Cleantech and Impact Venture Capitalist

"I really believe the market is more important to the success or failure of these things than the technology."

- Keith Gillard

Keith outlines what he looks for in a start-up

Talk Takeaways

Keith Gillard discussed his interesting journey from being a startup, raising funds, and into becoming a venture capitalist (upperstage.ventures) helping entrepreneurs take their companies to the next level.

One key takeaway from this discussion is the importance of understanding the market fit. Keith shared personal startup stories that are sure to inspire.

As the current chairman for Foresight CleanTech Accelerator Center, Keith also shared some of their programs to help find the best solution to an existing industry’s pain point.

About

Keith Gillard is the CEO of Upper Stage Ventures Ltd., a hybrid venture capital / private equity investment firm leading Canadian companies to success in international markets. He is an entrepreneur and venture capitalist who has focused his past two decades on cleantech and advanced materials start-ups. Mr. Gillard has provided leadership on the board of directors of dozens of companies, funds, and not-for-profit organizations. He is a proven fund-raiser, deal-maker, and business development matchmaker with an extensive international network, having close relationships with multinational organizations across North America, Asia, and Europe.

From 2010-2020, Mr. Gillard was General Partner of Pangaea Ventures Ltd., driving fund raising efforts for Pangaea Fund III and IV, quadrupling capital under management, more than tripling the number of strategic limited partners to 25, and attracting Pangaea’s first international family office and first financial institution as LPs. Mr. Gillard worked to generate and evaluate hundreds of new advanced materials opportunities, and led Pangaea’s investment efforts in food and agricultural technologies.

From 2006-2010, Mr. Gillard served as President of BASF Venture Capital America. He was responsible for the establishment of the Silicon Valley office, as well as a dozen direct and fund investments. From 2001-2006, Mr. Gillard was with Mitsubishi Corporation and responsible for venture investment and business development activities with a specific focus on cleantech. Prior to joining Mitsubishi, Mr. Gillard began his career in investment banking, structuring mergers and acquisitions as well as manufacturing technology joint ventures into China. For most of the ’90’s, he was a serial entrepreneur in software and media.

Mr. Gillard is chairman of the Foresight Cleantech Accelerator Centre, a director of Keela and the Canadian Venture Capital Association. He has served as chairman of Vestaron Corporation, and director of Hazel Technologies, NewLeaf Symbiotics, Advanced BioNutrition, Sciona, SDC Materials, and other companies. He served on the advisory boards of ARCH Venture Partners Fund VII, Chrysalix Energy Fund I and Fund II, and NGEN Fund I and Fund II. He is an advisor to the World Economic Forum on sustainability and collaborative innovation in chemicals and materials, speaking at Davos in January 2020. He is the co-author of “Inside the Minds: Energy Venture Capital Best Practices”. Outside of work, he is a high-energy father of three, a cyclist, and a twice-nominated Canadian Independent Music Award winner.

Canadian Independent Music Award winner.

The full #OPNAskAnAngel talk

Jeffery:
So, welcome everybody to OPN’s Asking Angel! And today we’re with Keith Gillard and very excited to have this discussion because we had a fantastic discussion a couple weeks back. So this is kind of that preemptive “Oh my god, we get to learn a lot more about how Keith invests and what’s going on with keith?” So keith, why don’t we just jump right into it? And you start us off by giving us a bit of a background on yourself, where you’ve come from, what are the great things you’ve been up to, and kind of where you’re moving to now because you’ve got some really exciting things in the hopper that we’re excited to hear about.

Keith:
Yeah thanks Jeffrey! I really appreciate getting invited to come on here and talk to you, and your viewers. So I’ve been a venture capitalist for 20 years now. Before that, I was an entrepreneur although I did begin my career in investment banking but don’t hold that against me. Within a couple of years I was making more from my side hustle than I was from the day job. So I went off and did that full-time entrepreneur thing for the whole of the 1990s, initially in music. And then in software, founded a video game company, went out and raised venture capital for that. Did another software company and then third one which is still around trading publicly, doing streaming audio and video, and digital rights management, and that was the age of napster. So it was a very relevant topic but out of that I was headhunted by Mitsubishi Corporation to start up and run their Canadian venture capital activities. And after the Dot Com collapse, suddenly software and media didn’t seem like such a great place to invest, so I was refocused on what we later came to call Cleantech. Clean energy, environmental technologies. I really didn’t know much about that stuff at all. I was thrown into the deep end but fortunately, it’s stuff that I’m really interested in and very passionate about, and I’m a decent learner. So I did that for five years and then became president of BASF venture capital America. BASF is the world’s largest chemical company. Moved down to California, opened up their office in Silicon Valley, and managed all of their direct and fund investments. One of which was Pangaea ventures, fund two, I became general partner of Pangaea a few years later. Raising funds three and then fund four, and seeing the deployment of the investments. There sitting on a few board of directors and that was really exciting. We accomplished a lot and really built something with pangaea. But this year, I had an idea for something new formed, a new firm called Upper Stage Ventures which is focused on a gap in the Canadian VCPE landscape, sort of a space, no man’s land in between the two that is vastly under serviced and where there are hundreds and hundreds, probably thousands of companies in need of of investment and managerial help. And so, this is something I’m very excited about.

Jeffery:
Amazing! And I’m gonna dig into all of those, but you have to share one thing about you that nobody will know.

Keith:
Well, I think you’ve probably already hinted about it there. I began- my what led me to venture capital was getting hit on the radio with my band, and then that led to people hiring me to produce their records which led to me forming a record label, and running a nightclub in Downtown Vancouver. And yeah so, it’s a path that doesn’t make sense when you just hear the one thing but actually all of these experiences led to the point where I was the guy that Mitsubishi Corporation thought was the right one to start up and run their Canadian VC activities.

Jeffery:
It’s pretty amazing! And kind of how all things just move along right and if you weren’t open to the opportunity, it would have just blown right by you. But it sounds like you were just writing your element. You were like, ”Yeah, you know what, I’m willing to try that.”

