in Startups

Seed State of Mind

Seed investments into cohorts of startups (think: Y Combinator, TechStars) are popping up across Canada. And there is sure there is to be more to come…

On the tail of the ExtremeU class of three in 2009:

  • Assetize enables social network users to monetize their accounts.
  • Uken creates highly addictive social games.
  • Locationary aims to be the World’s place database.

Bootup Labs has announced a class of six for January 2010:

  • Blast Ramp is collaborative distribution platform for companies that sell and ship consumer products.
  • Compass Engine helps developers create the next generation of location based games.
  • FoodTree brings the community and transparency of the farmers market online.
  • ReadFu brings contextual summaries for every link.
  • Status.ly is a device-independent lifestream aggregator with focus on personalized customization and filtering.
  • Zedmo lets you find events and social topics. Discover “channels” according to location, popularity, or topic.

It is great to see these initiatives taking shape, if not a small exodus of founders would continue to head south in search of more fertile startup pastures. Case in point: Toronto’s Christopher Golda and Mike Montano, who were recruited to participate in Y Combinator, created BackType, and received Series A funding from True Ventures.

As exciting as this investment activity is, the question remains: is it sustainable?

In terms of ROI, seed stage investing is notoriously difficult. Run the numbers yourself Johnny Appleseed: small amounts of capital + dozens of companies to manage investments in + just three months to build something = lots of work – uncertain returns. The challenges are compounded if the ecosystem lacks investment capital for follow on financing, in which case these projects might die on the vine.

So here is hoping that in 2010, and I strongly believe this will be the case, Angels continue to step up to the plate to bankroll months 4-12 and VCs make a triumphant return to Canada.

22 Comments

  1. @JonasBrandon you've hit my biggest concern for Canadian innovation and entrepreneurship. It's the mindshare and attention pressure from the US. The competition isn't about Bay St, or mining/natural resources (like it is in the money management). It's about students that look at:

    * YCombinator
    * TechStars
    * Betaworks
    * Founders Fund
    * The Start Project
    * Founders Collective

    Incubators and seed funds are the new hot thing. The thing they are doing really well is driving the attention and focus of entrepreneurs away from Canada. They offer experience, investment, mentorship and access to markets that are just difficult to replicate in the Canadian ecosystem.

  2. I think a healthy dose of hope/belief is in order because funding gaps exist at every stage here in Canada. You rightly point out that unless downstream funding exists, the first 3 months only lead to a cliff! The good news is that most of these companies are really geared towards Angel style investments vs VC. This is good news for Angels but not necessarily for VCs. I have a hard time believing that a lot of the new venture dollars coming out of Quebec will go towards capital efficient startups like software.

  3. A penny saved is a penny earned, but spending time savings pennies is not the way to wealth. A healthy dose of hope I have, but capital efficiency will take startups only so far.

  4. @JonasBrandon you’ve hit my biggest concern for Canadian innovation and entrepreneurship. It’s the mindshare and attention pressure from the US. The competition isn’t about Bay St, or mining/natural resources (like it is in the money management). It’s about students that look at:

    * YCombinator
    * TechStars
    * Betaworks
    * Founders Fund
    * The Start Project
    * Founders Collective

    Incubators and seed funds are the new hot thing. The thing they are doing really well is driving the attention and focus of entrepreneurs away from Canada. They offer experience, investment, mentorship and access to markets that are just difficult to replicate in the Canadian ecosystem.

  5. This is likely a naive question but is there something more fundamental that needs some fixing? Ie, are we still talking about duct tape when we need a grenade?

  6. I think a healthy dose of hope/belief is in order because funding gaps exist at every stage here in Canada. You rightly point out that unless downstream funding exists, the first 3 months only lead to a cliff! The good news is that most of these companies are really geared towards Angel style investments vs VC. This is good news for Angels but not necessarily for VCs. I have a hard time believing that a lot of the new venture dollars coming out of Quebec will go towards capital efficient startups like software.

  7. A penny saved is a penny earned, but spending time saving pennies is not the way to wealth. A healthy dose of hope I have, but capital efficiency will take startups only so far.

  8. This is likely a naive question but is there something more fundamental that needs some fixing? Ie, are we still talking about duct tape when we need a grenade?

  9. We at Extreme Venutre Partners will continue to run the Extreme U program…watch for some enhancements and updates from the first cohort!

  10. We are very excited about the great work Extreme is doing. You can definitely count on our continued support. Please know that this post was intended to rally stakeholders in the community, to ensure the long term sustainability of these programs, and was in no way a criticism of ExtremeU or BootupLabs. Congratulations again on the programs successful launch!

  11. We at Extreme Venutre Partners will continue to run the Extreme U program…watch for some enhancements and updates from the first cohort!

  12. We are very excited about the great work Extreme is doing. You can definitely count on our continued support. Please know that this post was intended to rally stakeholders in the community around the need to support seed stage investing, and was in no way a criticism of ExtremeU or BootupLabs. Congratulations again on the successful launch of ExtremeU!

