Archive for the ‘Featured’ Category

Behind the Fintech Hype

Monday, July 4th, 2016

Fintech has been with us for years, starting with ATMs and then through online banking. But today’s fintech startups are doing more than ever before to reshape the financial services industry — changing the way consumers spend, save and invest through mobile and online applications.

To prevent becoming mere intermediaries in the financial services business, banks and other financial institutions are being forced to change how they interact with consumers, employees and their competition, to remain relevant in the modern day movement of money.

“We believe we are in the early innings of what will be a meaningful transformation across several elements of the financial services sector,” says Will Hutchins, director of Toronto-based capital funding solution company Espresso Capital. “We are seeing new companies emerge across Canada developing innovative solutions aimed at disrupting traditional business models and creating new ones.”

Yes, we’ve heard this before: That technology and startups will change our world. But how far with the fintech revolution take us?  To explore this, we’re delving into some common perceptions about the fintech industry — and the truths behind them.

YESIs fintech changing the way banks do business?

Banks have enormous resources, power, and customer data, but are only now marshalling their forces by creating spaces for technology to develop. We look at what how the power dynamic works.


Fintech story gauge MAYBE compressedWill blockchain revolutionize finance and contracts?

Blockchain is a secure distributed ledger that could change the way that valuable items are transferred. While the hype might be justified, it is not yet adopted and has, ironically, suffered recent hacking issues.


Fintech story gauge NO compressedWill fintech overturn financial institutions and regulations?

Even startups that have found a successful niche, or have scaled well, have to work within the regulatory environment and with existing players.


Investors still see big returns in fintech. Global investment in fintech ventures rose 75 per cent to $22.3 billion in 2015, and was up 67 per cent in the first quarter, reaching $5.3 billion.

With the right product, the right access to customers, and the right relationships with existing players, fintech has the potential to truly revolutionize the financial services sector.

If Banks Aren’t Absorbing Fintech Startup Products, They’re Investing in Them

Monday, July 4th, 2016


Q: Will fintech force the banks to change?


Be it blockchain or mobile loans, fintech innovation is happening, and the old guard needs to get on board or face falling behind. Traditional banks that embrace the technological and cultural change fintech is forcing on them are also more likely to see their business grow alongside it.

Some banks are getting the picture, learning the tools of the fintech trade by partnering with and investing in fintech startups and incubators instead of trying to build the technology starting from scratch.

Consider a recent move by CIBC to set up the “C-Suite” at MaRS in Toronto, a space physically separated from its corporate headquarters. The office has fewer regulations, giving developers breathing room to create new products for the bank, including its Apple Watch app.

Aayaz Pira, Senior Vice-President, CIBC Digital Retail & Business Banking, explains that the team focuses on client experience only. “It’s very important that we foster a test and learn environment.  While we enjoy great successes some projects never make it off that ground – and that’s OK.”

Others seek the expertise of startups through competitions such as “The Next Big Idea in Fintechby BMO and Ryerson University’s DMZ, or collaboration spaces hosted by Boston’s Workbar and Digital Credit Union, one of the largest credit unions in the U.S.

While the big banks are generally doing a good job of delivering the right product mix for the masses, “there are some areas for improvement,” says Sean Cooper, a consumer financial journalist. Cooper cites fintech firms such as online lender Grow and robo-advisor WealthSimple as having success to date in “filling the gaps” left by traditional banks.

Many banks are also choosing to invest directly in fintech players to gain market access. For example, Goldman Sachs is an investor in Boston-based Circle, an international money transfer app that converts between local currencies and Bitcoin, with a separate division in China. Other investors in Circle include Baidu and Beijing-based investment firm IDG Capital.

Forbes’ fintech expert Laura Shin says that if Circle successfully adds the renminbi as an available currency, it could tap into a potentially lucrative stream of Chinese students studying abroad.  

“We want to enable Chinese consumers to share value with anyone in the U.S., with anyone in Europe, and, through the blockchain, with anyone in the world instantly,” Circle chief executive Jeremy Allaire told Shin.

Because fintechs are still relatively new to the financial services world, especially in comparison to most financial institutions, the challenge for the banks will be partnering with and investing in startups that are expected to survive and thrive. It’s a tough call given the failure rate of startups. Of course, banks have proven to be not be too big to fail either.

See also

Will Blockchain Revolutionize The World of Financial Contracts?
Will Fintech Overturn Financial Institutions and Regulations?