Keith:
Well, you know, I learned to interpret a certain type of fear in a very positive way over the course of my career. And I know that something is the right move if it scares the pants off of me. If it’s really scary and I think, “Can I really do this thing? I don’t know.” And there’s something about that feeling I may not know it. The moment I feel it but now, I say very quickly within days or perhaps even minutes now, when that feeling hits me I’m like, “Oh. Oh, this is that. I have to do this thing. This thing is going to make me grow and is going to lead me on to greater success.”

Jeffery:
It’s going to drive challenge, right?

Keith:
Yeah, exactly.

Jeffery:
And did you find that that’s kind of like that gut feeling, where you feel like you’re going to be sick because you can’t sort it out and you’re like ”Yeah, this is what I got to go for. it just- it feels wrong but I know it’s right.”

Keith:
Yep, exactly. Yeah I think that your subconscious tries to drive you away from that. Your subconscious is scared of failure, is scared of embarrassment, is scared of losing. I don’t know social status or whatever things will come with that. But the entrepreneur in me recognizes that only through risking those things and only through overcoming those things, can I grow in my career and as a person.

Jeffery:
Well, it drives your sixth sense or whatever that your gut tells you to go the opposite way from your comfort level. Your brain is always going to that comfort, “Wait, wait. Man, that’s too difficult. Let’s go over here and sit on the couch,” you know, that’s the- your mind is always trying to bring you to the safe zone and that’s good that you caught that, and went after because it sounds like it’s just driven this amazing career that you’ve had, and it’s led you up to today where you are, and I think this new venture, and I’m going to get into that because I’m excited to learn more and I’m sure the audiences as well. But I wanted to kind of step back to the beginning which was, you mentioned in your first startup that you raised funds and you went through that. Maybe you can give us a little bit of an idea of what that was like. What was the feeling like? This was back in the 90s when people were probably not even thinking about money and you were raising a million dollars which is probably worth a hundred million dollars today because of the way money’s shifted so much in for 30 years. So what was that feeling like? What was- what did you go through? Was it the same reception that you’ve had today in the environment or is it completely different? More open-minded now than it was then or how did what were the challenges you had?

Keith:
Yeah, there’s certainly a lot more people wanting to hear the story and consider investment now than there was then. But I think then, there was also a kind of both on behalf of myself and in the market there was a kind of naivete. A lot of stuff got funded just because people didn’t know any better and they wanted to see if it would work. I might compare it to the way that record companies would work in the 60s, they’re like, ”I don’t know if this stuff is any good but the kids seem to like it. Let’s try this out.” So a lot of really wild music got released in the 60s and 70s, and then that changed later when it became very much more systematic in the 80s and especially into the 90s, and you ended up with really the big sellers anyway are largely cookie cutter. Very safe by the numbers kind of things. I think we’ve seen an analogous evolution in venture. At the time, there were people out there, fewer of them, but still willing to take huge risks flyers on things that they didn’t really understand because the landscape was changing so quickly with the internet expanding, the home computers of course, is those two things are related to each other, and standalone gaming systems because this was a video game company. Entering people’s homes in a much faster way, much more ubiquitous way than they ever had before. There were just people that were like, “Well, this market is evolving very very quickly, there’s a lot of money being made. It’s growing quickly. I don’t understand it. I don’t have the time to understand it. I’m going to take a risk.” And we did end up in a situation where we had multiple suitors interested to provide the money to us and some of them are absolutely crazy stories. I got flown out to New York by a, well, a very famous person who now is deceased sadly, but I should still probably not mention his name. Flew me out to New York, put me up in one of his hotels which was terrible. This is the worst New York hotel I’ve ever stayed in, and then threatened to throw me out onto the street if I didn’t agree to his terms in our first face-to-face meeting.

Jeffery:
Wow.

Keith:
Fortunately, I brought a lawyer with me. Who this guy had he’s like, it’s like almost like he had baseball mitts on his hands were so big reached over to me, he says “Keith, I have a mansion just outside of town. You will not sleep on the street,”

Jeffery:
Like that’s the only hotel in the world or something you’re like, “Wait a second,” (Laughs)

Keith:
No, well I mean I was just, I was you know, I was bootstrapping this company. I knew it. I didn’t have a whole lot of money at the time. So but fortunately, I had been hooked up by a friend with this great lawyer who came along and saved my ass. But yeah I had a lot of really interesting experiences raising that money, but nevertheless was able to do it. Hired a team of I guess, we had about 25 people on our team and put out the- put out our game which still has a cult following which is weird but great. If we made something that was for a mid 90s the game and people still want to play it, wow! It’s really good.

Jeffery:
Yeah, oh that’s amazing! I love the story too because I’m sure today you know, people hear these- still hear stories of crazy things that people go through with investors. And I’ve heard a few, we’ve had a few happen to us, and certainly not to that extent but I can see that the back then it would have been a lot easier for investors to kind of stranglehold you into a position where they want to take you because there were fewer of them, and the lack of knowledge in the space was very minimal. So you really didn’t have a lot of people to go to. There wasn’t probably thousands of Angels and VCs that you were knocking on doors with. So they had a bit probably more of a monopoly in the space. You kind of had to work within the realms of what they gave you, so it’s good that you found people that were more compliant than what you were looking for versus the bully tactic of arm wrestling you through staying in my dump and then pulling it out from underneath you. But that’s crazy. Offline, I need to know who this person is because he’s famous so I gotta know who this is, but sounds like a pretty cool story. So you raised this funds and you deployed, you built a team in the gaming, in the software industry, even that industry has shifted dramatically. Like I’ve been playing games since the 90s and today, oh my god I’m playing “The Last of Us” right now, I’m not sure if you’re still heavy into gaming but it is sick compared to what I was playing with “Loose Change Louie” on my laptop or on my computer just tapping buttons, right? Like this is night and day difference, so how do you feel that the environment’s changed and is it something that interests you from an investment standpoint?

