StartupNorth

Year: 2008

  • Overlay.TV lands a $4,600,000 Series A

    Overlay TV LogoCeltic House Venture Partners, EdgeStone Capital Partners and Tech Capital Partners announced today a Series A investment of $4,600,000 in Overlay.TV.

    The company, based in Ottawa, is building out an internet video-advertising platform that allows viewers to interact with online video, and enables content owners and distributors to monetize videos. Videos stream from their original location (e.g. youtube) and viewers are able to opt-in to receive overlays with contextual information and links (e.g. affiliate shops).

    Stay tuned for a full review following the official launch February 14, 2008.

  • Founders and Funders is a sellout, then on to Montreal

    fftag.gifFounders and Funders Toronto is just about sold out and we have a waiting list of 60+ people. It is shaping up to be a great evening. I can’t believe it came together so quickly. It was just a few weeks ago that David and I were talking about it. I also want to thank David for his hard work on this, we have both been pretty busy with other things and David has definitely been the leader on getting F&F together.

    People are coming in from all over the country for the dinner it seems, and there is a great core of Toronto funders and entrepreneurs who will be there. Keep an eye on the Founders and Funders website for more announcements. Also, a big thank you to our sponsors: Microsoft Mix and JLA Ventures.

    Then, we hop in the car, plane or train and head to Montreal:

    StartupCamp Montreal – January 23rd

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    StartupCampMontréal is scheduled next Wednesday 23rd at la SAT, from 6pm to 10pm. This is really coming together. I can’t get over how many great startups have applied to present. Montreal is absolutely buzzing these days. The event is totally sold out except for a few service provider tickets.

    I am looking forward to meeting as many people as possible while I am in town.

    5 startups were selected from the votes of 27 gurus:

    • Tungle: Easy appointment scheduling for groups
    • Cozimo: Real Time collaboration for designers
    • Streametrics: Provides metrics on the use of video on the web for publishers
    • yourteledoctor: Virtual visits with a doctor via the internet.

  • The Do's and Don'ts of Raising Capital

    The Wellington Financial Blog is probably one of the most underrated in Canada. Not only are these guys the real-deal, but they have some serious guts and don’t pull punches for anyone.

    Yesterday they published a great but simple list: The Do’s and Don’ts of Raising Capital. The blog is not startup focused specifically, you can think of it as a Bay Street version of StartupNorth, but the topics are worth reading about when you have time. They also have the occasional scoop on Bay Street gossip, like today’s (or should I say, yesterday’s, or last month’s) CIBC news.

    Do?s:

    1. When you ask to meet with an prospective investor, have a defined amount or money in mind, or at least a range, and know what the use of proceeds will be.

    2. Prepare an overview, and there?s nothing wrong with PowerPoint. The pitch can be 15-25 slides long. No one needs a 50 page deck for the first meeting; there?s no way you?ll get through it all during the first session in any event (see below).

    3. Ask for 60 minutes, and no more. That should be all that you need for the 1st meeting.

    4. Show up on time.

    5. If you are bringing your own laptop, make sure you know what you plan to do with it during the meeting: run the show on a wall, link in to an overhead projector, etc.

    6. If you feel you need a non-disclosure agreement executed prior to the meeting, don?t be surprised that the prospective investor might want you to sign their own – rather than yours. If you see 100 or more companies a year, you can imagine how hard it would be for the investor to execute 100 different NDAs.

    7. Review the website of the investor prior to the meeting. If you don?t know what type of firm it is (equity vs. debt vs. LSIF vs. agent vs. principal), you might be wasting your time – and theirs.

    8. If you are going to engage an agent, make sure you know what role you want them to play. Some deals benefit from an outside advisor, and some may not. As much as VCs don?t like to think that entrepreneurs feel the need to spend part of the raise on fees, one wouldn?t do a deal with lawyers or accountants. But if you get an agent involved (and sometimes that agent/advisor can also be a lawyer or an accountant if they have the specific expertise), use them for the hard stuff, like telling you what is practical on the key negotiating items, what?s ?market?, and so forth.

    9. If you get a term sheet and are trying to compare one investor?s proposal to another, make sure you ask about prior deal references. The price/terms of a deal are only part of the decision-making process, or at least they shouldn?t be the sole criteria. Ask to speak to a couple of prior investee companies, and ask how many deals have closed in the past year or two. Do at least some due diligence on the group you are talking to, as not all teams/funds are the same – by a long shot.

    Don?ts:

    1. Don?t send a 10 page NDA to a firm. This is the deal: we investors promise to not steal your idea or tell a competitor about it. We promise to keep your private data private. We promise not to poach staff we meet during the process. That shouldn?t take 10 pages to document.

