76. Legends with Kevin Sullivan

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You are listening to the Entrepreneur Podcast from Western's Morrissette Institute for Entrepreneurship Powered by Ivey.

In this series, join me, Eric Morse as we uncover the stories of our entrepreneurial legends. These Western founders have revolutionized industries, built recognizable brands, and added richness to lives across Canada and beyond. Discover their origins, their greatest moments, their deepest challenges, and what makes each of them tick. 

Welcome to The Legend series.

Kevin Sullivan has a storied history as a founder and investor in Canada’s modern entrepreneurship story.
An early backer of Blackberry, Sullivan was part of GMP Capital from its inception and went on to serve as its President and CEO. In 1995, He co-founded one of Canada’s leading independent investment dealers, GMP Securities LP.

In this episode, Sullivan shares stories from his 30-year-long career, discusses changes in the investment landscape, and answers difficult questions on what the future holds for entrepreneurs and investors in Canada.

Eric Morse
This is the fireside chat portion of our evening

Kevin Sullivan  
Without a fire.

Eric Morse  
All right, Kevin, you know, really, I want you to tell your story a little bit, but to help frame that a little bit, you really do have a storied history as an investor. I know BlackBerry was one of the very you were one of the very first players in that investment. And I wanted to take some time for you to talk about some of your success stories and what put GMP on the map. If you could take us through some of those stories and how GMP really got going, that would be awesome.

Kevin Sullivan  
Yeah, thanks, Eric and thanks. I'm glad to be here. Long history with Western. My dad graduated in 1955 wouldn't be here without Western when they met. My mom and dad met in the gym at Thames hall in 1955 70 years ago, my son graduated from there as well at GMP. I think, as you said earlier, entrepreneurship is about recognizing opportunities and then having the strength and conviction of your ideas to risk capital and risk your time on a new venture. And really, the opportunity that GMP recognized at the time was that, and this, for some of the older people in the room, they'll remember this, and the young people, you won't. But all through the early part of my career, banks weren't allowed to own investment dealers. They were prohibited from being in that space under the bank Act, which allowed a very strong, independent, vibrant community of investment dealers and great companies that built up, whether that was Wood Gundy or AE Ames or Dominion Securities. And once they changed those rules, a consolidation started to happen, and the banks bought up all of the great brand names of that era, which fundamentally changed the dynamic of not only the capital markets in Canada, but particularly for the financing of entrepreneurial companies in Canada. And what happened, of course, is a number of entrepreneurial people like myself recognized an opportunity, that there this cohort of entrepreneurs who are getting going, weren't getting the interest from the big banks because they were too small, too risky, didn't need to raise enough money. And so a number of companies, and GMP happened to be one of the leaders came out of the block seeing an opportunity. And our mantra was Canadian entrepreneurs backing Canadian entrepreneurs. You had to write a cheque to join the firm. You had to risk your capital. There was no guarantees, there was no salaries. You had to buy into the somehow we are going to make this work. And of course, that attracted a certain type of individual, someone who was prepared to risk someone who wanted to be part of something and and so we we opened our doors on October 30, 1995 that day happened to be the referendum that Canada almost lost if you were pro Canada, and we thought we might have had the shortest lived investment dealer and securities firm in the history of Canada, fortunately and then the capital markets took off. So that part was blind luck. We were looking for startup companies that needed our help. We were very fortunate to find a little startup called Research In Motion in they came to us because they were all in their early 30s. Jim Balsillie and and Jim, they were all they were all around the same age. I was 35 at the time. The banks didn't show much interest in them. We said, We think we can raise you $50 million which, you know, we had no idea. No one had ever raised $50 million for a public for a private company in Canada, but we saw their technology. I remember seeing it for the first time, which to me was earth shattering when I first saw that you could send an email. Jim Balsillie was sitting here, and his CFO, Dennis Kavelman was sitting here, and they sent it. They sent them, text, an email message across to each other. And I thought, well, that that can't be possible, and now it's so ubiquitous. But wait, you were in the movie, though? Well, I should have been in the movie. Anyway, we raised them $50 million Canadian investors said, Yeah, this, this makes sense. This technology works. And it took off from there and that, as much as anything, made our name in the space, and from there, other technologies companies wanted to come and do business with us. And then I'll just tell one other quick story that was really important. We were also prepared to do deals that made business sense, but for the banks, maybe didn't make political sense. There was a company called Shared international that had a number of operations in Cuba. At the time, the banks wouldn't go near it because of the helms Burton act. We went out to raise them $300 million we took the risk, we bought the deal, which meant that if it didn't sell, we were in. Trouble. We called the partners in and said, We're going to they just all written us a check. And we said, we're going to write, we're going to buy this deal for $300 million and we think this is the exact type of deal we were designed to do. We think it sells. We think it's important for Canada. And someone, one of the partners will said, Well, what if, what if it doesn't sell. And one of the Wise Guy partners in the room said, Well, if it doesn't sell, I want you to practice this line. Would you like fries with that burger? Anyway? It not only did we sell the 300 we upsized the deal to $700 million the investors loved it, and we were on our way. And most importantly, those couple of deals establish a relation, a reputation, that we're prepared to take risks, we're prepared to do things differently. We are prepared to give an audience to young entrepreneurs. And once you do that, it starts to feed on itself after a while, and that was really the foundation of the success. So some of it was recognizing opportunity. Some of it was our ability to take a risk, and some of it was blind luck and timing and good fortune and gathering the right people who were hard working and incented.

