Investor Brice Scheschuk on spotting gems in early-stage tech today
Finding winners is harder, says managing partner of family office Globalive Capital, and the recovery won't be quick
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If you don’t recognize the name of one of the top investors in early-stage Canadian technology, the company he helped found likely will ring a bell.
Wind Mobile was the upstart cellular provider launched in 2009 to offer Canadians competition to the big telecoms. And you can count Brice Scheschuk, managing partner of Globalive Capital Inc. in Toronto, among its founders. Wind, of course, was eventually sold to Shaw Communications for $1.6 billion in 2016.
Since then, Scheschuk has continued to invest through Globalive — a family office — in early-stage, private tech companies. He recently spoke with Canadian Family Offices about the current state and future of technology as an investment.
How would you describe Globalive’s approach to investing?
We are not venture capitalists. We sold Wind in 2016, a liquidity event that allowed us to build the family office platform, but we do things differently than most family offices.
First, we looked at alternative assets and said, ‘We like venture and tech because we think we’re entering a golden age of innovation.’ Our focus is less risky than a typical VC. We’re patient, looking for doubles and triples — not home runs. That said, we are also invested in 50 VC funds, so we have a great lens into that space.
What has been the impact of higher interest rates?
If you look at the pandemic, government stimulative policy was the largest we’ve seen in history. Everything started to go a little nutty, from the SPAC boom to investors allocating to VCs more readily. Silicon Valley Bank (SVB) benefited from this environment. Its deposit base smashed upward, and it had a direct line to tech with VC-funded startups putting deposits with SVB.
Then, in one year, you go from zero per cent up 450-odd basis points. Historically, there is nothing wrong with the current interest rate level today. But it’s the shock of the increases relative to the reference point of the last 15 years, which was zero, and everyone had built businesses on that reference point.
It was a cocktail for disaster, and SVB is an early casualty.
What has been the impact on VCs in this sector?
Many VCs are worried about their next raise of capital. Consider their model: their customers are founders, but their shareholders are their limited partners (LPs). The game has changed for these investors, often pensions and endowment funds. They are much more cautious today about allocating capital.
The big brand name VCs will carry on, but there will be questions, given what’s gone on. Consider that Sequoia Capital, one of the biggest, has the black mark of [the cryptocurrency exchange] FTX. They were very prominent in fundraising for and idolized the founder, Sam Bankman-Fried. Then, FTX blows up about as completely as something can, and Sequoia was supposed to be among the adults in the room.
What is the state of the tech sector today after the fallout?
Expect more bankruptcies. There is a big fight ahead to survive, but we will come out the other end with people smarter when allocating capital to early-stage tech.
The founders that survive will also be stronger and smarter. The recalibration will be long. It’s not like a month from now every company that shouldn’t exist will be gone, and we’re back to growth. No, this is likely a multi-year recalibration.
We love capital-efficient software companies. They’re not solving quantum computing problems, they are just adding revenue and customers.
Brice Scheschuk
We are coming out of what was truly a bubble. Even now, there is still froth in certain sectors.
What are the ‘froth’ areas?
The obvious one is AI and machine learning, particularly the large language models like ChatGPT. You can see a lot of frothy behaviour with large funding rounds and big valuations. It is a big land grab by institutional investors trying to stake early positions – an arms race in many ways, which we want no part of.
On the other side is the anti-hype cycle. Crypto has taken a huge hit, so has anything to do with the metaverse. Then you have the rest: software companies, health care tech, and some deep tech that is many years from revenue. These are out of favour, but some are potentially viable. In fact, the best companies are formed in these down periods because they find success solving problems that their customers are willing to pay for.
What are the opportunities for family offices today?
The psychology in a crisis is you want to pull back and be cautious, and there is merit in that. But you always need a Warren Buffett quote in these discussions, right? ‘Be fearful when others are greedy, and be greedy when others are fearful.’ It applies today. There are opportunities.
So, we like software companies that are efficient allocators of capital. You also hear terms like ‘broken cap table’ or ‘broken business.’ The latter, you don’t want to touch. But the former means a company has probably over-raised, put debt on when it shouldn’t have, and it has hit a funding wall. In those cases, there is an opportunity for an investor like us to clean it up, work with the founders and find success.
Which tech companies do you like today?
One is Xanadu Quantum Technologies, in quantum computing, and the other is Kepler Communications, in satellite communications. These are deep-tech, moon-shot companies.
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But we also love capital-efficient software companies. They’re not solving quantum computing problems, they are just adding revenue and customers. Canadian firms, for example, in restaurant tech or gym-tech. These include MeazureUp, providing audit software for retailers/restaurants, and WellnessLiving, offering virtual tools for fitness/yoga studios and wellness centres.
What other advice can you offer family offices interested in this space?
If you’re a Buffett disciple, rule one is don’t lose your capital, and rule two is remember rule one. But in venture you’re going to lose some capital. If you aren’t, you’re not taking the right risks.
I believe every family office should have an allocation to it but in a way that makes sense for them. What’s important is you’re not losing capital across your portfolio on a net basis over time.
On the net, a few great companies will provide game-changing returns to far outweigh the losses. Good VCs think that way, and family offices should, too.
Responses have been lightly edited for clarity and length.
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