    2. Don?t ask for a meeting, pitch your story, and show a forecast that ?isn?t board approved?. If you aren?t yet ready to raise capital, why ask for the meeting?

    3. Don?t go into a pitch without knowing ?where your existing investors live?. That?s code for: know whether or not the current investors will play on the upcoming round or not.

    4. Don?t send a PDF of your financial model. It?ll only make the investor wonder why you don?t want to share the working excel version.

    5. If you are raising anything post an Angel round, don?t ask for a meeting if you don?t have a financial model ready. Having a pitch meeting and then sending a model a couple of weeks later ensures that 1) the iron may now no longer be hot, 2) the VC might have come to an uneducated, yet quick, no, or 3) you?ll seem disorganized, which may be normal for early stage companies but not a confidence-builder.

    6. Don?t compare yourself to Google, as in: ?What we?re doing is more robust than Google?, ?What we?re doing is harder than Google?, or ?We are going to be the next Google?.

    7. Don?t bring five or six company people to the first meeting. There are rarely enough chairs anyway, and don?t some of these people have jobs that don?t involve raising capital?

    8. Don?t say you?ll send follow-up material ?in a couple of days?, and then go silent for several weeks. If you ask for a meeting to raise capital, and the prospective investor is interested, be conscious that they see 500 or more ideas a year and can?t possibly waste five minutes let alone a couple of hours.

    9. When you do send forecasts, don?t send a budget that shows revenue going from, say, $1 million this year to $100 million in three years? time. People will think – fair or not – that you?ve lost your mind.

    10. When talking future valuation, don?t use numbers that involve ?billions?. As in, ?We?ll be worth north of a billion by 2012?. People will think – fair or not – that you?re on crack.

    11. Don?t be offended if the investor turns you down, as long as they are polite about it.

  • TIEQuest Business Plan Competition – Deadline January 31st

    tietorontologojpeg.jpgIn case you weren’t already aware, TIE Toronto (an entrepreneur support group in Toronto) is holding TIEQuest.

    TIEQuest is a business plan competition which promises that “the winners will receive an ?Expression of Interest? for up to $1 million of investment from sponsoring firms and various cash prizes and incentives exceeding $150,000 in value.” The overall winner gets an immediate $50,000 prize along with the $1,000,000 prize.

    If any of you are going to participate in this, let us know, we’d love to keep an eye on it.

  • Angel financing – Valuation (part 1)

    In the next series of articles, I will talk about valuation. When you do a financing deal based on equity, you will need to come to a landing on a valuation for your company. This can be hard because there is no exact science to valuing early stage companies. In this article, I will illustrate how investors look at valuation and why it is important in realizing their investment objectives.

    First off, most angels aim for a 10x return on their investment. This means if they were to put $100,000 into a company, they would want to exit with $1,000,000. This target is based on a portfolio basis of investing. What this means is that investors aim to mitigate the high risk of early stage companies failing by investing in a portfolio of companies.

    If an angel had $1,000,000 to invest and they put it all in one company, they may loose it all or barely get their initial investment back if the company does not take off. Rather than put all eggs in one basket, the portfolio approach would split the $1,000,000 into 10 investments of $100,000 across 10 companies. There are different rules of thumb you can apply but basically the gist is that only a few companies in the portfolio will be very successful that generate multiples of return and these have to subsidize the other companies in the portfolio that provide no return or result in a loss. For example, in a hypothetical portfolio of 10 companies:

    3 fail and result in a loss of money
    3 break even that may give a small return on initial investment
    2 return a 2x return on investment
    1 returns a 5x return on investment
    1 returns a 10x return on investment

    The angel naturally aspires for all company investments to generate a 10x return. However, the reality is that only one will be a home run and it will subsidize investment losses on companies that fail.

    In order to see how an investor would realize a 10x return on an investment in a company, lets walk through a very simplified funding example.

    Lets say a company has developed a POC and is looking for their first angel around of financing to fund a market launch. The company has 1 million shares outstanding and is priced at $2 per share for a company valuation of $2 million. An angel puts in $200,000 so now the company has 1,100,000 shares outstanding with a post-investment valuation of $2.2 million. The angel owns 100,000 shares.

    The company uses this money to launch, gets good traction and now is looking for another round of financing to rapidly expand into new markets. For this round, the valuation is increased by 50% to $3 per share to account for the increase in value of the company given its early market traction. A VC puts in $1,500,000 so now the company has 1,600,000 shares outstanding with a post investment valuation of $4,800,000.

