Atlantic Canadian Founders Deserve Better Than FAN (First Angel Network)

Some rights reserved by Stephen Poff

Recently, I have had the pleasure of travelling to the East Coast and working with founders. I have seen the amazing companies and the founders across the region. Moncton, Halifax, Saint John, St. John’s and Charlottetown (among the varied cities). There are amazing companies like LeadSift (disclosure: I work for OMERS Ventures who is an investor in LeadSift), GoInstant, Verafin, Clarity.fm, Lymbix (disclosure: I sit on the Board of Directors), Introhive, InNetwork, Compilr and others.

The region is bristling with great founders, great ideas and a lot of untapped talent. It also holds some amazing secrets like Toon Nagtegaal (LinkedIn) who runs a (also ACOA funded) program for startups that I have been lucky enough to be invited to co-teach (disclosure: this is a paid consulting gig). There are amazing people and companies across the Atlantic Region. It’s only a matter of time until there is another HUGE exit.

However, the region also is a small community that has it’s own culture and politics. Those small town politics have allowed nepotism and crony capitalism to seep in and it has allowed terrible deal structures to be put upon unsuspecting founders and companies. This pisses me off!

When we started StartupNorth we promised ourselves we would always stick up for founders and startups when it mattered. We continue to support, educate and connect startups and founders with other founders, with capital, with new ideas and educational resources. We need to identify the BULLSHIT that is being allow to pass in Atlantic Canada as supporting entrepreneurs so that the amazing investors that are there don’t have to compete with a backwards and ill-conceived entity.

Who? I’m talking about First Angel Network (FAN). Why? Here is an example of the full deal they present to entrepreneurs:

Startups apply to pitch the non-profit FAN which is funded and supported by ACOA and others.
- Most of this funding goes to pay salaries as well as to cover travel expenses.
If a startup is selected to pitch FAN, the startup must agree to pay $3000 to the non-profit FAN.
Startups MUST also sign a “Consulting Agreement” with a for-profit consulting company owned by Ross Finlay and Brian Lowe.
- You can NOT pitch the non-profit UNLESS you sign the consulting agreement with the for-profit company.
Startups then pitch the non-profit and if successful get a deal done
If a deal is done, the consulting agreement gives the for-profit shell company and FAN organizers 8% of the total proceeds of the transaction
- 4% in stock directly to Ross Finlay and Brian Lowe (not the consulting company, directly to the individuals)
- 4% in cash to the consulting company

This is so wrong! On so many different levels. This is worse than pay to pitch.

Crony Capitalism

The thing that pisses me off the most is that the most nefarious part of the process, the consulting company and payouts to individuals, is not listed on the FAN Funding Process page. We have individuals who collect a salary that is partially (if not completely) funded by a government agency (ACOA). First Angel Network Association received at least $1,123,411.00 in funding between 2006-2011 (nothing reported for 2012). That is an average of $224,682.20/year in funding, and that is just what we could source publicly.

Getting paid by a government agency to source your own deals. Seriously, if you thought management fees were high, what about tax dollars going towards salaries of investors. They are using federal funding to source their own deals and cover expenses and salaries. Something is wrong here. Then they charge entrepreneurs for the privilege of their investment. Which someone already paid them to source. The cost of this capital is incredibly expensive to entrepreneurs taking this investment and to the region.

Atlantic Canadian entrepreneurs and startups deserve better than this.

Do Not Pay to Pitch

Startups should not pay angels or angel networks to pitch. Jason Calacanis wrote the definitive piece on why startups should not pay angel investors to pitch.

“It’s low-class, inappropriate and predatory for a rich person to ask an entrepreneur to PAY THEM for 15 minutes of their time. Seriously, what is the cost to the party hearing the pitch? If you answered “nothing” or “the cost of two cups of coffee” you win the prize!”

Jason eloquently describes why this doesn’t work. It is a imbalance between cash poor startups and rich investors. The imbalance is made worst by. We have been running Founders & Funder$ events. There is no imbalance. Everyone pays the same. Founders. Funders. We try to curate the audience to ensure that only founders actively raising money attend. We also invite a limited number of funders that are actively doing deals (criteria change based on angel investor versus institutional investors). We want everyone to be on equal footing.