Keith:
A gaming.. well the environment’s changed a lot. I mean now I’ve got kids and you know, I see what they’re into and for them I would have to say it’s much more about the multiplayer online aspect of it, that social interaction aspect of it, then it is about anything else. For them even graphics are but I’m younger kids here, right? We’re not talking they’re that they’re playing you know, Call of Duty or Grand Theft Audio or Auto or whatever. They’re playing different kinds of games but what they really want to do is be on there with people that they know, and be interacting with friends in a different environment. We didn’t really have that option back in the day but certainly graphics continue to accelerate. Much better graphics we’re seeing all the time, and but I do think it’s that multiplayer aspect that’s the biggest difference as we’ve got faster and faster bandwidth, and we have decreased lag, it makes it possible to have those real-time experiences, interactions with people and that’s really cool.

Jeffery:
It is and I find that in the environment, there’s a couple of spaces that still don’t get a lot of love and attention from, and I think it’s because of the cost to manufacture it but it’s movies game and gaming are really a tough space for investors to get into and sink their teeth into..

Keith:
Yeah.

Jeffery:
..Because the outcome is I think a lesser of a roadmap to say the success is there. So they tend to just now, there’s a couple of big companies that run all of this and they don’t really look at angel investors for that. We tried to bring film in, we tried to bring games in and crickets, they just couldn’t get their- couldn’t get behind it. And I’m not sure if it’s because they don’t see the future potential or they feel that it’s just too large of a community to break into. I’m not sure what that is but I think there’s still a massive gap in that space for investing.

Keith:
Yeah I think I have a theory as to what it is. I think that it is because people don’t want to invest into things that they don’t understand, and they know that there are people out there that do understand it. And so if this company is still not funded, they ask the question “Well, if you’re so great, why hasn’t firm x invested in you? Firm x knows way more about the space than we do and firm x isn’t invested, so we probably shouldn’t either.”

Jeffery:
Well, due process. It’s gone to that stage that it’s very processed I guess. So the risk is being minimized as much as they can everywhere.

Keith:
In pretty much every space, the vast majority of investors are followers, they are not leaders. I’ve gone on the road with many of my portfolio companies, helping them raise, and so many times the meeting is “Oh, we love what you’re doing that’s great! We love the market, the CEO made a great impression. Yeah when you sign a term sheet let us know. We would like to consider participating.” Okay..but term sheets are not hard to write you know. You just use the standard NVCA one. Come on, there it is. It’s all packaged for you, just plug in a few numbers, and then we’ll have a talk but no, most people are not comfortable leading and I think it boils down to that issue that they don’t feel they understand the market or the technology as well as someone else out there does, and they’re hoping that that someone else out there is going to price the deal and leave room for them in a way that they will agree with. And well, there’s enough of these groups that clearly that strategy does work, deals get done. Syndication is hard, so I’m glad that there are companies like this out there that can pick up the last one, two, five million or whatever that’s left in a round but I do wish that they were more willing to take the lead.

Jeffery:
No, I agree with that. There is not a lot of them and even in the discussions, I have very few angels or VCs tend to want to lead. I think there’s also pressure on the business side as an Angel VC to manage the team and effort that goes into doing that deep dive. So a lot of them will say, “Because a lot of investors are part-time and their core business is totally something different. They just want to give back. So when it gets the VC stage different, they’re all in.” But I think you’re trying to manage time effort and resource, and if you’re having 10 on the books that you’re trying to manage, you’re trying to make sure that that next company you’re putting the right effort and time into, you might be reinvesting going in two or three rounds because you’re all in in that group. So I think there is a really good need for groups that just become money and only money. They’re not looking to do anything else where you know, these other vcs that are going to take the lead can just go and lean over and say “Hey, we’ve done all the due diligence, this is a great investment. You should come in. Done. Here’s my money. I’m investing this money on behalf of the other people that don’t know what’s going on,” but that’s great because that’s also needed. There’s a lot of loopholes or a lot of areas that aren’t tackled enough in this space and that’s one of them where you don’t have someone that’s just open-ended to funding and supporting these other funds that are leading the way. So I wholeheartedly appreciate that for sure. So now you kind of shifted through this and you- what I love about your whole background and everything you’ve done is that well, the whole thing is that you’ve just jumped through so many different variables in investing startups, entrepreneurship, to lending money, to being all of these facets, which means the learning is just exceptional that you can provide back to a group or to a company. And I love the fact that you were a GP in a fund. So you went from being a startup, raising funds, to selling a company, to then getting back into raising money, to push the money out to those people that you were once, and now you’re taking another version of it. So this is very exciting, well for me it is. I’ll make it really exciting so the rest of the audience will be like, “Yes, it’s exciting! I like this,” but I think that’s pretty cool. So maybe you can give us a little bit more on the GP side and what were the strategies? How did you look at companies? What was the thing that said, “I want this one this one and this one. no you’re terrible,” what got you interested in these companies? And what changed from when you were the one looking for money to now giving money out? How did you change that perspective?

Keith:
Okay. well, I mean when I was the one who was looking for the money, I was on the startup side, I was convinced that I had come up with my team, I don’t mean to claim that I did it all myself, but the we had come up with something that was utterly fantastic and that people were going to love. And we were kind of right because people actually still love it, so that’s great! And so but I went out there with this certainty and all the competition, and all the market studies, and everything like that forget about that stuff look at this. look what we’ve made. this is fantastic and it was all just about that it’s completely in this tight tight focus of of what it was that we were doing. When you’re running a fund, it’s different. You really have to be focused on the market and that’s been a key thing for me. I started on the corporate side with Mitsubishi initially and then BASF, so we were very focused on what were the corporate interests and those were driven by a combination of business unit interests with all sort of high level corporate long-term strategies. This meant that we were investing oftentimes in things that didn’t yet have a significant market but where there was anticipated that there would be one for example, Mitsubishi had a high level of interest and still does have a high level of interest in fuel cells and hydrogen.

Jeffery:
Okay.