Eric Morse  
Yeah, and I was going to ask you, kind of defined a niche that wasn't there at the time in terms of investors, technology, it was deals maybe others wouldn't do. Can you tell us a little bit more just about what it was you were looking for an investment when it came to you at GMP, because I'm sure you started getting lots of those. So what did you pick?

Kevin Sullivan  
Yes, yeah. And you know, this is very apropos to the people in this room, you know, the hardest time to raise money is pre revenue, when you don't have any revenue and you have an idea, and you know how you get it from that stage to and we were prepared to finance companies pre revenue if we thought the idea was good enough, if We thought the people were good enough, but more importantly, we had the investor base that was prepared to take that risk. Unfortunately, that dynamics changed a lot now from those days, and that is again a change in the capital markets. The banks have once again consolidated a lot of the smaller investment dealers that entrepreneurial end of the capital markets in Canada is, is, is really challenged right now, and there's a whole bunch of structural factors, some on capital flows, some of our own making, some of the wrong the wrong incentives from our government. But at that time, we had an installed base of investors that were prepared to look at these companies and say, You know what? This makes investment sense. And they knew that some of them would work out and some of them wouldn't, and that those people came out of the woodwork, and we became, I think, pretty good at recognizing which are the ones that had a chance and which are the ones that didn't. We made a lot of mistakes along the way, obviously, as every investor does, but I think we built a track record with our clients of producing more winter or backing more winners than losers, because that was fundamental to the continuation of our firm. We had to find a way to make our clients who were investing this money, and if you brought them a whole bunch of dogs in a row, they weren't going to stick around. So so we had that check and balance, and as owners of the business with their own risk capital in the business, we were really incented along those lines to find quality companies to back.

Eric Morse  
Absolutely. And you're clearly good at this, because you stay a question ahead of me all the time. I wanted to ask a little bit about what you've seen change over the time that you've been as an investor, for the better and for the worse. You know, where are we today relative to where we were when you got going?

Kevin Sullivan  
Well as I started out, the opportunity sprung from this consolidation that took place back in the late 80s. All through the 90s, there was another wave of consolidation, and now it's happened again, and a number of the firms that were really good at this have now largely been consolidated. Our old firm got sold to an American outfit, against my wishes at the time, but it got sold. I wasn't the largest shareholder, and a number of others got sold as they saw the market shrinking for the things we were doing. And so now you've got very few players in that space that are prepared to take the risks on these companies. But equally important, you've got less investors who either are prepared to take the risk or can take the risk. And one of the structural changes, and I try not to get up here and bash the big banks, because they kind of control the country and control control a lot of the financial markets, but they've put an. Anybody who's a client of any of the big banks know they put really onerous restrictions on you if you want to invest anything that's not pre approved by them, they have this pre approved list of investments and anything that's small or high risk, they really actively discourage you from putting your money into these things, because they're worried about their own liability on compliance and suitability, and so that's really hurt the whole investment ecosystem in Canada, and because the banks have about 70% or 75% of the high net worth and client money in the country, it's really tightened down who's prepared to take the risks on these deals?

Eric Morse  
Yeah, for sure. So we'll go from banks to politics. Recent election, one of the major themes was improving Canada's productivity. What can we as a community of entrepreneurs and investors do to help drive, you know, productivity in our country?

Kevin Sullivan  
It's a really good question, and the i I've known Mark Carney for a long time. I knew him when he was the Deputy Finance Minister in Canada, and I'm big Mark Carney fan. I'm going to say this because it's controversial. I voted conservative because I thought we needed to change in this country. But Mark is the better candidate, and I think Mark's got the best ideas on how to drive productivity. But you know, things like, you know, some of the, some of our policies, even in education. And I won't use this as a platform to solely promote Westerns interest.