Startups Must Pursue Partnerships within Finance and Work from Inside

Monday, July 4th, 2016

Fintech story gauge NO compressed
Q: Will fintech overturn financial institutions and regulations?


To stage a revolution in the banking industry, fintechs can’t go it alone.

These startups depend on existing structures and regulations to gain market access. That means fintech founders must mix their entrepreneurial drive with an ability to work within the rules. Only some are able to walk that tightrope, which often require a reliable relationship with established banks and other financial institutions to strike the right balance.

Founders starting out in fintech need to know that they’re entering an established market, and adjust their attitude, experts say.

“Fintech is really hard and the hubris I see in entrepreneurs and investors entering the space makes me worry that people have no idea what they’re getting into,” entrepreneur Savneet Singh wrote in a recent post on Medium.

Singh says fintech is hard to scale internationally and doesn’t respond to “regular” methods of growth hacking.

“It’s really hard to convince a random person to hand over their bank info, DOB [date of birth] and personal info. No matter how great the product is, that’s still a tough sell,” he says.

Banks are already leveraging their customer’s trust and data in creating new products to compete with fintechs. For instance, BMO’s SmartFolio, a digital advisor product, is fully integrated with its online banking system, an advantage that new startups can’t offer.

Even established startups are finding financial markets, and their regulations, to be challenging. Square is losing money according to its first quarterly report in March. And online processing service Dwolla was fined $100,000 for running afoul of data security regulations.

Given these issues, what does a fintech startup need to succeed?

Danish Yusuf, founder of Zensurance, a startup that offers pay-as-you-go insurance aimed at small businesses, says partnerships within existing structures is the way forward.

“Fintech is different from some other industries given the massive regulatory challenges,” says Yusuf. “Also, fintech startups love to claim that they are fighting the system and going against the existing powers. It makes for a great raison d’être.”

As a startup, find a quiet niche that doesn’t depend on existing financial infrastructure for customers, or find a way to work within the rules, not overturn them. Standing alone means you go nowhere – which is why so many startups partner with existing institutions.

See also

Will Fintech Force The Banks To Change?
Will Blockchain Revolutionize The World of Financial Contracts?

Blockchain Missing Some Pieces Before it Hits Mainstream

Monday, July 4th, 2016

Fintech story gauge MAYBE compressed

Q: Will the blockchain revolutionize the world of financial contracts?


If you’re not familiar with the blockchain, you will be soon. It has potential to fundamentally change the way transactions of value are carried out. The implications for traditional banking are enormous. The World Economic Forum forecasts that 10 per cent of global gross domestic product might be stored on the blockchain by 2027.

The blockchain differs from the traditional banking records in that all financial transaction data is contained in a distributed ledger. Here is how the chain works:

User makes a request from their device to the blockchain.

The blockchain decides in unison to grant the request.

The request is added as a fresh link in the blockchain.

All members are up-to-date and the request is on record.

Each record depends on the one before and is fixed.

The blockchain “makes it possible for the front office to interact directly with the ledger, simplifying reconciliations and the trade process more generally,” according to Accenture’s 2016 report Top 10 Challenges for Investment Banks 2016.

There are many early forays. Digital Asset Holdings is working to develop secure blockchain infrastructure for clearing funds and securities, while Nasdaq at the end of last year completed its first share trade with its own Linq ledger.

One of the most compelling use cases for blockchain is smart contracts, which are written in and enforced by code. Apple Music could be described as a smart contract. Singer-songwriter Imogen Heap has even released a single that can be purchased through the blockchain. Ether is a blockchain technology used in this way.

Non-financial use of blockchains

  • Insurance
  • Car rental
  • Voting
  • Identity documents
  • Record keeping

PwC gives a theoretical example of how smart contracts could be integrated with the blockchain: “Imagine a car insurance that is embedded in the car itself and changes the premium paid based on the driving habits of the owner… The car contract could also contact the nearest garages that have a contract with the insurance company in the event of an accident or a request for towing.”

This technology could seem superfluous as there are already existing systems in place. But as points out, smart contracts may be invaluable in places that do not have robust legal frameworks.

Of course, everything seems secure until it gets hacked. According to CoinDesk, in June 2016 $1.16 million (U.S.) of value was drained from the Ether blockchain into a new account. An unpatched security hole in a smart contract was to blame.