    The company makes good progress and gets sales to $10 million. At this point one of their competitors buys the company based on a 3x revenue multiple for a valuation of $32,000,000 or $20.00 per share.

    The angel’s exit is 100,000 shares * $20.00= $2,000,000. So the angel basically gets their home run investment or 10x return they are seeking.

    Now lets run the same scenario with a different valuation. For the first angel financing, the same company gets priced at $6 per share for a company valuation of $6 million. The angel’s $200,000 investment provides the angel with 33,333 shares. The second round of financing is priced at $9 per share for a valuation of $9,300,000. After the VCs $1,500,000 investment there are 1,200,000 shares outstanding. The company gets to the same revenue of $10 million and is purchased for the same 3x revenue multiple / $32,000,000 valuation. The price per share works out to $26.67 giving the angel an exit of 33,333 shares * $26.67= $888,991. In this example, nothing changed with the company except the initial valuation. However, the angel only realized a 4x return.

    This is an overly simplistic example so don’t read too much into the revenue or acquisition pricing numbers. The main point I’m trying to illustrate is that having a high valuation at the start of a company’s financing rounds can limit the investors upside potential. In the second scenario, the acquisition price would have to be more than double to keep the same 10x return as in the first example. So when an investor is confronted with an investment choice between 2 companies, one with a high valuation and one with a more reasonable valuation, the investor will be asking themselves if the more highly valued company is more likely to grow revenues/profits faster and/or be acquired for a larger amount to justify the high valuation. Also keep in mind that large acquisition deals are not as common as smaller acquisition deals. So if an investor is pegging their exit to an acquisition, they also need to factor in the lessened probability due the smaller universe of potential acquirers. These are reasons why investors may turn down investment in a company if the valuation is way off. Even though the company may be very promising and have a lot of strengths, the valuation may not align to the investor’s investment return expectations.

    In my next article, I will cover ways to calculate value of a company. To view an organized index of all angel financing articles as well as see a roadmap of future articles, click here. If you have any comments or suggestions for future articles feel free to contact me: craig at mapleleafangels.com

  • OmniDate.com – Virtual Dating is the new Starbucks

    OmniDate LogoOmniDate, based in Toronto, has been hard at work building a virtual date technology and it’s likely we’ll see their avatars coming to big name dating sites soon. We’ve all heard about sex in Second Life, the truth however is a lot less steamy; most people have a hard time getting Second Life installed and running on their machine.

    Unlike Second Life, OmniDate intends for its avatar dating system to be used by real people who want to set up real life dates. Going on a virtual date is less time consuming, less expensive, and more secure than meeting at a local Starbucks. Once you’ve found someone you enjoy chatting with online, it is more likely you’ll enjoy meeting that person in the real world. My guess is that people will also use OmniDate to flirt, etc.

    There are quite a few things to like about OmniDate’s approach:

    • It is entirely flash based, this means there is no download, installation, or PhD required. This increases adoption.
    • Rather than putting all their eggs in one basket and building a brand around virtual dating, OmniDate is starting out licensing its technology to established players with large audiences and strong brands. This increases their likelihood of success, sidesteps the cost of acquiring initial users, and removes the burden of building brands for each market segment.

    OmniDate AvatarsDon’t think dating sites would be interested? Guess again. Technologies like this increase the entertainment value of dating sites (read: ad impressions), keep users subscribed longer (read: recurring revenue), and get users comfortable interacting with each other (read: higher conversion).

    OmniDate is already working with some large dating sites who plan to use the virtual date technology on their sites. Is now the time for avatars to go mainstream? I can confidently say increased interaction makes sense and it is safe bet online dating will evolve past profiles to entertainment experiences. Give OmniDate’s recently launched demonstration site a try for yourself and leave your thoughts in the comments.

    Taking off my rose colored glasses for a second, I think OmniDate has a few things it could improve:
    – I read all about the challenges Pixar designers had with Ratatouille. Test audiences noticed if the color of lettuce wasn’t just right, Pixar spent an inordinate amount of time on the color green. Likewise 3D human avatars can go from cool to creepy very quickly. I was thrown off by the laugh an avatar makes when you type ‘LOL’, touching another person’s avatar is also a touchy matter. The avatar experience is still a little rough around the edges; that said, I think the team will iterate quickly and continue to improve the already good design.
    – OmniDate has a room builder in the works, I would like to see an avatar builder also. You wouldn’t want your date thinking you are a super model would you…

    OmniDate was founded by Igor Kotlyar, a serial entrepreneur who has already successfully built and sold a startup. OmniDate is a 6 person team and growing fast; they are interested in meeting with avatar designers and licensing partners.