And there are a lot of startups and founders that will argue that Jonas, Jevon and I have strong track records (well at least Jonas & Jevon do) and even stronger networks:

“Now, before you go saying “Jason is connected and he has access to angels” remember that I hustled my way into this industry from nothing. I networked at free conferences and figured out a way to get on the radar of uber-angels like Ted Leonsis, Fred Wilson and Mark Cuban. They paid attention to me because I had good ideas. If my ideas had sucked, they would have ignored me. Period.”

Our goal has been to help connect and educate founders and startups. We continue to believe that it is not government agencies, or venture capitalists, or angel networks that will build the next generation of successful Canadian companies. It is the founders and the employees of these startups. It’s the big ideas and the big execution that result from the efforts of dedicated people. They are the ones who deserve a great deal, not some middle man.

What can you do?

Do not pay to pitch. Avoid groups like First Angel Network like the plague.
Tell the people who fund FAN and other angel groups who have a pay to pitch model that you believe they should cut off funding.
If you know an angel investor within an angel networks that make you pay to pitch like FAN, tell them what a bad deal they are getting and offer to connect them to great founders.
Help fellow entrepreneurs by making introductions to qualified angels directly
Explain to your peers that an investment by networks which make you pay to pitch, such as FAN, can only be considered as a means of last resort, and taking this money will affect your future funding opportunities negatively.
List your startup on AngelList, our StartupIndex, Techvibes index and other places to get exposure FOR FREE to great investors

Atlantic Canada is generating some of the highest returns in the country right now for angel investors. The community is small but very focused on big outcomes and it is really showing. I think it’s time to cut ties with this old model and to start giving the founders in Atlantic Canada a deal worth taking.

Under the Hood – Lymbix

We continue the Under the Hood series with a Q&A with Lymbix CTO and Hot Sh!t List member Josh Merchant (@joshmerchant, LinkedIn). (Disclosure: I sit on the Board of Directors for Lymbix and helped them with their application/acceptance to the Microsoft BizSpark One program). Lymbix has raised approximately $3.8MM in funding from GrowthWorks and other angel investors. The Lymbix team is 18 people based in Moncton, NB and continues to grow.

Lymbix Sentiment Intelligence measures the tone and emotional impact of words in everyday written language. As a global leader in sentiment analysis technology, applications powered by Lymbix provide a more definitive look at specific emotions like friendliness, enjoyment, amusement, contentment, sadness, anger, fear, and shame and give insight to the true meaning of what brings positive and negative results. In short, Lymbix delivers incredibly fast sentiment analysis and can identify the real emotion in any domain of text exposing clarity and confidence on an individual message level.

Product Breakdown

An engine that analyzes emotion in text. Simply put, we’ve built an emotional spell check that we call ToneCheck, which looks into the emotions written in email communications, lifting out how someone may feel – or rather, the “tone”, they’ll perceive when they read the message. This technology is built off our core engine, which is available as an API for partners to understand more user expression style sentiment analysis. As a business, Lymbix is building better business communication tools and reporting for companies to analyze communication in sales, human resources, customer support. Think of it like an insurance package fitting nicely into your risk management profile.

How the Technology works

We use an array of techniques to training our systems to better understand the emotional interactions in common day communication. We analyze streams of data, whether it be from Facebook, Twitter, emails, blogs, or the news, and dissect elements of “emotive context”, meaning a snippet of text that can cause an emotional arousal in an individual. This is our linguistics component of our system. We believe in human powered insight, so we then take a slew of emotive context, and blast it through our own crowd-sourced network called ToneADay.com. We have just shy of 10k raters who give us their opinions of both “real” and “fake” emotive context to gauge the levels of emotion that can occur based on parameters such as frequencies, demographics, 8 primary emotions and so forth. We then build emotional lexicons which give us the power to test any incoming queries to detect emotional relevancy. We then apply our “emotional reaction algorithms” to come up with how different emotions play a part in determining the degrees of emotion in the query. When the system ever detects something that it has never heard of it, it quickly takes action and tries to learn it. In effect, the system gets smarter the more that its used.