Keith:
So, we did a lot of work in that space. No direct investments while I was there but we did do a lot of work on that. We did make a fund investment, focused on that space. I learned a lot about that but that’s a market that still hasn’t really taken off. It has its niche applications but as somebody said back in the day in the early 2000s, fuel cells are the energy of tomorrow and they always will be.

Jeffery:
That’s good. We’ve chatted with a few companies in that space and you’re right. There it seems to be maybe tomorrow, maybe tomorrow, maybe tomorrow, but you’re right they’re pushing. It’ll get there eventually, I suspect.

Keith:
But well, it works. It works beautifully. There’s no question about that and the cost has come down precipitously but you’re not in a static system. Batteries have made progress every single year and yes, it’s an incremental pros progress. It’s not a hockey stick but that incremental progress all adds up and when you’re also looking at renewable energy especially, I’m thinking of solar here, just plummeting in terms of cost. I combine that with of this progress on the storage side around cost,and fuel cells, and storing hydrogen starts to look less economically compelling. It has applications where you’re not going into where you’re not competing against that sort of installed renewable energy grid storage kind of play. You know, it works great in cars but we’ve made excellent progress on lithium-ion rechargeable batteries for vehicles, and you know, we all see electric vehicles in the road every day now. So those markets, they were going after harder and harder to get into where it does make sense is in CHP combined heat and power. So this is for like hot water combined with electrical generation in especially in multi-family installations like you could have in the boiler room of a large apartment building or hospital or any kind of large building like that, you could have a fuel cell system at the heart of it where it’s capturing its own heat. The Inefficiency is actually now giving you additional efficiency rather than being lost and it’s generating electricity and if it’s doing it from natural gas, it’s already being piped into the building, then you have very little infrastructure that needs to be done. It’s just installation of equipment, so that that can really work well.

Keith:
No, I love that and then there’s lots of a couple of other technologies that are coming out just even around say rigs and the way rigs run. Taking the heat from there, pumping it back in to the cabin so they can run all night like its own generator running, so it stores it up, feeds it back through in the loop so that that way you don’t have to burn gas or diesel or any other inefficiencies in this. So there are technologies that are layering off this which is really cool. I think like in that discussion though there was one thing that you mentioned is that you come from one side to the other side and maybe when you went in trying to raise funds, maybe you when you were first in your own company there was and I’m not sure what the right word would be but there was, “Hey man, look at us. We’re building something cool. You should be investing us,” so now you kind of flip the hat around and now you look at all the people that were you back then and you’re looking at them saying, “Yeah yeah, man. I was you once, I get it. Yes, you got the great company,” but is there something that kind of shifted from that? You kind of look at it and say, ”You know what, I can help you because I was there for one and two. You know, maybe you should approach it from this angle because I think it would be more approachable on my end to want to invest in you if you tinker it this way or change it this way,” are you- do you look and focus more on that now and feel that the gravitation to help because you went through all of this?

Keith:
Yeah in a big way. So I did that with Pangaea, of course. We developed an investment thesis. Pangea is focused on advanced materials so chemistry, material science, physical science stuff. That’s their niche and attracted a lot of especially corporate money for doing that. Pengea is the world leader in that space. One of the things that I learned from that though is that that kind of a technology driven investment mandate cuts across many markets and each one of us of course, can have great strength in one or maybe two a very few of those markets. We can’t know them all. Okay we’re all learning all the time, that’s fine. We continue to learn but that does put a technology focused mandate at a disadvantage versus someone who is focused on market because ultimately, I really believe the market is more important to the success of failure of these things than the technology. I know that companies do fail for technology reasons but never one of the ones that I’ve invested in. All the ones that I invested in, the technology worked. It was a market and you might argue that if it’s the market then really the fault lies with management, if the management can’t recognize or understand its own market then they’re not the right people to be leading that company.

Jeffery:
And was there a way for you to determine that though like I’m guessing because you’re giving them cash, you’re working with them, you’re seeing both sides of the equation from the investor to the entrepreneur. Are you guiding that ship? Are you saying, “Hey, I gotta be part of this board because these guys aren’t getting it. We’re not gonna lose this big investment,” is that things that you do or look at it that way or what’s your attack or approach?

Keith:
Yeah, absolutely. Sitting on the board is very very important. Not just for informational purposes but really to direct a company in the right way to keep it capital efficient, to keep it focused on the right market opportunity. It can be very distracting for a technology company whose technology can address many interesting compelling stories. Let’s not use the word market here because a lot of those stories that their technology could be the hero of those actually turn out to be small markets, and they can take up huge amounts of management’s time, resources from the team etc., and not have any significant payoff. It’s certainly not lead to a great exit for their shareholders. Focusing on the market from the very beginning, I think is critically important. And it’s one of the places where Canadian companies have been at a disadvantage. Canadian startup companies at least on that sort of cleantech side of things where I’ve spent most of my career, they tend to be very technology focused. They begin their origins in R&D, coming out of a university, or maybe a spin out of somewhere, or it could even be in somebody’s garage but essentially they start off as science projects, and then they work with the NRC or whomever, and they try to find out “Well, who could actually make money off of this really cool thing that we’ve developed?” So I- right after leaving pangaea, I was working with a friend’s company in the display materials space and this is a spin out that came out of UBC, and just like most of these technology focused companies essentially their pitch boiled down to “Look what we can do, isn’t this cool?” and yeah it is. It is cool but the real questions that you should be asking are “who cares? and why?.” So I went in with those questions in mind and looked at the markets in a very different way, saw that they did have three key technological advantages over the incumbent technology that they were competing against that could open up huge sections of the market that the incumbent technology could not address because it lacked in one, two, or all three of those areas. With that we were and this is not just supposition this is talking directly to the customers, partners, and suppliers in the- in that whole supply chain determined that we could take the incumbent’s one billion dollar per year market and turn it into a seven billion dollar per year market. This allowed us to reposition the company in a beautiful way. A great market-driven, data-driven story that saw it acquired within just a few months with a great transaction that did very well for the shareholders.