Several patches are being proposed, such as offering the attacker a bounty for the Ether’s return. But other fixes mess with the irrevocable nature of blockchain–the most extreme suggested is unravelling every single chain link one by one.

“While the agile approach of ‘ready, fire, aim’ generally works best with new software, it can be dangerous when $150 million gets loaded into the chamber,” explains blockchain expert David Seigel.

What impact this breach will have on the confidence around blockchain remains unclear. The response to the attack, and how to prevent one in the future, is still being analyzed. It does suggest that blockchain technology still has a few hurdles to overcome before becoming a regular and reliable piece of the financial system.

Developer Hotfix

See also

Will Fintech Force The Banks To Change?
Will Fintech Overturn Financial Institutions and Regulations?

Analytics4Life Takes The Stress Out Of Coronary Artery Disease Tests

Wednesday, June 8th, 2016

For a disease recognized as the most common global cause of death – 8.14 million worldwide in 2013 – coronary artery disease is extremely laborious to diagnose. A Canadian firm, Analytics4Life, is looking to cut out a large part of the labor involved – and the danger posed to patients – by leveraging data in new ways.

In a nuclear stress test, patients must exercise on a treadmill to measure blood flow after radioactive dye is injected. Physicians and hospital workers need to spend resources on managing radioactive nuclei. The test can take up to five hours and is only 75% accurate.

Analytics4Life, a startup based in Kingston, Ontario, is attempting to develop a much more straightforward method, using machine learning through neural networks and genetic analysis, with physiological information conventionally considered valueless.

“We’ve been able to demonstrate a very simple test that takes about three minutes to do where you don’t have to stress the patients,” says Shyam Ramchandani, co-founder and Director of Marketing and Business Development at A4L. “It’s just surface electrodes that go on patches on the body: seven of them. Three minutes later, they’re done, and then by the time their patches are off and their shirt’s on the result is on the doctor’s portal.”

Tech Portfolio Fact

This month, A4L is running its first machine learning tests with recruited patients already diagnosed with coronary artery disease, a condition where the vessels that supply oxygenated blood to the heart are obstructed by plaque; if the plaque builds up excessively and hardens, the condition leads to blood clots, angina and cardiac arrest.

After crunching what A4L calls “phase energy” data – which draws on a wide array of physiological signals – from the electrodes, and generating a formula based on the results, the company will then test blind on another selection of patients to see if their formula is an effective predictor.

“‘Phase energy’ is purely a mathematical concept,” explains Ramchandani. “There is no current physiological description of this. We will be the first to demonstrate this.”

The test itself can be administered from a “phase energy signal recorder”, an iPad Mini adapted with proprietary technology to connect to the electrode input. The recorder transfers the data to the cloud. The front-end software and the data processing lives on IBM Cloud, and important code infrastructure is hosted on IBM’s Bluemix platform.

This setup makes it all portable. “You technically can take our test anywhere you have a 3G signal,” says Ramchandani. “You wouldn’t have to fly people in from remote areas to a place that has a special camera.”

According to Ramchandani, IBM infrastructure is ideal for handling healthcare data. “We have an almost off-the-shelf HIPAA compliant tool. When you’re collecting medical information, you have to either de-identify it in a way that it can’t connect it back to the patient, or it needs to be hosted on and transmitted on infrastructure that’s been validated for security purposes.”

A4L completed series A funding last August for CA$10 million, and is hoping to complete series B at the beginning of 2017 to help it fund commercialization activity and a pivotal clinical trial.

Tech Portfolio Fact

That pivotal clinical trial will support their next key step: the FDA approval process. “If you can’t get through regulatory affairs in an efficient manner and get the kind of reimbursement you need, it’s not going to be a business,” Ramchandani says. The company has made senior level hires in order to facilitate interaction with the FDA.

Another option for A4L is expanding in Europe. (They will not start with Canada initially, because the market is too small.)

Although a price for the test hasn’t been set, A4L says that the overheads for its new system, once approved and functioning, are going to be astronomically less than the status quo. “We have no regulated nuclei that needs to be injected, purchased, or handled,” says Ramchandani. “You don’t need a specialized technician, or a specialized camera.”

And no more running on a treadmill, either.

For a free trial of IBM Bluemix click here.

Nudge VP on How Small Companies Offer Big Opportunities in Tech

Tuesday, June 7th, 2016

Andrea Corey credits a good program at Queen’s University, the small engineering company where she first worked, and some supportive peers for her success to date in the tech industry.

