Jevon MacDonald

co-founder of Startupnorth.ca

What you need to know about starting a startup in Atlantic Canada

Building a product and growing a startup is a different experience no matter where you live. In many ways every startup experience is completely unique and totally predictable all at the same time. The goals, struggles, opportunities and outcomes are each different and geography is one other thing that can be thrown in the mix.

Building a startup in Atlantic Canada IS different, for better and for worse, than Toronto, Austin, San Francisco or anywhere else.

IF you want to build a competitive, scalable, high-potential startup in Atlantic Canada then here are some of the most basic things I think every entrepreneur here needs to learn:

Get your butt on a plane

It is hard to understate this. Your customers aren’t here. Your partners aren’t here. Your investors might not be here. It is the nature of the place and you need to accept it.

Get on a plane and go see the people who are going to make your business, and you personally, successful. Every startup has different needs but it is best to err on the side of caution. If you are building an enterprise tech startup then you need to be in San Francisco. If you are building a media company then you had better be ready to spend time in New York. If you are selling to brands then I hope you like Atlanta and Minneapolis.

If you are fundraising then this is even more important. I’ve seen entrepreneurs lose a financing round because of a single bad phone call. It sucks but body language and a few dinner tables can make all the difference. Get out there, the world wants to meet you.

Government support doesn’t matter to the customer or your competitors

There are some really great programs available to support tech startups around here. Non-dilutive and relatively flexible IRAP, ACOA and other agencies really can be a great option. The fact is though that you are competing against world class startups who aren’t waiting for an application to get approved and who don’t need their SR&ED credits to make their next hire. Your competitors are moving at a lightening pace and you can’t afford to sit around.

You should be moving so quickly that you can hardly manage to get an application in for a project before you find yourself completing it. Government financing should be strictly secondary to acceleration capital which is going to help speed your execution.

You don’t need to compromise

Startups in Atlantic Canada should not compromise on anything. We don’t have to so we shouldn’t. We have been telling entrepreneurs not to put up with bad terms from local angel groups but the issue runs even more deeply than that. Focus on attracting the best investors and don’t put up with bad deals.

There is a tendency to confuse “we are different” with “we deserve different” here and while it’s ok to BE different we don’t deserve anything less than the best.

The talent pool is world class so you should hire world class

I have hired in a lot of talent rich places and I can say without exception that we have some phenomenal talent in Atlantic Canada. Like recruiting anywhere it can be gruelling. I got lucky: I hired Ben Yoskovitz. I didn’t hire him as a recruiter but he does it in his sleep and it has helped us scale without compromise.

Be picky and only hire those developers, designers, product owners and anyone else who you could drop in to a room in San Francisco, New York, Tokyo or Taipei and not have to worry about how awesome they will be. They are right here in your backyard to start looking and never hire less than awesome again. 

… and finally

You are expected to take on the world

We do not need more me-toos and I’m not talking about lifestyle businesses here. Choosing to live and work in Atlantic Canada is not the easy road and it was never meant to be. We have built many world class companies here and we expect no less from you and your startup.

Making a dent in the universe is not only doable, it’s what you should be striving for. We should be leading the country and globally as a place that punches far above its weight. There is no reason to hold back, because the alternative isn’t a lot of fun.

Do not compromise on the size of your vision or the ferociousness of your execution. You should be audacious in your dreams because building a startup in Atlantic Canada is not about being in Atlantic Canada it is about being FROM Atlantic Canada, and that is a big difference.

These are just a few thoughts, but many of you have built startups here and in other places. What’s your experience and what are your tips for the next generation of startups we are seeing emerge now?

The only model that matters: Founders First

Screen Shot 2013-02-22 at 8.55.58 AMThere are a lot of models that people throw around for how to build a strong startup community. There are a handful of types of players in each community, so there are many permutations of “who gets what” and how resources are moved around.

It gets complicated, fast.

So there is a model that I subscribe to. It can be a little myopic, it can be a little bit pigheaded, but it is always effective. It is the one metric that matters for startup communities and it is why we back the things we back and why we take exception to the things we do.

In Halifax there has been a recent discussion about a local angel group and their funding model, which we do not believe is founder friendly. Hopefully this post will clarify for some people as to why we see things in such a black and white contrast.

There is a litmus test that can get to the heart of many issues:

  • Does this help founders create more companies?
  • Does this help founders build better companies?

You need a Yes on either one of those, otherwise the effort isn’t worth it.

OK, there are more than just founders in the ecosystem, I know. The truth is however that Founders are the only ones who rely on everyone else in the ecosystem to be successful. Nobody else is so ecosystem dependant. Service providers can always find work elsewhere, investors can always squirrel their money in to safer places.

It is founders and founders only are the assemblers, allocators and creators of resources that make successful startups. It is those successful startups which are the only things that demonstrate the success of the community.

In early 2008 we started talking about how Startups Will Save Venture Capital in Canada. I believe that post and the thesis behind it has stood the test of time:

My thesis is simple: Startups just aren’t getting started in Canada nearly as often as they should. This isn’t about education levels, creativity or even for a lack of cash floating around this country. This is about ambition.

This is about hustle.