    Contact: Igor Kotlyar, Founder

  • protagonize.com – Choose, and make, your own adventure

    topnav_r1_c1.jpgProtagonize, a project launched by Vancouver native Nick Bouton is a new collaborative creative writing site that lets a group of people create choose-your-own-adventure stories together.

    There seems to be a lot of activity on the site already, and I can understand that there is probably a large community of CYOA enthusiasts who will flock to something like this. We have already seen another startup in this space, litterary, which has a more general focus on group writing, but has the same core service.

    These services are first and foremost about building up strong user communities. If Protagonize or Litterary are successful in doing that, then there are a lot of opportunities to build revenue, but it doesn’t work the other way around.

    Protagonize is significantly far along as far as social features. Almost everything can be rated, altered and collaborated on by the audience. “Choose your own” options are called branches and the popularity of branches are tracked as well as who created them and there is also the ability to add your own bookmarks along the way when you are reading a story.

    Contact: Nick Bouton

  • Razzle.ca is no more, sort of

    Razzle LogoRazzle.ca, who we covered both when they launched and when they botched their few shipments of products, is now dead.

    I do not know they guy(s) behind Razzle, but I am guessing that they have learned a lot of lessons with this startup. I am guessing it is only a matter of time before they come back with something else, and I am willing to give them the benefit of the doubt. Hopefully next time there will be no fake forum posts, questionable explanations or “supplier issues”.

    A family member of mine did order a set of headphones from Razzle and they came brand new, unopened and in perfect condition. The placeholder page says they are “rebooting” the site, but I get a sense that the founder just felt overworked and under-appreciated. A few too many mistakes will sink any startup, and this appears to be an example.

    Update:

    It appears that despite the message on their website yesterday, Razzle is up again and has a pair of refurbished headphones for sale.

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  • AideRSS announces funding

    aider.pngI just got word from the guys at AideRSS to let me know that they have closed their first round of funding. AideRSS has grown from 2 guys with an idea to 8 employees now, and the hiring is still going on. I first profiled the Waterloo, Ont. company in July of last year when things were just getting off the ground, so I am really excited to get word that they now have some money to really build on their momentum.

    When I spoke with them earlier in the week, Kevin and Ilya said that this will give them 1 year of operating time in order to experiment with some of the nuances of their business plan, and to focus on building the product. They also indicated that they are in the final stages of putting together some partnerships which are worth waiting to hear about.

    The round, the size of which is undisclosed as of now, was lead by Tech Capital Partners in Waterloo along with a group angel investors. AideRSS is also working with the University of Waterloo on a few research projects that will help enhance their filtering engine and will bring improvements to their end-user tools. Taking advantage of a local resource like the university a smart move, especially in a place with a great university like UOW.

    AideRSS is now a significant player in a healthy industry. Feedburner.com was acquired by Google for $100million last year and AideRSS continues to offer a completely unique and useful service. Another big difference since last July is that PostRank, the secret sauce that gives a score based on external links and social uses of the RSS content, is now Patent Pending.

  • vencorps.com – Crowd Sourced VC gets cooking

    vencorp.pngI dropped Sean Wise an email today about Vencorps.com and he said that they would be making some announcements at the end of this month, but it appears that David Crow has beat me to the punch on writing about it.

    VenCorps is a collaboration that includes the software and experience of Cambrian house, but with a focus on providing capital and guidance to entrepreneurs. Cambrian house has been successful using their model, which is crowd-sourced software, and there would absolutely be no better partner out there for building something like this, so that is certainly a good start.

    The model basically involves your idea being vetted by the public for an initial vote, and it then moves on to a sort of due-diligence process and a more formal vote, where an “elite group” will do the decision making. It’ll take a few viewings to decipher their flash animation, but give it whirl.

    VenCorps is a venture capital seed fund leveraging the wisdom and the participation of an elite crowd to build better start-ups. VenCorps enables entrepreneurs and angel investors to act collaboratively using collective knowledge, networks, and experiences.

    Does this make sense for startups? Will it get enough attention? Is this a revolution in how companies are funded? I am going to sit tight and wait to see this thing in the wild before I make my own judgments about it.

    What about you?

    • Would you share your idea with the world in the hopes of getting access to a group of angels?
    • Do you see this as potentially different from current angel groups or VCs?
    • Will this method be better at picking winners?

    Best of luck to Sean and the rest of the team, we will cover this as much as we can as it comes to life. This is innovative and risky – the sort of thing that nobody has tried yet. For that reason alone, I am cheering it on. Somebody has to get out there and give it a shot.