Jeffery:
Brilliant, it’s awesome. And I like the fact that you had the foresight to see and analyze the tech to figure out, is this something that fits in the market and can it actually overcome what everybody else is doing? But then also can this team actually carry this product forward? Because if the team can’t do it, then who cares if they have this great tech. It’s going to sit on the shelf and not go anywhere, and it’s not going to be a great investment. So that kudos for seeing that but I think the bigger one is the and you touched on it is that, it wouldn’t have been a good investment and the shareholders wouldn’t have got that value out of it, and as a vcu investor your whole target is making sure that your companies that you invest in have that return because the more return you bring back to those angels or those VCs, the more they’re going to continue investing, which means that they’ll continue to help and support this ecosystem. Which I think is the always a tough thing because if you see the one in 10 win or 1 in ten companies go on to be this unicorn, we tend to forget that there’s actually six or seven other companies that are really do grow and get sold, but everybody just wants a unicorn which blows my mind. It’s that the eight or nine companies, I’d rather have eight or nine companies be successful and sell than have one unicorn because I think at the end of the day, you’ve created jobs, you’ve created value, the ecosystem grows you those nine eight companies that actually were successful in selling. They probably had spin-offs, and you got to be involved in those. So you probably got to invest in six more companies, and the thing that’s what people don’t think about. They’re like “I just need the unicorns.” Well yeah, your unicorn’s great, but think of all the other opportunities you created with those other companies that were able to grow and spin off, and build and sell along the way. You actually are expanding your fleet and you’re expanding the opportunities that you get to present and build up for your investors, and I think this kind of just jumps us into that next stage of where you’re at now, which is this much of the right term you use if it was gray area but the area where the untouched investor side of things that you’re now building your next fund in. So I’d love for you to kind of share more about that because I’m excited for this because we have a lot of companies that get to a certain stage and I always call this the dead zone which is either you got to sell like crazy to get out of this, or you’re going to be you’re going to die on the vine here because there’s nowhere else to go. So maybe you can kind of give us a bird’s-eye view into what you guys are focusing on here.

Keith:
Sure. Yeah, we were really inspired by the experience that I just described for you, of identifying a completely different way to look at the market and position that company and we began to think that there are a lot of companies, and especially as we were in COVID lock down there in the spring. There’s a lot of Canadian companies we don’t even need to go through quarantine and hurt you to go and diligence in person. There are a lot of companies out there that do not have a whole lot of support from their investors because they have investor fatigue or whatever. They may not have the ambition or the vision to realize the value of, and this is the most important part here, the fact that they the only companies that are going to interest us are the stuff the companies that have really great products that can address really compelling international markets. So finding those companies that really seem to have something and yet, they’re not making the best use of it which may be because of their management, and maybe because their investors are not supporting them. We were originally thinking about maybe just buying one and running it ourselves, and doing the same kind of thing we had just done but as I looked at like 200 BC companies looking for this, I found this pattern over and over and over again. and I began to think you know, this is more than just a one shot. We could put together a fund for this now since then my thinking has evolved. I’ve been talking to a lot of people out there and a fund may not even be necessary because there is so much interest from high net worth individuals and from family offices and even some financial institutions I’ve talked to that are very interested in financing special purpose vehicles to invest in acquiring controlling positions in these companies, in the let’s say 5 to 25 million revenue range. So not yet attracting the big PE firms, and yet where they may not be venture appropriate, they may not even be venture friendly, and that’s key part of doing the the controlling position. you know, I did –

Jeffery:
Is that focusing on companies that fit in with like an ebitda of one and a half or two million? Is that kind of your target plus or you don’t care about that. You just want to have a set revenue 5 million to 25 million?

Keith:
I care less about the ebitda because we’re going to go in there and probably we’re going to change things. We are probably going to ramp up some spend-

Jeffery:
Yep.

Keith:
-on these companies because that’s a key part of this is refocusing that company on its best market opportunity. And I did a site visit with one company in the fintech space and this company have a very strong position in their market here in Canada. They’ve like a 30 percent market share in what they do which is great. They’ve got a great suite of products and the customers love it. But the CEO honestly said to me in the meeting “I’m not sure I have the ambition to go to the US market.” I was just amazed, “The US market’s like 10 times the Canadian market, why wouldn’t you go there?” “Oh it’s going to cost some more money,” “Well yeah, but you’ve got a great product your customers love it. You know, you should be maybe you’re only going to take 10 percent of the market there but 10 percent of the market there is still three times bigger than the market you’re accessing here. Come on you can quadruple your top line, even if you don’t have any growth in Canada. You should go for it.” This is money well spent, but yeah I encounter that kind of attitude a lot from founders who really just want to run a lifestyle business and don’t want to grow something that’s going to impact the world and improve quality of life for everybody or just improve things within the industry that they address. You know, I would I want to invest in companies that do both of those things.

Jeffery:
Agreed. No, that’s that’s fantastic and it kind of fits into the the model where a little bit nautic further upstream but one of the areas that we always found was what I call the “dead zone”, was that anywhere between a company that was worth 8 million and 15 million have a very tough time finding financing because the banks kind of will touch them but they will do it if they get some input from a VC or an Angel to come in and match funds. Depending on how well they’re doing but the other side is the VCs are like “Well, you’re too far down. You’re not hitting the revenue numbers we need. We want to make sure that you’re hitting you know, four or five million maybe more.” So there’s kind of this spot where they go out to market and they’re struggling to find cash and then as soon as they get to that next layer when you’re in that value of 15 and up, then all of a sudden the money starts to flow in there’s more VCs wanting to get in there, the risk has been reduced significantly, you’ve got a good trajectory. So you really got to work your way through that and angels don’t invest in companies over 10 million because the returns aren’t really there for them even though they are, technically. Because they’re going to get it to 100 or 200 million the angels their money is worth more value in that range of you know, 1 million to 10 million. So there is a gap and it sounds like you’re fitting in that gap and maybe a little bit further ahead too, but I think that that’s honestly, it’s fantastic. I’m going to have a million companies to send you and be like, “Hey, here’s all of our investments. Can you take them to the next level?” Because before they get to that series A, they’re going to need that a big push, right? To get them in there. So I think there’s a huge need for that.

