You have no doubt seen the brouhaha about the announcement of an increase in the capital gains inclusion rate. Leading Innovation Messiahs like John Ruffolo, Mark McQueen and Jim Balsillie have blessed us with their sage pronouncements. I took note of a fresh new voice in the pro-innovation chorus, one Allen Lau, founder of Wattpad. Now, there is absolutely no need for me to antagonize ever more people. Allen seems like a fine fellow, so here’s a very neutral introduction, if you don’t know him.
Allen is currently an early-stage VC at Two Small Fish Ventures, along with his wife Eva. Their fund has attracted well-known Canadian entrepreneurs like Anthony Lacavera, Michael Katchen and Red Hat founder Bob Young as LPs. Allen’s big claim to fame is that he was the founder and CEO of Wattpad, an online storytelling platform for fanfiction. Fanfiction is when a fan writes stories that are an extension of an existing franchise like vampire romance novels or the band One Direction. Allen founded the company in 2006 and sold in 2021 to South Korean internet conglomerate Naver (for ease of reference, “The Koreans”). The sale price was $840m per Allen Lau. Others have offered slightly lower figures, but in any event, it was substantial. The pandemic turbo-charged Wattpad’s growth and Wattpad attracted acquisition interest from Spotify, TikTok’s parent company and several other major players. In the end, Allen took The Koreans’ cash-and-stock deal. Naver’s stock has declined by 50% since then and Wattpad has had layoffs in the past two years. You might say Allen bought Lau and sold high, if you’re into facile humour, which I am not.
Not content to rest on his laurels, Allen Lau now aspires to join the commentariat class. He has written opeds for the Globe and appeared on BNN. I have read his oped on the capital gains thing and summarize the useful insights here: .
Wealthy people have the problem of not having enough problems. I have therefore carefully watched Allen’s BNN appearance to see if a sideline as a TV talking head is a viable path to occupy his time. I feel that his calm and measured delivery enhances his credibility, particularly if you manage to stay awake through it. I empathize with the struggle to find one's best medium to connect with people. I tried many things before I found something that works for me: Balinese interpretative dance.
In the opening minute of that BNN interview, Allen says: “We are giving away the grand prize, the ownership of great Canadian companies to foreign countries.” This of course begs the question: why did he sell Wattpad to The Koreans? If selling is bad, wouldn’t a higher capital gains tax inhibit selling? Hmm? No divestment, no tax. None of these high tech pontiffs offer any alternatives to plug the government’s budget deficits. Serious policy people deal in tradeoffs. Allen subtly weaves in the C$840m value that he has created (minus the US$120m Wattpad raised from, among others, The Chinese). To the extent that it can be said that business success confers credibility on the economic policy front, the 800-billion dollar gorilla has already spoken on these matters. Warren Buffett mocks the notion that wealthy people would forgo the possibility of making a big score, simply because they’ll end up paying a higher tax rate. The depth of Buffett’s understanding of the economy, all the obscure books he has read and his ability to explain it all in simple terms is something to behold. Not to mention his overall wisdom about life. Why would I need the views of these policy midgets? Although Buffett is not known for his innovation chops, I am sure that in the course of building an empire from virtually nothing to $884B in market cap, he has created a job or two.
This is a constructive, private sector proposal for the economic crisis that Trudeau is plunging us in:
I think Well.ca founder Ali Asaria is behind this parody.
Allen Lau was a pioneer in the Canadian context in seeking out investors from the global tech glitterati. People like Jerry Yang (the Yahoo co-founder) and Union Square Ventures. So Allen might have better access than the average Canadian VC. One example of this might be Preemadonna, a $300 AI-powered nail art printer. I am reticent to pass judgement on a business for which I am not the target market. My nail art budget is $100 at the most. Fellow Canadian VC Version One Ventures (led by Boris Wertz) is also an investor. So is Amazon, via its Alexa fund. Quite often, the power dynamics in recent times are such that it’s the startup (if it’s a hot startup) that does the VC a favor by allowing them to tag along. Another recent noteworthy investment Allen was able to make is a Toronto-based AI image generation company called Ideogram. VC royalty Andreessen Horowitz is also a backer. Ideogram seems like a hot startup and has a good product. Its key strength is that it’s good at generating images with well formatted text (something other generators struggle with). At the risk of being a Debbie Downer, here’s a problem I have to point out though: there are several dozen image generators by now. This is the classic lesson Buffett has talked about: just because you can identify a promising industry, doesn’t mean you can identify the winners. I tested Ideogram to generate an infographic and was very impressed. I also ran comparisons and Ideogram came out on top (against Adobe Firefly, Microsoft Designer and Meta AI). Microsoft didn't even understand the concept of an infographic. So Ideogram may have the early lead. But I could have said the same of AltaVista during the dotcom bubble.
I’d be remiss, given my brand promise, if I didn’t include some very mild kompromat on Allen Lau.