“Can this be huge?”

“Can this be huge?” That’s one of the key questions Panache Ventures’ partners ask as step one in evaluating a pitch deck. “We're looking for evidence of the potential for this company to be world-changing,” explains local partner Chris Neumann to Vancouver Tech Journal.

We recently caught up with Neumann to discuss his investing focus right now, how Panache is building relationships in Silicon Valley, and what entrepreneurs get wrong about VC.

With a $100 million war chest and partners in each major Canadian city, Panache has entrepreneurs constantly knocking on its door. In fact, Neumann says the firm reviews more than 3,000 companies a year, yet only invests in 18 to 20.

Notable B.C. startups in the Panache portfolio include Platformatic, Dooly, Certn, Big Whale Labs, and Impro. Whether you’re a founder who wants to add your company to that list or someone who’s curious about Neumann’s thoughts on Canadian VC – and how it needs to change – the following conversation is for you.

This interview, which is part of our new Founders’ Library series, was condensed and lightly edited for clarity.

VTJ: What are you and Panache focused on right now?

CN: Panache Ventures is a national, generalist, early-stage fund. What that means is that we are looking for the most ambitious founders in Canada. And in particular, we're looking to invest in companies that we believe have the potential to be multi-billion-dollar, world-changing companies.

Now, historically, in most markets, the majority of the companies that attain that status are founded in the U.S. We have to be reactive, to an extent, to the startups that are being founded here in Canada. We can't necessarily say, “Hey, we're going to look at this one vertical,” because it could turn out that over the course of a couple of years, the greatest companies in that vertical are founded in other countries. So instead, we take a look at literally every startup in Canada through this lens of, “Can they change the world?”

Now, over time, we see themes emerge. Right now we're seeing a lot of excitement around AI and adjacent technology. So we're seeing more companies in those areas. We're seeing a lot around climate tech, we're seeing a lot around drug discovery, and long-term health. And so that influences the density of startups we see.

But we're still looking at it through the lens of whether this company and these founders are going to change the world.

VTJ: What are the trends you’re seeing right now?

CN: If we look back to last year, we saw across Canada — and in particular, in Vancouver — a very high density of companies in and around the Web3 space. We saw a lot of founders pivoting into that. We saw a lot of technologies and infrastructure around that. That's shifted a little obviously with the change in the Web3 and crypto markets. Now, we're seeing a lot of companies in DevOps, in data engineering, in infrastructure management for large-scale computing projects, as well as tools and systems that are taking ideas like no-code one step further.

VTJ: What is the fastest path for a founder from hearing about Panache to actually getting in front of you, Chris? What does that journey typically look like?

CN: So the fastest path to a partner at Panache is to go to panache.vc/pitch-us and upload your pitch deck. We review 100 percent of the submissions as generalist investors from coast to coast. We are looking for founders from any background anywhere in Canada. That's the fastest way to get to us.

VTJ: Is that simplicity unique among VC firms?

CN: Historically, a lot of VCs do not respond to or do not filter cold inbound. Now, there are a lot of thoughts on that and issues both right and wrong. The reality is most VCs don't have the capacity to accurately and thoroughly review all of the inbound they get.

Founders are pitching from all over the place. And trying to get in front of VCs and trying to do their best to raise capital. We have built an infrastructure, both human and technological, that allows us to efficiently review literally thousands and thousands of submissions every single year, so that we can filter through that, and identify and meet with the founders that could potentially be a fit for our investment thesis.

VTJ: When you see a pitch deck, what are the good and bad signals?

CN: First, when it comes to reviewing submissions, the things we're looking for are: What industry are you in? What type of business is it? At what stage of business are you? A lot of submissions just simply aren't a fit for what we do as investors. They might be in industries that we don't invest in. They might be in geographies we don't invest in. We get a lot of submissions from outside of Canada.

They might be too late for us. They might be companies where we've already invested in someone in that space, or they might be businesses that aren't based on technology – they might be services businesses or consulting businesses. So a lot of what we do at our first level is filter out companies that are unequivocally not a fit for us.

I think one of the things that's important for founders to understand is that this is not a case where you're going to get a different answer by speaking to somebody. And a lot of founders incorrectly believe that, “Oh, if I just talk to them, they'll understand that I have a great business.”

We can often understand from looking at the pitch deck that you have a great business, but we can equally well understand that it's not a fit for us. And so the metaphor I often use for this is dating. You know, when we say no to founders, it doesn't necessarily mean that their business isn't a fantastic one, or that it isn't one that is important or impactful, or it couldn’t be incredibly wealth-generating for them. Oftentimes, it just means that it's not a match for what we invest in, and what we're looking for. Telling us that in person versus in a pitch deck isn't going to change that fact.