Keith:
Terrific! I want to look at every one of those companies.

Jeffery:
Done! Sold! All right, we’re done here. This is good. I got it, with some homework to do. But that’s crazy. I love it. So you guys are now kicking this off, where is it working from? How does it work? Is there a way to apply? What do you got to do?

Keith:
Well, there’s a kind of stealth mode website but you can contact us through that it’s upperstage.ventures, you can also find me on Linkedin, or follow me on Twitter, all of these things are easy to do, but yeah. We are active in the Vancouver and Toronto areas. We’ve got team members in both of those places and we are talking to some people about opening up a Montreal office as well. We are- we’re getting close to closing transactions in both Vancouver and Toronto right now. we are probably not gonna get those done by the end of the year but I would expect in early quarter one, we’ll be making announcement and our website will start to look like something less stealthy as soon as we have a portfolio to start promoting. We’ll be doing that.

Jeffery:
Oh, that’ brilliant. And so the types of companies that you’re gonna focus on? Just so that that shapes my mind and the audience mind about who they’re gonna come after? What are you looking for?

Keith:
Well, we think there’s great opportunities in supply chain. So that can include physical stuff like manufacturing, food and agriculture, logistics etc., but also we’re looking at a lot of opportunities where software can really improve things in supply chain. So that can be things again in logistics, it can be things like blockchain, it can be it can be things for remote working, for the Fintech. There’s a wide range of things there. We just see that the pandemic has exposed great weaknesses in supply chain that can be addressed either through technology or just through better business practice and Canada’s got a lot of great technology here. Canada also is well trusted in the rest of the world and between my network and the network of the rest of my team, we are well positioned to take these companies out to the big markets either South of the border or overseas in either direction.

Jeffery:
Perfect. I’m going to get you on autodial. You don’t know how excited I am right now, this is huge. Yeah, all the companies that we’re investing in who are going to invest in. I think there’s a huge potential for layers, right? We have other VCs and angel groups that we work with, so that as we get that work with those companies to kind of get to that next stage, there’s always who can we start to get bring them in, focus in, and help them get to a better level and and work that business model. So very exciting what you guys are doing so-

Keith:
Thank you!

Jeffery:
That’s upstage.ventures. I’mma-

Keith:
Upper stage.

Jeffery:
Upper stage. I even wrote that down. I don’t know I just said upstage, that’s crazy but upperstage.ventures. I love it. All right, so now we’re gonna move quickly into our rapid fire questions because I think if I don’t, you and I might be talking for another three hours, and it’ll be great but that’ll be a long watch. So let’s we’ll jump right into these questions. All right. What’s your favorite part of investing?

Keith:
The people. I- the my favorite part of investing is the people. I just love the fascinating and sometimes crazy people that you meet.

Jeffery:
I like it. I second that. How many companies do you invest in per year?

Keith:
Well, we’re just getting started but we expect upper stage is going to be doing about four deals per year. Let’s say three to six.

Jeffery:
Three to six, okay. That’s good that increases our odds. I like that, all right. Any- we talked about the verticals but quickly. But the verticals you want to focus on maybe two or three of them that you can really shape in for everybody.

Keith:
So our investment mandate our thesis is focused around supply chain. So let’s break that down into manufacturing, food and agriculture, and software for supply chain.

Jeffery:
Perfect! In your due diligence, is there any strict requirements that you need to see in order to move forward with a company?

Keith:
In due diligence, I would say my strictest requirement and where I have a special focus is on the team and the culture. I want to see that these are people that work well together. I want to understand the weaknesses that they do have, so that we can augment those deals, complement any weaknesses that are there. So a focus a deep dive on culture is something that I make a high priority every single time.

Jeffery:
I like that. Timeline for an investment?

Keith:
A timeline for investing from first meeting to closing. I think we should be in the four to six month range where it gives us a couple of months to do some diligence to get to a point where we agree on terms and then a couple of months to close.

Jeffery:
Okay, do you have a minimum, maximum that you look to invest?

Keith:
We do not have a set minimum or maximum but given that we are acquiring controlling positions in companies with five to 25 million in revenue, it does suggest a range if we were to buy somewhere between 51 and 100 percent of the shares in these companies, you would expect that the smallest deal we would do would be somewhere in the 5 million range, and the largest deal we would do might be somewhere in the 50 million range at this point.

Jeffery:
Okay. Love it. Getting more excited every time. This is good. I’m gonna keep asking questions. Outside of dd material, what other factors do you look at you mentioned the team but is there other things that you really want to make sure are a big home run for you guys? And how are you going to help them?

Keith:
The big factor we look at besides the team is the one I spoke about earlier and that is market. I want to understand the big international market opportunity of the company and unfortunately, the company itself may not understand that properly and usually doesn’t. So this is some place where we have to do a lot of work and fortunately, we have a great team. People that really understand the kinds of markets we’re addressing and we have a great network of people that we can just pick up a phone or get on a zoom call with, and get a good understanding of where a company’s products could make a bigger impact than where they currently are focused.

Jeffery:
I like that, that’s great. Obviously, you like to lead rounds because you’re going in as a pole position into the company, which is fantastic. Do you have preferred terms that you look for?