Eric Morse  
But go ahead! We have time, Kevin, go ahead.

Kevin Sullivan  
The cap on foreign students coming into this country is absolutely ridiculous, and we should be opening up the doors, particularly with what President Trump's doing in the US right now and what they're doing to Harvard and others. It's criminal what he's doing. And we should be throwing out the welcome mat to these foreign students and saying, Please come here and let us help you find a way to get a job here, and let us and because and because, Canada has been built on immigration, so to develop a policy that keeps the best and the brightest out of the country is, to me, ridiculous, and I know no one likes to, you know, talk about caps on tuition because it's in everybody's interest, But you can't both not let foreign students in and cap what you can charge. Our institutions can't keep up with the competitive landscape. And as someone who's had two of my kids go to the United States, which I didn't really like, but they had great opportunities there, we need to continue to be able to fund the education medical infrastructure system in Canada, where the best and brightest minds come up, because they'll drive the productivity and then give them the tools on tax credits and research grants and a number of things that you know, I think we're not focused on, I would say under the Trudeau Government, we need to focus on those things again, to drive that productivity loss. And it's a big job. We've fallen a long way behind for a whole variety of reasons, not that we can't get it back. I know that this is mission number one for Mark for prime minister, Carney. I should say the but it's a long, it's a long road ahead.

Eric Morse  
Yeah for sure, what lessons have you learned over the years that you would pass on to the investors in the room? So if you're thinking about some of the things that went well, you know, I'm gonna pocket that one. That was a good one.

Kevin Sullivan  
Yeah, both the investors and the people that are, you know, starting companies. Okay, so my number one rule to everyone who ever worked for me, there's, I think one or two in the room, actually, was, whoever has the most relationships wins at the end of the day. You've got to know people. You've got to build relationships with people. And you never know where that's going to go, and in a social media driven world, if you don't get out and talk to people and meet people and take advantage of the of, you know, being an educational institution, I have 20 friends at Western that are friends to this day, and another 20 that I financed because I knew them from Western. You got to go out and meet people. You got to listen to them. You got to hear what they're saying, and then you got to see if you can help them. And so whoever has the most relationships wins in yesterday's world and the world 30 years from now. I don't care what technology does, it's and it's going to improve productivity, but you've got to go out and build relationships with people. I think it's the most critical thing. And then, you know, the other lesson I, you know, I talk to people a lot about is, you know, whenever you start an enterprise or look to an enterprise that you want to invest in, don't start with the idea. Don't start with the financial statements. Don't start with where they're going. I start with, are these people that I can trust? Are these the people running this company? Are they aligned with me? Either financially, I always look for, what's the Promote how much, how much of my money is going to make them richer, and how much are we getting rich together? And make sure that the peoples and incentives are aligned with yours as an investor, and that you trust the people, even then you can get it wrong, but if you get that wrong, sometimes it doesn't even matter how successful it is, because so much more of that pie was tilted in their favor instead of yours, despite the fact you provided the risk capital. So those are the two big things to me. Always, always start with that. I never invest in any anything where I haven't spent some time with the people and have a sense for who they are, what motivates them, what they're trying to do. And the number one thing on that is avoid anybody who talks about getting rich quick. If that's the motivation, you got the wrong person to back. Because it never works that way. And if it does, it was just blind luck.

Eric Morse  
Yeah, for sure, what Didn't I ask you that I should have Kevin?

Kevin Sullivan  
The old catch all. I don't know. I mean, I think it's a, it's a unique time in Canada. You know, I am as ardent a Canadian as ever existed. I think we got to stand up and and fight for this country that to make some changes to increase our productivity. I think, you know, I hear all the time now, I can't even read the newspaper anymore. Like, to me, that's the same as wearing a sweat suit on an airplane. Like, you can't just give up. You gotta you have to get you have to keep trying. You have to be engaged. You have to listen, you know, and just to say, well, I can't even do it anymore. And I know it's frustrating when you read, when you pick up the paper every day and and start out with, what did Trump do today? It's, it's a really aggravating way to start your day, but you have to stay engaged. You have to stay, you know, present in the issues that we're facing and the problems that we have, and you have to be willing to lean in. And it's, it's some days that's hard to do, but particularly if you're young in this country, you know, we don't want to hand off a worse country than the opportunities we grew up in. And so we've got to, we've got to lean in and try and lend a hand and and improve. And I think we can do that. I think Canada's always been good at that. I think we've just lost our way a little bit in the last last while.