VTJ: Are there metrics that matter or don’t matter?

CN: The first thing to start off with is that a lot of founders mistakenly believe that gaining VC investment is akin to taking a test in school. If I get the correct answers, it will unlock the money. And oftentimes, you'll hear founders ask, “Well, what is the traction I need? What is the amount of revenue I need to get your investment?” But that's not the way we look at things.

We're looking for evidence of the potential for this company to be world-changing. And so there's a couple of things that we're looking for. Number one is, what is the hypothesis of the company? What's the market hypothesis? Here's a problem. We're going to solve that problem. This problem is important, impactful, and represents a large market. Traction is akin to evidence that the hypothesis is correct. So, it's not that it's $10 of traction or $2 of traction, or one user to 10 users – it's looking at the breadcrumbs of evidence, and looking at the hypothesis, and saying, “Okay, if I squint the right way – if I look at this early evidence correctly – does it support the hypothesis? And if I project outwards, can this be huge?”

VTJ: Besides the money you're giving a founder, how are you and Panache supporting entrepreneurs and their businesses?

CN: Panache is a firm that was founded and built by former entrepreneurs. We're mostly people who have founded businesses, we've raised venture capital ourselves, and we've been in the shoes of entrepreneurs. We know how difficult the journey is, and the fact that the deck is very much stacked against entrepreneurs.

We look at it from the lens of what we can do as a team to help founders get from their earliest stages to product market fit and beyond. And if they're doing really well – wildly profitable or at a stage where they're going to raise meaningful series A capital from an appropriate investor – at that point they graduate from us.

And so as a firm, what we're trying to do is help surround them with resources – be it people, be it education – to help increase the likelihood that they can reach those types of outcomes. And as they're preparing for fundraising, particularly looking towards Silicon Valley, helping to make those connections and helping to prepare them for the best potential outcome.

VTJ: How are you connecting Canadian founders to future funders?

CN: We are the only VC in Canada that runs a U.S.-based accelerator, Panache Academy (previously Commonwealth Ventures). One of the programs we run is one specifically to help prepare Canadian entrepreneurs to raise capital in Silicon Valley. All of the founders in Panache participate in that program about six months before they intend to fundraise.

We are also building the largest co-investor network in Canada. We're spending considerable time and resources in the U.S. and beyond helping promote the opportunity to invest in Canadian startups and helping build a very active network of pre-seed, seed, series A, and Series B investors, so that when our founders are ready to raise, we can make introductions to literally any VC in the world.

VTJ: I know you’ve been executing activities to build relationships with other investors in other markets. What have these looked like?

CN: We are hosting regular events in major cities across the U.S. to bring together investors who are interested in potentially funding Canadian startups with Canadian CEOs, and others in the ecosystem.

In May, we held an event for New York- and Boston-based VCs, co-sponsored by TELUS Ventures, BMO, and Fasken, with the involvement of Global Affairs Canada and the Consulate General of Canada in New York. The event was meant to help promote the interests of the Canadian tech ecosystem to investors in New York and the surrounding areas.

VTJ: What are the areas for growth in Canadian tech? What do founders need to do differently?

CN: I think one of the biggest positive changes that could happen in the Canadian tech landscape, and this is something I've written about before, is we desperately need more and more diverse sources of capital. In Canada, we don't have enough early-stage capital. But more significantly, we don't have enough people and firms distributing that capital. We don't have enough different viewpoints, in terms of who should get the capital.

One of the things that would make a massive, massive difference is to double or triple the number of VCs, even if they were small firms, who are able to look at companies through a lens and say, “Hey, this is amazing. This company deserves to be funded.” At Panache, we see more than 3,000 companies a year, and we only invest in about 18 to 20 companies. That means every year we're saying no to incredible entrepreneurs and incredible businesses, not for any reason other than we simply don't have the capacity. Part of the reason we are spending so much time and effort in the U.S., trying to attract U.S. investors to Canada, is to provide more sources of capital not only for the companies we invest in but also the ones that we’re not able to.

VTJ: What’s your outlook for the year ahead?

CN: I think the challenge right now is, there are certain things that have to happen. But the timing is unclear. So we know there are a lot of companies that are going to need to fundraise. You know, at one point we thought that was going to happen in fervour in Q4 – but it didn't happen. Then we thought, okay, that has to happen in Q1 – but it didn't happen. There was a report I saw the other day that tracks the average number of months before companies fundraise. And that number has only been going up. And you know, a lot of companies have been able to figure out a way to be cash-flow neutral, but a very large number of companies will have to raise capital at some point.

I would be shocked if that is not later this year. And so the question is going to be, what happens when that dam breaks?