“The engineering department at Queen’s was a good supportive environment for me,” says Corey, who was among a minority of women in engineering class.

Andrea CoreyWhen it came time to leave school, Corey says there were a lot of big engineering companies recruiting, but she chose to join a small one, Toronto-based Ehvert Engineering. “When you’re in a small company, everyone does everything, projects get passed around and you get to try things that might be outside your job description … and that is a fertile learning space for someone just starting out.”

A couple years later, after a stint at MobileQ, she joined a new company called Eloqua, which was started by some of her former colleagues at Ehvert. Corey quickly moved up the ranks at Eloqua, always keeping one finger in the production side of the company because that was what kept her motivated: that ever-evolving world of technology.

“I like to be challenged, and I never want to stop learning,” Corey says.

Today, she is the vice president of product development at Toronto-based Nudge Software, a social selling cloud platform. Based on her years in the STEM industries, and climbing the ranks in tech firms, Corey has advice for others looking to advance their careers in the sector:

1. Think small.  Strongly consider joining a small company or a start-up. While this is not suitable for everyone, if it is a fit for you, you’ll be exposed to a lot more learning opportunities than you would be at a larger company where roles are more discrete and defined.

2. Don’t be intimidated.  Being the only woman in the room, or on a team, can be daunting. There will be small slights, whether intended or not. Try to understand a person’s true intent before assuming the worst. Try to build resilience by letting go of the small stuff, or finding humor in it. Of course, do act on any potentially serious offences by seeking out a person in a position of authority who can help.

3. Keep learning. Whether it’s a new piece of tech, a new language, or a new system, never stop learning. Even if the opportunity to take training is not formally available through your company, there are many great online courses you can take on your own time through platforms such as Coursera and Lynda, to name just two. Of course, you’ll get out of it what you put into it.

4. Strategic networking. When you meet someone you find impressive or inspirational, ask them how they learn, what blogs or books they read, what meet-ups they attend and who to follow on Twitter. Learn what they know to become better at what you do.

5. Go the extra mile. Stretch yourself by trying new things, even if you’re sure you can’t figure them out on your own. Volunteer to take on new projects or responsibilities that are important for your company. Work hard, and give it your best shot.

How Code Breaking Inspired Shopify Lead to a Dev Career

Wednesday, June 1st, 2016

Julie Haché, who leads Shopify’s on-boarding team, had a tougher time than most getting into a senior position with a billion-dollar tech company. That’s because “most” of the tech sector’s leaders are men.

“The biggest struggle was that I didn’t have female role models,” Haché explains, “I tried really hard to fit in, and almost to hide things about myself, be less girly. Starting out, it really affected my confidence, especially in smaller companies.”

Haché says she was always engaged at school, academically and socially, and started her university career in pre-med at the Université de Moncton, which she found to be a welcoming environment for a young woman. “I always liked computers, but didn’t think of it as a career. Then a friend of mine, who was a programmer, recommended a book to me called Cryptonomicon.”

Julie HacheShe read the book – about WWII code breakers – over the summer, and “decided to play around with her laptop and I managed to recompile my first kernel. That was the moment that I got hooked. I knew I needed to learn more about this whole world.” She transferred into the computer science program where she was the only woman in her year.

“It’s really only when I switched to computer science that I started questioning my gender as a thing. I’ve always been very confident in everything I did, with extremely good grades at school, but it was only when I got into programming that I really started doubting myself. When people are by default assuming you can’t do things, it’s not fair and it’s really hard.

Haché worked as a web developer at a few start-ups early on: 76Design, RealDecoy and UnSpace Interactive before joining the Bitmaker Labs in 2013. Bitmaker is where she saw the most change, and where she caught the bug for helping to develop others.

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She says the tech industry culture is changing, though slower than she would like.

“In the past year especially, I’m seeing a shift. There’s a lot more positive action in the programming communities trying to reach out to women, increasing awareness and communicating that they want women to be there.”

Haché says she’s at a point in her career where she thinks a lot about helping others achieve their goals, and that might mean going back to school to learn more about leadership in engineering.

“I’m glad I persisted and powered through this, and many years later, there are so many amazing women out there doing the same thing. These days, there’s a much larger sense of community, and I’m so glad to be a part of it.

“There’s still a lot of work to be done in terms of integration,” Julie says, smiling broadly as she talks about how she can contribute, “shifting the existing culture to not treat these people as outsiders is so important. As an industry, we’re missing out financially because of a lack of diversity.”

