So why are Canadian companies so much better represented in SaaS than in consumer internet?
I see two main reasons:
- SaaS companies (like e-commerce companies) have a much easier time to monetize their product than most consumer internet plays as monetization doesn’t depend on scale like every ad driven monetization. This means that those companies require way less funding and most of them can be built on smaller seed and angel rounds which is ideal for the sometimes restrictive funding environment we face in Canada. Unbounce, a company I recently invested in, even bootstrapped their business to thousands of paying customers before they took funding to scale their business.
- The second reason is linked to sales & marketing. Traditionally, purchasing decisions for enterprise software were driven by IT departments which translates into a lengthly and costly sales process favouring those software companies that have the strongest relationships into the decision makers at the buyer. Geographical proximity plays a large role in building those relationships which in turn makes it very hard to build large enterprise software companies outside of the Silicon Valley. SaaS starts to remove IT from the purchasing process, meaning the user and the buyer are, increasingly, the same person – the product quality is now much more important than relationships and the chances of building a big SaaS company anywhere in the world have increased dramatically.