5-Bullet Friday Launch – January 4th Weekly Recap

Since I have not written a post in a while, I decided to change my writing style slightly to share more frequently some of the things that I come across and find interesting. I was also inspired by Tim Ferris’ 5-Bullet Friday newsletter. For those of you who do not know him, I highly recommend his blog and podcast. Here are some of the news that have caught my attention this week:

  1. Canada’s economy in the midst of an identity crisis?  
  2. The 3-D printing hype is gone.
  3. Large auto manufacturers are betting big on the future of self-driving cars.
  4. A crisis of capital in Canada: workers need more tools and equipment.
  5. An old venture capital belief is exposed.

1- Canada’s economy in the midst of an identity crisis?  Canada’s economy is expected to continue to struggle in 2016. The current economic malaise is exposing a much larger problem. “In the 2000s Canada was the commodity producer to the U.S. In the 90s, Canada was the manufacturer to the U.S. Today, Canada’s identity is unclear.”- Senior economist at Bank of America Merrill Lynch. Forecasters in a Bloomberg survey are calling for a 1.8% expansion this year, after 1.2% in 2015. This means Canada could potentially face – for the 3rd time only – back-to-back years of sub-2 percent growth since the end of World War II. If our buoyant residential real estate sector slows down, the country will be facing an even more significant challenge. More investment in technology and productivity is required.

2- The 3-D printing hype is gone. 3D Systems announced it was ending production of its troubled consumer line of printers, called the Cube. The company’s interim CEO said he believes that today’s most meaningful opportunities are in professional and industrial settings, “from the product-design shop to the operating room to the factory floor”. This is not really surprising. Do you know many people who would use a 3-D printer on a weekly basis at home?

3- Large auto manufacturers are betting big on the future of self-driving cars. For example, GM is investing $500M in Lyft to develop an on-demand network of self-driving cars – the largest investment by a traditional automaker into a young technology firm. The partnership was based on the shared view that self-driving cars will first reach consumers as part of a ride-sharing service, rather than vehicles owned by drivers. “We think our business and personal mobility will change more in the next 5 years than the last 50,” GM President Dan Ammann. “In the next 10 to 20 years, (transportation) will be one of the biggest areas for electronic and software investments,” -Xavier Mosquet, U.S. auto practice leader at Boston Consulting Group. He expects ride-sharing driverless vehicles to develop first in big cities such as Singapore, London and New York, probably between 2022 and 2025. Can’t wait for the technology to be widely available! I can’t stand driving in traffic! Having a personal chauffeur would be a real luxury!

4- A crisis of capital in Canada: workers need more tools and equipment. Equipment = Productivity = Prosperity! However, investment per worker is anemic and has been lagging competitors abroad for years. The investment per worker is 30% lower in Canada than in the U.S. It is even worse in Central Canada:  can you imagine that for every dollar invested in an American worker, an Ontario worker gets just 42 cents and a Quebec worker gets only 39 cents?! How can workers win in a competitive global market? Reversing this trend is an urgent task for Canadian governments. We need better policies that encourage greater business investment.

5- An old venture capital belief is exposed. “The widely held belief that 90% of venture industry performance is generated by just the top 10 firms” is no longer true, according to a Cambridge Associates study. The study found that “in the post-1999 (i.e. post-bubble) period, the majority of value creation” has been “generated by deals outside the top 10.” Moreover, since 2005, “new and emerging firms have consistently” accounted “for 40% to 70%” of “value creation.” The co-founders of Greycroft Partners, call this “the new normal.” They add that since 2005, “managers with less than $500M have accounted for a majority” of VC returns, “despite investing less money on average than the larger funds.” Cambridge concludes that if investors don’t take account of the democratization of venture capital, “they may miss attractive opportunities” to significantly boost returns. Is this trend sustainable? I believe so. While it may be an advantage to be located in a top ecosystem like Silicon Valley, it is no longer a prerequisite for success. I believe we will see more superstars such as Lightspeed and Shopify emerge from Canada.

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About Ludovic Dumas

Ludovic transforms innovative companies into world-class organizations. He is an investment professional at an investment firm representing the interests of one of the most successful families in Canadian business. Before joining the private equity world, Ludovic was an investment banker at CIBC and with ING Group’s investment banking team in Frankfurt, Germany. Mr. Dumas was also a management consultant with Deloitte where he worked on corporate strategy, restructuring, market analysis, due diligence, and economic development mandates. Specialties Mergers & acquisitions, capital raise, corporate strategy, entrepreneurship.
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