Progress for Women in Canada Doesn’t Show up in Tech

Wednesday, June 1st, 2016

“Most of the people making decisions about venture capital are still men,” Julie Steiner, CEO and founder of Percy3D explains. “As a result, I know many women in the startup tech industry here in Canada who have struggled to get venture capital.”

Steiner is one of the lucky ones. She has an angel investor for her personalized video start-up, and has not had to go the VC route.

Venture capital investments for Canadian companies hit a record high in the first quarter of 2016 according to the latest report by the Canadian Venture Capital & Private Equity Association, nearly doubling 2015’s Q1 numbers. Of 40 confirmed speakers at the industry association and advocacy group’s recent annual conference, less than 30 percent are women.

That is actually a high number compared to the number of venture capitalists who are women in Canada. According to a recent article in Canadian Business, less than 15 percent of venture capitalists in Canada are women. Meanwhile, women hold one-third of senior management positions overall in Canada.

In a country where the prime minister has made a concerted effort to equalize the genders in his cabinet and restructure government ministries to link innovation, science and economic development, the continued gender imbalance in tech stands out.

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The connection between the gender of the VC and the gender of the person looking for financial support is important, according to Dr. Diana Parry, an associate professor and campus lead for the University of Waterloo’s ‘HeForShe’ campaign. “Part of the problem is connected to unconscious biases, the biases that people bring to the table that they are unaware of.”

The ‘HeForShe’ campaign is a global initiative launched by UN women and seeks to engage males in the fight for gender equality on many fronts. In early 2015, University of Waterloo’s President Feridun Hamdullahpur accepted an invitation from the campaign to participate in their Impact 10x10x10 framework, a pilot project involving universities, governments and corporations.

“It’s sometimes just a matter of like investing in like,” says Cathy Connett, one of five women managing the Sofia Fund – an angel investment fund in the U.S. that aims to get more women investing in startups.

“One of our potential investors actually asked us how many of the companies we invested in before establishing the Sofia Fund were women-led. Out of curiosity, we went back and looked at the data and found that out of our 37 personal investments, 52 per cent were women-led. As private investors, the five of us had not purposely set out to invest in women-led companies, but we had, which supports that whole like-invests-in-like idea.”

It’s not just women who recognize the value of female leadership in tech.

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“I’ve worked with both female and male entrepreneurs, and in terms of skills and experience, there’s no differences between them. This level of entrepreneurs are driven, focused, visionaries,” says Mark Evans, a start-up marketing consultant with 20 years of experience in the industry.

“One of the realities of dealing with venture capitalists is that it’s all about the money. A lot of them want to nurture and support entrepreneurs, sure, but at the end of the day, they are investing to make a return for their investors. Whether you’re a man or a woman, that’s the way the game is played.”

“A lot of the time, it comes down to the fact that women aren’t asked ‘to play,’ in both the venture capital and angel investment worlds” says Connett, “you have to make an effort to reach out to women, and when you do, you see results.”

Evans says that change can’t come too soon. “Canada really needs to double-down on becoming an innovation-driven economy, we need more people at the table to drive growth, and that means we need to be pulling from the whole population rather than just half of it.”

Numbers Still Don’t Add Up for Women in Tech

Wednesday, June 1st, 2016

We’re leaning in as far as we can and the numbers still don’t add up.

More women are graduating from North American Universities with business and technology degrees than ever before, and yet when you look around at the industry, men continue to dominate from cubicle to boardroom to podium.

The male skew persists despite findings from multiple studies showing better financial performance among firms with more gender-equal C-suites. If any industry should respond to studies like these, it’s the data-driven tech sector.

But the shift is still not happening enough.

“Often times as a woman developer in the startup world, it can be lonely,” says Julie Haché, a long-time developer who currently leads Shopify’s onboarding team. “Starting out, it affected my confidence, especially in those smaller companies as a junior developer.”

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It’s been a few years since the hard data started coming out from companies like Facebook, Google and Dell that put actual numbers to the stereotype that the tech industry is still very much a boy’s club.

The number of women in the tech workforce still hovers around 30 per cent mark despite internal and external initiatives. That number gets even smaller when you look inside the boardroom, as the Korn/Ferry Institute did in 2013. They found that in the top 100 tech firms, only three women were CEOs, and only three chair the boards they are on.