Keith:
We do like to lead. We don’t have a problem with syndicating a deal and in fact we’re considering that with one of the deals we’re working on right now. We do have some really interesting value added investors that want to take minority positions and that could allow us to play for a bit bigger company, and still have the kind of controlling stake that we would prefer to have. Special terms, our terms I think are pretty standard with- within private equity and venture capital. If we are buying out only part of somebody’s position, so that they can continue to have upside, we would put any additional capital into the company in a preferred share structure to give ourselves the extra protections or rights that we may need. When I structure terms I really try to make it a win-win between ourselves and the management and any future management that we need to recruit and retrain. Sorry, retain in the company that’s critically important that the teams feel very motivated. Working on a company right now where there was no ESOP, no employee stock option plan. The team had nothing along those lines and when I brought up the topic that this is something we would be putting in place there was depending on the person you talked to a lot of excitement or a lot of confusion, and I suspect a lot of people when they realize that this is something that does happen commonly. There was maybe some bad feelings that they hadn’t been treated this way by the previous owners of their company.

Jeffery:
Yeah, I could put a bad taste in why didn’t we get this and I agree, yep. Well you know what, onwards and upwards, it’s the way to make the business stronger and build your employees in to be stronger and more adaptable inside the company right?

Keith:
Yeah.

Jeffery:
You take, you guys do follow on investments?

Keith:
You have to consider to do pro follow-on investments, if you don’t do follow-on investments in this industry you have a target. Not just on your back but just paint it over your entire self, you’re gonna lose every cent if you are not willing to do follow-on investments because sooner or later every company gets into a spot of trouble, and there’s a good chance that they will need more capital when they’re in that troubled time, and somebody will come along, and see the weakness. And they’re only doing their own fiduciary duty because they got LPS that they’re reporting to they gotta make the most of for their LP’s money it doesn’t make them evil. It’s just the way the game is played and they got to do the best they can to make money for their people. So they’re going to come in, see that there’s weakness and they’re going to recap the company. They’re going to you know, anybody who doesn’t participate is washed out to common, sometimes crammed down 10 preferred shares become one common share. I have done that to people. I’ve had that done to me. It’s not fun either way honestly, but it saves companies. It gets them through the- these troubled times that they’re in and through hopefully to great exits, but if you don’t do your follow-on investment, you will be the fund that gets crammed down, and then you’re going to return zero dollars to your LP’s. You have to plan to do follow-ons

Jeffery:
And you can’t always look for that next shiny penny without supporting the existing and you know, there was a lot said when the pandemic started. They had a lot of fun, slowed down and said, “Hey, you know what, I got to look at what I’ve got going on right now. I don’t want to lose all my investments so we’re not going to be investing at the moment.” And you know it’s hard to fathom or understand that, but it is. It makes a big difference. You’ve got to be able to protect what you have and help them grow too, right?

Keith:
Yes.

Jeffery:
All right. Last question: do you take board seats? I’m going to guess yes. (Laughs)

Keith:
Yes, yeah. I think taking a board seat is very important if you’re making a major investment, and in the case of upper stage ventures, we are taking majority investment positions. So not only do we take a board seat but also we’ll be critically involved with finding independent board members to really add value and steer that company in the right direction.

Jeffery:
I love it.

Keith:
If you can’t have a board seat, you- yeah, but it’s something that you want. You can be almost as influential as a board observer. There’s no rule that says a board observer must be a silent observer. A board observer can argue just as strongly for a position and as a board member, and can help to direct a company. So I have had observer positions in the past, where I know I was more influential than most of the directors.

Jeffery:
I believe that I love it. I actually on a side note you know, I’m looking for a boar- someone to come in on a board seat for a Fintech company, so I’m just throwing that out there right now. So you have anybody in mind please let me know. On it, all right. I love it. We’ll carry that on to the side conversation but sounds like we might have to have a few of them, but all right so there’s really two more questions I have. I learned in my listening to one of the companies we were working with, to be more on the personal side because I always get excited about the business side. I really got to dive more into this personal side of things to make it more humanized, so in the last few interviews I’ve really dived into it. I actually find it, well it’s different for me so it’s more fun to do it, I guess after I feel less anxiety about him like, “Okay, it’s okay these questions weren’t that hard.” but before I ask those two questions there’s one last one, and this question is, we’re more referring to some companies that you’ve worked with in the past that you’ve got this heartfelt story, and you shared one about your investing which I thought was great. So kind of like that where you couldn’t believe that this happened but this company pulled the cat out of the bag. They were successful or they weren’t successful, and they failed but there was a lot of learning. Just looking for some story that comes to mind that just blew your mind that you thought wow this is incredible or this was terrible and became incredible for a founder or for a company. Just love to hear any stories that you have that are kind of more strings heart, pulled string you know that old saying, if there is any that pop in mind.

Keith:
Okay, said heart strings. (Laughs) One of one of my companies is a company called Vesteron based in, Michigan and Research Triangle Park North Carolina, and they have an amazing suite of products that are bio-derived pesticides that are very effective at killing insects that attack crops but they have no measurable effects, no toxic effects against any non-target organism. So humans,mammals, birds, fish, even bees, not affected great but caterpillars and beetles that attack the crops, great. Wonderful technology, wonderful team, really lovely CEO, who couldn’t raise money at all, and I went on the road with him to raise money which was a great experience. He, like me also a musician so we had a lot of things to talk about personally, a really lovely gentle guy, a real inspiring leader who brings out the best in his people but not a great aggressive deal maker. So he brought me out to help on that side of things. Well one Sunday morning, I got an unexpected phone call and John had died in his sleep. He was only 69. It was there was no real sign that this would happen and so I rushed out on an airplane to Kalamazoo. The only time I’ve had to drive through lake effect snow driving in from Chicago. Oh my gosh. That’s really terrifying. And I got there and I found a company in absolute mourning. I found people openly crying out in the public areas of the building. Not just in the bathroom or in their cubicle or whatever. But we managed to bring that company through that, we didn’t lose a single employee, and we brought on board, absolute killer of a CEO, Anna Rath, she is one of the smartest people I’ve ever met in my life. And she took that company and like the stories I told earlier, she took a technology oriented R&D company, although it was commercial with a few products still essentially an R&D company, and she transformed it into a commercial company that is changing the game in commercial pesticides altogether. They’ve won so many awards now under her leadership. They have- they’ve managed to get regulatory recognition of new molecules, these bio derived molecules for the first time a novel class of pesticide has been awarded this for well, since the 1990s. It’s a very rare and valuable thing but she was able to take what this wonderful gentle giant of a man was able to bring out, inspire out of his amazing R&D people, and she was able to take all of that, and take it not just to the next level but take it worldwide to it’s going to transform the industry. And so, that’s really what I love to see, is great people that can take this- take these technologies to markets that really need them and I think Vestaron is an excellent example of that.