  13. Our team at foodtree is really excited to head north to join the Boothup cohort. We think the model there is uniquely beneficial to young companies, in that it gives us a window of about nine months to grow. Vancouver's tech and entrepreneurial scene amounts to one that rivals nearly all of the cities that the American accelerators/incubators have established themselves in.

  14. It's about the attitude, Jonas. The DNA of the people putting out the money as well as those taking it. It is sustainable, can grow, can be amazing, provided:

    – Get the current crop of VCs out of the seed business. Stage agnostic is code for we don't know WTF we are doing. Focus, get specialized and stay out of seed, “jump-start”, and anything else that smacks of 'give it a shot/I don't know/let's play it out and see.” The current crop (for the most part) don't have the DNA for it.

    – Get a set of deal structures that are friction free for people to invest at the stage where they play. Get Angels paperwork so they don't get borked, VCs paperwork so that don't have to bork the Angels, and documents that people will sign up for without arguing over every syllable.

    – Give the entire entrepreneurial community a set of documents/structures that are market and bitch slap these folks into understanding this isn't a bank loan, dad's retirement, or grandma's inheritance; it's professional money with all the overhead that comes with. Deal with it or pass and grow the bad boy on your own which is, at the end of the day, just as (or likely more) sweet as a term sheet.

    – Finally, give the angel community the respect it deserves and some serious tax breaks to encourage the risk taking. The Government can stay out of this part of the money deployment as they are not experts in the field. Leave it to the angels and give them a reward for taking the risk.

    I join you in wishing for a kick butt 2010

  15. Our team at foodtree is really excited to head north to join the Boothup cohort. We think the model there is uniquely beneficial to young companies, in that it gives us a window of about nine months to grow. Vancouver’s tech and entrepreneurial scene amounts to one that rivals nearly all of the cities that the American accelerators/incubators have established themselves in.

  16. Our team at foodtree is really excited to head north to join the Boothup cohort. We think the model there is uniquely beneficial to young companies, in that it gives us a window of about nine months to grow. Vancouver’s tech and entrepreneurial scene amounts to one that rivals nearly all of the cities that the American accelerators/incubators have established themselves in.

  17. It’s about the attitude, Jonas. The DNA of the people putting out the money as well as those taking it. It is sustainable, can grow, can be amazing, provided:

    – Get the current crop of VCs out of the seed business. Stage agnostic is code for we don’t know WTF we are doing. Focus, get specialized and stay out of seed, “jump-start”, and anything else that smacks of ‘give it a shot/I don’t know/let’s play it out and see.” The current crop (for the most part) don’t have the DNA for it.

    – Get a set of deal structures that are friction free for people to invest at the stage where they play. Get Angels paperwork so they don’t get borked, VCs paperwork so that don’t have to bork the Angels, and documents that people will sign up for without arguing over every syllable.

    – Give the entire entrepreneurial community a set of documents/structures that are market and bitch slap these folks into understanding this isn’t a bank loan, dad’s retirement, or grandma’s inheritance; it’s professional money with all the overhead that comes with. Deal with it or pass and grow the bad boy on your own which is, at the end of the day, just as (or likely more) sweet as a term sheet.

    – Finally, give the angel community the respect it deserves and some serious tax breaks to encourage the risk taking. The Government can stay out of this part of the money deployment as they are not experts in the field. Leave it to the angels and give them a reward for taking the risk.

    I join you in wishing for a kick butt 2010

  18. It’s about the attitude, Jonas. The DNA of the people putting out the money as well as those taking it. It is sustainable, can grow, can be amazing, provided:- Get the current crop of VCs out of the seed business. Stage agnostic is code for we don’t know WTF we are doing. Focus, get specialized and stay out of seed, “jump-start”, and anything else that smacks of ‘give it a shot/I don’t know/let’s play it out and see.” The current crop (for the most part) don’t have the DNA for it.- Get a set of deal structures that are friction free for people to invest at the stage where they play. Get Angels paperwork so they don’t get borked, VCs paperwork so that don’t have to bork the Angels, and documents that people will sign up for without arguing over every syllable.- Give the entire entrepreneurial community a set of documents/structures that are market and bitch slap these folks into understanding this isn’t a bank loan, dad’s retirement, or grandma’s inheritance; it’s professional money with all the overhead that comes with. Deal with it or pass and grow the bad boy on your own which is, at the end of the day, just as (or likely more) sweet as a term sheet.- Finally, give the angel community the respect it deserves and some serious tax breaks to encourage the risk taking. The Government can stay out of this part of the money deployment as they are not experts in the field. Leave it to the angels and give them a reward for taking the risk.I join you in wishing for a kick butt 2010

Comments are closed.

Webmentions

  • » Just being a web startup shouldn’t be good enough for you | StartupNorth December 26, 2009

    […] In the long term however, aggregators arise, and distribution gets consolidated. This same race is the one that killed movie producers decades ago, and indie game developers more recently. As Jonas pointed out, managing costs is only a small part of the equation. […]

  • » Just being a web startup shouldn’t be good enough for you | StartupNorth December 26, 2009

    […] In the long term however, aggregators arise, and distribution gets consolidated. This same race is the one that killed movie producers decades ago, and indie game developers more recently. As Jonas pointed out, managing costs is only a small part of the equation. […]