Most entrepreneurs have heard that things aren’t great for VCs right now. LPs are shaky, some funds are crashing, others are just throwing their hands up, and for a lot of startups it seems like no matter how many people you pitch, you aren’t getting anywhere. I tried to put some hard number behind that, and they paint a scary picture.

This goes two ways, and nobody wants to sit around while we all whine and moan that nobody can get funded. It’s time to build companies that are worth something.

We need to focus on building our local startup communities more than ever. Local communities are important because they are far easier for local Angels and Entrepreneurs to connect to, and they also act as a great filter to help find people who need national and international exposure.

(Read the rest . . .)

David Crow started this thinking in 2005/2006 when he built the thesis that Community is the framework. That approach has brought incredible success to many startup communities. Founders are the anchor of community. Every year or so we publish the Hot Shit List and we focus on profiling founders who are taking pushing our communities to the next level.

In an community it is the ability of founders to succeed through diligence, hard work and creative thinking that determines success. All encumbrances to founder success must be removed to achieve a sustainable model for growth.

There is no half way, there is no “maybe” there is no “but…” there are just founders. Founders who are picking investors, lawyers, accountants, marketers, developers, product managers, customers and markets. It is founders who develop vision and create early product.

It is only the founders who are tracking their cash, calculating runway and determining what is going to make their startup successful.

So the next time someone tells you that anyone or anything matters then tell them that you will not water down a founders-first approach. Not because someone else needs a little something, not for any reason.

Remember the great founders you know who have struggled against all odds to build incredible companies. Forget the rest and focus on what matters.

If not an Angel Network, then what?

back black swan shotDavid posted a pretty in-depth piece on the First Angel Network this week. This followed an awesome discussion on TechVibes about angel groups over the weekend. The structure and funding model for First Angel Network were a pretty big surprise to me when I moved to Halifax 3 years ago.

Frankly it is pretty easy for us to write a post like David’s because the facts really speak for themselves: Millions of dollars from government sources are flowing in to finance what appears to be the exclusive personal gain of two individuals.

$3000 + 8% is just not acceptable and what makes it even worse is that the 8% does not contribute to the growth or sustainability of the angel group in any way. ACOA and other agencies are the ones paying to maintain the group while the cream is skimmed off the top.

My guess is that the First Angel Network will tell you that their model is normal and that it is on par with what is happening elsewhere. Simply put: it isn’t. It is artificially sustained, it is egregious and the model needs to be wiped out.

Shortly after David’s post went live I had a call with one of the most active angel investors in Atlantic Canada. He’s someone I admire and who always seems to be a step or two ahead of my own thinking. When he speaks I try to listen (which means I have to stop talking. . .).

He doesn’t have much love for a model which skims off the top either, but he’s pragmatic too.

His question to me was: If not First Angel Network, then how do we keep money moving?

Angel groups are not an easy thing: There are large groups of willing but relatively unsophisticated investors out there. They have to be marketed to, rounded up, fed a decent meal (usually) and encouraged to focus while a startup pitches to them for an hour or so total. Not easy and it certainly doesn’t have obvious economics for the organizer. It is a tough model no matter which way you slice it. The question is valid and it is something we need to think about a lot.

The world of tech startups is, or should be at least, different in many ways however. I believe it HAS to be different.

Sophisticated tech angel investors are accessible and they are ready to do deals almost anywhere. Value-add investors will, by definition, be accessible to the network and available to look at deals. We have a significant opportunity here in Atlantic Canada as well because we have some of the best angels in the country living and working here.

The landscape is changing for seed investing in tech and I think we need to find new models which make more sense for a typical startup today.

  1. There are many individuals investing regularly in extremely early stage opportunities in New Brunswick and Nova Scotia
  2. There is far more information available to entrepreneurs about financing structures and models than there ever has been before
  3. 10s of Thousands of investors are accesible via AngelList and other sources
  4. The ecosystem is larger than just these few provinces– we are easily connected in to what is happening in other communities.
  5. Legal and other fees should be minimal. Startups should be able to get a round closed for $5k with a max of $10 for a complicated and priced round.
  6. Early stage capital IS flowing in this part of the country from more formal funds such as OMERS, Rho, Real, Version One Ventures and others.
  7. There is a new fund coming online here which will be leading deals and syndicating with outside investors.

Alternatives will emerge once there is a void to fill and I believe that capital will still flow to great opportunities, while we may have to watch some less awesome ones whither.

There is a loose syndicate of angels emerging in this part of the country and from what I have seen they are all extremely high quality. It is a group made up of exited founders, successful investors and quality operators. THAT is who should be seeing deals and they do far more than 4 deals a year– dozens are getting done.

In the end the challenge we have is not simply to tear down the old. The challenge is to take responsibility for building something that matters in the future and that will create more startups through a better model. I believe that First Angel Network’s model needs to change to become less predatory and more focused on creating value in the ecosystem, otherwise we need a new alternative to replace it.

That is our job here and that is what will really make a difference.

Right now we have the beginnings of an alternative:

These are all founder-friendly and accessible routes to getting access to early stage capital. None of them take 8%.

It’s not perfect, but we will get there.