Eric Morse  
Yeah, I completely agree with you. And you know, I'm I'm fortunate I get to work with just tremendous young people, many of whom we have in the room tonight, and the future is bright. We just need to give them the tools and then the environment that they can really run, run with, and I think we'll be in good shape. Yeah, questions from the group?

Question  
I knew the mic was coming. I really, I really like your take on, you know, fight for Canada and all of that. I also voted conservative. So my question is, like, convince me. I'm a second time entrepreneur. I had an exit. I thought my like, I was going to put my feet up, I was just going to work out and just enjoy my kids. And then I got bored, so I got back into it. Why would I stay in Canada as an entrepreneur, if I think I've got a business that's going to be successful, why wouldn't I go south of the border? I want someone to talk me into it, because I really can't talk myself into it.

Kevin Sullivan  
Yeah, good question, and it's a question all entrepreneurs are asking. I was talking to entrepreneur days, who's building a plant, and the red tape to build this plant in Michigan was, you know, it was going to take them 14 months quicker than building it in Canada. So, so some of that we have to provide the environment on your first point by the I tried to, I tried to retire at 62 and I failed. So you have to, you have to find something to keep you busy, engaged. I think things are going to improve. I think we're going to do things like break down inter provincial trade barriers. I think we're going to get the pipeline and other issues right in terms of, I think we're going to break down. We're going to, you know, the red tape, the administrative hassle, I can't tell you that's all here today, and I hear you, and I hear that from a lot of young entrepreneurs. It's a bigger market. The one thing that you don't have in the US, that you have here is an infrastructure of people you know and relationships with who matter to you. It's a place where you want to raise your kids. You know, I have a place in Arizona. Love going there the winter. Would I want to raise my kids there? Not on your life, but you have other social and intangible factors in this country that do not exist in other parts of the world. And. And you know, the conflict and the political discourse in the United States and the and their challenges on even getting in the same room and talking about the things that matter, whether it's guns or religion or politics, they're just so divided as a country right now. And I don't mean to say stay in Canada, because I'm I'm saying bad things about the States right now. All roads point to the better opportunities from a number of factors are in the United States, but what I found with almost every entrepreneur is they almost always want to come back to Canada, because this is where their home and their family and all of the other things that you can't capture with a life in the United States. We have in this country, if it's about maximizing dollars, I have no argument with you. There is a better opportunity. It's a bigger market down there. 

Question  
Thank you so much early stage investing. So we do a lot of investing. 40% of our portfolio is actually non Canadian bringing entrepreneurs in, keeping entrepreneurs in Canada, is one thing, but also attracting foreign capital for the early stage ecosystem is another big thing. How do you see us doing a little better on that one, being a little bit more efficient? How do we attract foreign capital?

Kevin Sullivan  
You know, it's, it's a really tough question, and part of it comes there's this innate Canadian bias that, you know, the US is a better market for venture when giving example, when we did the when we did the BlackBerry IPO, it actually failed out of the out of the blocks. We raised the money at $8 and it traded down to four because every one of the Canadian investors said, well, Nokia, or, you know, Samsung, or all these big guys, they're going to win this game. We're not going to win it in Canada. And then the Americans came in and said, No, this is the best technology. These guys are going to win and that. And then, of course, so there's this Canadian bias that, you know, maybe we're not if it was built here, it wasn't good enough. What is happening in that space, though, is we don't have the right infrastructure to promote venture investing in this country. We just don't have it. But what's happening now is any, any company that has been successful is almost in, almost exclusively being sold to a US buyer now. So, you know, it's showing that there's validation in Canada, all these companies going there, but we still don't have this, and they're trying to do it with these sponsored funds that were the where the government, you know, taking first loss. I can't remember the name of them, but we need, we need to go out and sell the story to the US that there are great things happening here in Canada, and we just haven't been very good at it. And I know people like the Toronto Stock Exchange. I was on the board of the Toronto Venture Exchange. We were trying to do that. We're always trying to go out and sell the Canadian story. I'm saying a lot without giving you any answer, because it's a very difficult problem on how we attract foreign capital, because most of the foreign capital we attract is from the US, and they've got one of the richest, you know, complex capital market systems in the world. They almost like Canada is an afterthought. You guys grow it and what it's interesting and valuable will buy it. And I that's existed for some time now, it's a very difficult question.