Technical Details

We’re hosted on Rackspace, as well as Azure. With Rackspace we have a cloud and private hosted solution giving us the elastic scalability that we need to service this type of NLP on a massive scale. We’re a nice blend of Ruby, Java, and C#. Sounds gross, but for us, the solution fits quite nicely.

For horizontal scaling efforts (our API, and freemium ToneCheck users) we use multiple nodes replicated as our “workers”, sitting on Redhat using served by apache. Sinatra is used to handle the REST calls (essentially the wrapper) harnessing java – linking through sockets to provide really fast linguistic calculations on requests. We persist resident data through redis, and pull sync jobs to migrate up to the master datastore. These ‘nodes’ effectively are spawned up and down as we predict traffic congestion. We take full advantage of Rackspace load balancers to handle distribution of these requests. We monitor this bad boy with CloudKick – probably the best monitoring and performance analytics tool we’ve come across.

For ToneCheck (pro/business), we’re deployed on Azure. Works well for our business customers to give better piece of mind of no data persistence, enterprise integration (on a domain level), and security. Essentially we’ve built a RESTful service on a Web role that wraps the same Java logic as in our cloud. We have worker roles to do some of the heavy lifting, but we try to keep things in the Web Role for high priority, super fast response times.

As our system is ever evolving, in terms of understanding new emotive context, we use our own sync services to deploy lexicons across all our worker nodes (Azure & Rackspace). To build the lexicons, we need massive power, so we use a big hypervisor that performs all our “secret sauce” algorithms from our datastore. We have 3 layers of databases in our system, which seems crazy, but each has a niche. MySQL is basic user data for our apps and all the boring data to keep. Mongo is our dynamic datastore thats used for all our linguistic data and everything we need to build our lexicons, which is sharded for optimization and running our Map Reduce jobs. We also keep a Hadoop datastore for all the new language we’re processing for reporting and running massive queries on for some of our “in the making” linguistic calculations/improvements.

Our development practises are pretty neat. We use continuous integration to achieve higher standards of quality for all our apps. We’re a little old school, still using some SVN repos to manage our data (Beanstalk rocks), but now we’re starting to migrate more to the Git. The team is divided up into sub teams, which are all managed independently, and constantly on two week (global) dev cycles. We do all our project management through Pivotal Tracker, and have wicked fun demo days at the end of every cycle showcasing each teams improvements and brainiac innovations to everyone (while consuming beer and pizza). Our team is very passionate about the problem we’re trying to solve, technology, and code. We’re split about 50/50 Android & iPhone, so that pretty much says it all!

If you’re running a mail client (Outlook or GMail or Lotus Notes) you can try ToneCheck and to minimize the “cost” of dealing with misunderstandings.

Interested in being profiled in our Under the Hood series, we are actively looking for Canadian startups building “interesting” technologies and solving “interesting” problems. Contact me by completing your initial Under the Hood submission.

Salesforce acquires Radian6 for $326 Million

This will be all over the news today so I won’t try to keep pace with the commentary, but the news that Salesforce has agreed to acquire Radian6 a Fredericton, New Brunswick company founded in 2006 ,is out.

I won’t try to keep pace with then endless coverage that will be happening, but here are some thoughts on what is cool about this:

Ride the Winners: There is no doubt that Radian6 has had a lot of offers over the years. Competitors such as Techrigy, ScoutLabs and Sysomos likely sold out WAY too early. This is something Roger Chabra has been saying to me for a while: When something is working, stick with it.
Canadian made: Radian6 was built and financed entirely in Canada by Summerhill, BDC and Brightspark. They funded Radian6 early and they stuck with it. That’s a great and all too rare story.
New Brunswick made: When I tell many of you that I have moved to Halifax I sometimes get questions like “is there any startup community there?” or “Is there any talent there?” — Now I have an easy answer to what I have already found out: This region is brimming with talent and with the right leadership great things can be accomplished.

Congrats to the entire Radian6 team as well as Summerhill, BDC and Brightspark. This is big news and a great story.