Jeffery:
Well, that was you really did hit the heartstrings on that one, but that was a great transformation. I think that that story well I’m gonna say that’s the best story we’ve had so far because it really did really did come full circle. Right, you didn’t expect that and then you didn’t expect the outcome and it’s fantastic you guys were able to jump in there and help out, and help that company get back on its feet and move through it. So kudos amazing story. Yeah, I love it. That was great. That was more of the heartfelt one. So, all right. So now we’re gonna go into the personal question ones because I’m stuck on I don’t know what to say other than it was a great story. So but on the personal side questions, so question one what’s your favorite sports team?

Keith:
Oh my god right now, the sports event that I’m watching my sports team would have to be the US Democrats. That’s the sports event I’m watching right now but by the time you’re going to broadcast that that joke may not land. Yesterday was the american election for those of you who don’t understand what I’m referring to. Outside of that I’m afraid I’m not really a sports guy. You want to ask me about bands, yeah that kind of thing.

Jeffery:
All right, your favorite band. What’s your favorite band then?

Keith:
Well, I am a huge fan of New Order. Yeah right from joy division, from their rock, and punk days through to their dance music transformation and the most recent stuff. I’m a big fan.

Jeffery:
Oh, that’s awesome! I can’t say I’m a huge fan but I’m a fan but maybe now, I’m gonna have to pull that out again. I’m gonna say pull the album out but I don’t really have an album player, so I would say, I’ll pull it out online. Yeah I don’t have a final but I’m sure my buddy does but that’s pretty cool. All right favorite movie?

Keith:
Favorite movie..oh, so there’s a, this is a really weird obscure one, an Iranian film that’s called “Children of God” or “Children of Heaven”. I think there might be two translations but it’s just absolutely a beautiful film about a brother and sister who have to share a single pair of shoes and it’s funny but very touching, and gives you a real eye-opening look of what life was like for poor people in Tehran in the 1990s. It’s a beautiful film.

Jeffery:
It’s got a bit of a cult following to it.

Keith:
Yeah, it does. I mean it won a bunch of awards.

Jeffery:
Yeah.

Keith:
It’s a remarkable film.

Jeffery:
Yeah, I’m familiar with the film. I’m a big fan, so what character would you play in that film?

Keith:
Oh well, I’d like to be the little boy but yeah I don’t think I could get that role anymore. I guess I have to play the dad.

Jeffery:
All right, fair enough. Yeah no, it’s because you’ve come with a different style of movie. Most come up with more famous movies, and then you pick the character they would fit you’re like what represents you the best in that film. So a little bit tougher in that.

Keith:
Well yeah, so I mean it was the Marvel Universe, my daughter says that I’m like the Captain of America. So..

Jeffery:
Done. I like that one Captain America. Done. Well, I think that Keith, is fantastic chatting with you. We’ve kind of gone over our time but man it was exciting I think there was a ton of learning. Very excited about all the different things that you’ve done, and what you’ve accomplished, and what you’re doing next. I think there’s a lot of learning here and hopefully, the audience will see the same thing when they get to see it and hear it. But I appreciate all of your time and want to thank you again. But one last thing that we do is, we want to give you the last word. So if there’s anything you want to share with investors, or entrepreneurs, any words of advice. I’m sure they’d love to hear it. So I leave you with the last word and thank you again for joining us.

Keith:
Well, that’s great Jeffrey, thanks very much. The last thing I fit in there is one that we didn’t get to one of my other hats is as Chairman of the Foresight Cleantech Accelerator Center. It’s Canada’s largest cleantech exclusively focused accelerator and we just celebrated our 500th client company to go through our programs. We’ve got a great suite of programs and we are working with companies all across Canada. Increasingly working with companies going further East into Canada and we, in addition to things like mentorship and that, we offer these challenge programs which are like mini x prizes that are industry sponsored efforts to solve a particular commercial need. We look to start-up companies to try to provide the best solution to an existing industrial pain point and those companies that win not only get the prize but they get a great customer as well.

Jeffery:
That’s brilliant! Well that’s a good way to end it. And I’m glad you’re able to touch on that because you’re right, we didn’t get a moment to speak to that but again huge fan of all the great things you’ve done in the ecosystem. Keep up the great work and I look forward to chatting with you more about all this. But Keith it’s been fantastic and I take lots of notes, so it doesn’t look like I’m reading a novel underneath here but a big fan and thanks again for taking the time.

Keith:
Fantastic. Okay thanks, Jeffrey!

Jeffery:
You bet. Have an awesome day!

Keith:
Cheers!

Jeffery:
Well, that was incredible huge man lots of great stuff. Keith’s done a lot of great things in this day coming from musician, to investor, to raising money. Absolutely incredible, so there was a lot of things he touched on but I think the main one that he really did want to emphasize which was pretty incredible was you know, what focus on the team. Focus on the execution and then the market. Making sure that that company fits in the right market, that makes a big difference on where that company’s gonna go. I love the fact that they’re creating in that one area that’s not being the dead zone of investing that they’re coming into that. It’s fantastic. I think that’s gonna make a big difference in the ecosystem for investing and you know, what the team and the culture I think really hit home for me. I really enjoyed hearing that they put a lot of emphasis on that and of course, learning about the likes and that he plays music and a big fan of some culture films. That’s also pretty cool. So yeah, what more can I say other than it was a great discussion and I’m looking over my notes trying to think of what other cool things I can say, but being from Cleantech and now working at upper stage ventures. I think they’ve done some great things. So Keith thanks again. You did a fantastic job and thank you everybody for joining in. Have a great week!

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