Question  
Thank you for the opportunity. When you started earlier, you mentioned that in the 90s, you saw this gap in the market, and you were able to go after it. What sort of gaps do you see in today's market? And it can be, you know, specific sector, or it can, you know, like, for example, entrepreneurs are really struggling raising money for hard tech and med tech stuff, and kind of, to this point, they're moving to the US as a result. So what do you see in today's time? Thanks.

Kevin Sullivan  
Yeah, and I'm not as current as I once was as a 65 year old, and I'm trying to talk about leaning in and being engaged the there's always gaps in the market. And you know, to the point we were just talking about, if someone can figure out how to raise large pools of capital in the venture space and deploy it effectively, there's a massive opportunity there. There's a huge opportunity. Hard to do, almost impossible to do, without some sort of track record in the space. There's there's people trying to do it. There's, you know, creative destruction, and there's the the next Canada, there's a whole bunch of programs that are trying to help with that. But really, we have a massive funding gap in venture investing in this country, and until we correct it, we're not going to, we're not going to get the bottom part of the pipeline that feeds up the productivity. We're not going to get it right. So that's where I would in. You know, if I was 30 years younger, that's what I'd be trying to figure out, is, how do I do that? You. And how do I deploy that effectively? And how do I find the, you know, the next BlackBerry early, or the next multitude of companies, whether it's constellation or Shopify or there are a lot of success stories, and they all started somewhere. We're just lacking at that end of the market right now. And GMP was really good at that. It's hard to do now.

Eric Morse  
Last question, make it a really good one!

Kevin Sullivan  
Pressure. 

Question  
All right, I will try. Hi, Kevin. I am really glad you mentioned early on about, like the big financial institution in Canada, kind of an institutional level, put a sort of creating environment for docile, friendly, early stage investing. So the recent CVC report from q1 shows basically past 18 months Canadian capitals goes into scale ups are very steady, almost nothing change, but this drastic declining in Yes, you see pre revenue like precedent, C level Canadian startups. So would you say, like, what should change to do like, you know, this perception of Canadian LPS or investors are more conservative. They want to invest when they need, need to see, you know, you're showing revenue all that. Like taking myself, example, I work for a fund that invests on both sides, Canadian us, and we're raising from LPS from both sides. We put a capital call last Monday, so far, over 90% of a capital flying checks have come from the US. And I still have 10 meetings tomorrow with Canadian LPS downtown, like tomorrow, try to say, hey, what can I say? What can I do to convince you to invest? Because we invest both side, you know, off the border. And I definitely, as a Canadian, I would have, you know, obviously personal preference to really support our entrepreneurs, but I'm showing exactly evidence, exact materials to the LPs, but the reaction I got just so drastically different on your opinion. What needs to change is that we don't have even more high profile tech companies that say, if we don't take out like Shopify or Research In Motion, all that, ask someone else to name like 10 more Canadian startups. That's global impact. It would be a hard thing for people to do. In your opinion, we need to change from the LP perspective.

Kevin Sullivan  
I don't have the answer that. My trite answer is, tell all your Canadian LPS that the Americans have already funded the because nothing brings Canadian money together like the Americans are backing it. I assume you've got commitments from your Canadian LPs, and this is an administrative, slow moving problem, as opposed to they're going to renege on their capital call. But for sure, that's, you know, we don't have enough of those LP structures where and we don't have enough investors other than Omers, who's putting money into venture and smaller stuff, most of the other institutions are no longer mandated to do that, and aren't doing it. I think it's, you know, PSP, a little bit, and Quebec is doing it. The case does a little bit, but they only sponsor Quebec companies. We need more. We need the government to create incentives for the big pension funds and give capital relief to the insurance companies and even the banks to put more money to work in these asset classes, because we need to build more a bigger pipeline of capital. As I said before, your particular situation is a little bit different, but it is, it is a problem, and Canadians in general, on good ideas move slower than Americans, to our detriment. To our detriment.

Eric Morse  
I do think we may see some of those policy changes and some tax incentives as well as we move forward with the new administration.

Kevin Sullivan  
Yeah. I hope it's really important.

Eric Morse  
Yeah, some some great questions. Thanks everybody and Kevin, thank you so much for sharing some of your expertise and your time with us tonight. Thank you. 

Eric Morse  
The Entrepreneur Podcast is sponsored by QuantumShift 2008 alum Connie Clerici and Closing the Gap Healthcare Group. To ensure you never miss an episode, subscribe to the show on your favorite podcast player or visit entrepreneurship.uwo.ca/podcast. Thank you so much for listening, until next time you.