Julie Steiner is one of those few female CEOs. She founded Percy3D, a video personalization platform that allows people to insert messages and photos directly into video.

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“I’m used to being the only girl in the room,” says Steiner, “I’m used to bringing my VP of Operations, who is a wonderful guy who is about 10 years older than me, to meetings and people immediately talking to him, assuming he is the boss.”

When Vubble’s co-founders made their first inquiries into the venture capital world, they found that same attitude and purposefully pushed away from it. Vubble is an Ontario start-up that curates video playlists for people, brands and organizations. “It’s a lot of middle-aged people with a lot of bravado, just based on my limited experience,” says co-founder Tessa Sproule,

“We didn’t spend much time in that space because it didn’t feel right for us. It felt like it was more of ‘How can you make the most money you can and then what’s your exit plan?’ Meanwhile, we wanted to build a sustainable company that provides value to customers. We didn’t match up.”

Step outside the office and that disparity is reflected at conferences and in schools and universities.

“Attracting more women to the STEM (Science, Technology, Engineering and Math) disciplines is key, and then keeping them there, keeping them engaged and excited is so important.” says Dr. Diana Parry, associate professor and campus lead for the University of Waterloo’s HeForShe campaign. “We need to put measures in place to ensure that diversity because it’s not happening naturally.”

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Dr. Parry cites a few reasons for the dearth of women in STEM, some that start as early as childhood with the parents’ influence, and some that don’t happen until a woman is in the workforce and finds herself alone, unsupported and without mentors.

A 2012 randomized, double-blind study cited in a Harvard Business Review report helps to reveal the challenge women in STEM face in the workplace. Researchers gave science faculty the application materials of a fictitious student randomly assigned a male or female name, “and found that both male and female faculty rated the male applicant as more competent and hirable than the woman with identical application materials.”

“It’s not just about bringing women into the space, it’s about working collectively,” Dr. Parry says. “Gender issues aren’t women’s issues, they are everybody’s issues. We need to engage men in the conversation as much as women. We need to open up the dialogue, review good gender equity, and highlight inclusive workplaces.”

Mohammed Asaduallah created the twitter account ‪@womenandcolor‪ to track that disparity, both for women and people of color in the tech industry at large. Every tweet from the account quantifies the reality of representation on panels and at conferences in Toronto.

“I started the account because I wasn’t seeing myself or the people I work with up on those stages at conferences,” says Asaduallah, a Product Manager & Digital Producer at “Diversity of voices makes a stronger company,” he says, an opinion repeated by many others in the tech industry.

“There is a lot of research to support the fact that the more diverse your company is, the more effective it is, the more productive it is, the more money it makes,” agrees Dr. Parry.

Studies on Gender Equality

A now famous study released by the Peterson Institute for International Economics, found that firms that started out with no female leaders had a 15 percent increase in revenue when they increased female representation by just 30 percent. The study surveyed 21,980 firms from 91 countries to conclude that hiring women into leadership positions improved both the performance of the company and the revenue taken in.

They aren’t the first to make such a claim. In 2015, the McKinsey Global Institute estimated that “a ‘best in region’ scenario in which all countries match the rate of improvement of the fastest-improving country in their region could add as much as $12 trillion, or 11 percent, in annual GDP in 2025.” 

Achieving that kind of parity in the industry has to start all the way back with parents, says Dr. Parry. “There’s a lot of research that demonstrates that around STEM that we don’t just need to change girls and young women’s perceptions, but also the parents perceptions because they have a huge influence in terms of what their daughters pursue in their academic careers.”

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Once that pipeline is delivering more women into the industry, it’s the responsibility of everyone, of every gender to make sure they feel welcome and that starts with role models and mentors, something Julie Haché has been thinking about more and more.

“I’ve been thinking about is going back into engineering more in a leadership role because I think we need more role models, there’s not enough women in leadership at all in technology.”

“The only conference I’ve been asked to speak at was BlogHer,” says Julie Stein, reflecting Mohammed Asaduallah’s real-time tracking of women asked to speak on panels and at conferences, something he encourages others to take notice of and change.

“Companies ignore us at their peril,” says Steiner of the lack of women in the tech industry, “It is a colossal waste of talent.”

Cockroaches Rise, Unicorns Fall as Venture Capital Plays Moneyball

Tuesday, May 3rd, 2016

Two straight quarters of declines in VC funding globally show how tech sector money has pulled away from growth-at-all-costs unicorns in favor of the slow-and-steady “cockroaches.”

