. That doesn’t mean handing everything over to global players. What it does mean is that we need a stronger, globally minded scale-up system right here at home, more domestic growth capital, more sophisticated venture investors, more corporate customers willing to buy Canadian technology, and more conviction around the areas where we can truly lead.

For a broader look at the challenges and pathways forward, check out our show notes for a link to RBC’s Growth Project.

There, you’ll find a host of new ideas for the future of Canada’s economy. And if you want to hear more conversations like this, subscribe to Disruptors wherever you get your podcasts. And while you’re at it, please rate, review, and follow us on Apple or Spotify. That helps more people find conversations like the one you’ve heard today.

This is Disruptors, an RBC podcast. I’m John Stackhouse. Thanks for listening.