Now that sobriety has set in, the tech world sees in hindsight how a nearly indestructible creature, able to live on dust, would be more attractive to investors than something that doesn’t exist – like profits among some of the most well-known tech plays of the past few years. Think Pinterest, Yelp, etc.

“We like businesses that are able to fuel their own growth,” said David Crow, a tech industry consultant and former OMERS Ventures Director. “The ones that are able to show strong unit economics, strong margins and strong customer growth.”


Leading the devaluation charge, Fidelity Investments wrote down unicorns including Dropbox and Cloudera, companies that had gorged on VC money for putting growth ahead of profitability.

To qualify as a unicorn, a private startup must have achieved $1 billion in pre-IPO funding. A cockroach, by contrast, is a business that builds slowly, focusing on the fundamentals, keeping a close eye on revenues and profits, and limiting spending on fixed assets so that it can withstand economic and competitive headwinds. Shopify, which took 11 years to get to unicorn status, is a classic example.

The pivot away from unicorns has been quick. According to KPMG, only 5 new VC-backed companies entered the unicorn club in the first quarter of this year – less than half that of any of the first three quarters in 2015. And not one VC-backed tech IPO made it to market. Aggregate VC activity fell to 1,829 deals, the lowest since Q2 2013. Total VC funding globally dropped 33 percent from a quarterly high of $39 billion in Q3 2015 to $25.5 billion in Q1 2016.

Sex in the Stairwells

Zenefits is emblematic of the trend. One of the fastest growing startups ever, the online insurance broker went from launch in 2013 to $583 million in funding and 500 employees by the beginning of 2015. By September that year head count had exploded to 1,600.  The story of its decline – the parties, the power struggles, the flawed products and processes, the lack of legal compliance, the lies told to clients, the sex in the stairwells – is just waiting to be turned into a Netflix series.

By February 2016, Fidelity had marked down Zenefits by nearly two-thirds below what it paid for its stake in the company less than a year earlier.

VCs are looking at startups with more  attention to business fundamentals than they did in the heady days of mid-2015. The difference between then and now is like the difference between New York Yankees owner George Steinbrenner and Oakland A’s manager Billy Beane.


In the late ‘90s, Steinbrenner had the financial clout to swing for the upper decks in pursuit of baseball’s biggest hitters. But the financially strapped Beane (whose story was the basis of the film Moneyball) focused on signing lesser players with one thing in common: a high on-base percentage. The crew he assembled went on to win 20 straight games in their first season together. In the 2016 game of startup investing,  investors are looking for Billy Beanes.

In the words of KPMG/CB Insights’ Venture Plus Q1 2016, it’s the startups with positive margins, controlled expenses and a clear path to profitability that will get the funding. In other words, well-grounded, like cockroaches.

Andrew Light, Managing Partner for the Americas at Melbourne-based VC firm EatonSquare, echoes the sentiment. “For us it always comes down to people on the management team. Have they done this before? Did they have success? Is the business solid enough to inspire the confidence of investors? For a lot of venture capitalists, taking on early-stage stuff is too risky because if it doesn’t turn out it damages their reputation and makes it harder to sell the next bet.”


So where does one find these low-lying, long-lasting diamonds in the rough? One place where cockroaches seem to congregate is the cybersecurity space. Network and enterprise security provider Paloalto Networks took 7 years to get to IPO, while threat forensics and malware protection firm FireEye took 10 years.

Managed security services provider Trustwave, which was just acquired by Singtel, was founded in 1995. Trustwave launched its first managed security product in 2002 and spent the next 13 years slowly building out a global infrastructure of operations centers while growing its customer base.

Up and comers to watch in this space include smartphone security firm Lookout and cloud-based network security service firm Cloudflare.


It’s no surprise that many cockroaches are innovating in the cyber security space as opposed to social sharing or other areas that aren’t obvious bets when it comes to monetization. Global spending on information security is expected to more than double to $170 billion by 2020 from $75 billion in 2015, according to estimates compiled by Forbes.

Companies innovating successfully on expensive problems that require solutions as a legal imperative will have more luck getting funded than those coming up with gimmicks.

As Flickr founder Caterina Fake warns in her widely shared article The Age of the Cockroach: Companies that want to outlast the coming funding crisis will need to “plan for a future without much money in it.”