StartupNorth

Year: 2010

  • Conspiracy theories and hockey talent

    Photo by Kenny Louie http://www.flickr.com/photos/kwl/4398396665/
    Photo by kennymatic

    The brain drain. Canadian actors in Hollywood. This was a common thread for a in Canadian media outlets. But there is something new going on in tech north of the border. International corporations have been snapping up Canadian startups and talent. Foreign investors (think US Venture Capitalists) are looking north of the 49th parallel to actively deploy capital in high growth, scalable companies. Just look at the recent track record of activity in the past 9 months.

    Recent Exits

    • Layerboom acquired by Joyent.
    • Plan9 acquired by Apple.
    • Sysomos acquired by MarketWire.
    • SmallThought acquired by Twitter.
    • Opalis acquired by Microsoft.
    • Bumptop acquired by Google.
    • Sitemasher was acquired by Salesforce.
    • CoverItLive was acquired by Demand Media.

    Recent Foreign-led Investments

    • Highland Capital Partners invests in Montreal-based Beyond the Rack.
    • Bridgescale Venture Partners invests in Toronto-based Dayforce.
    • Bridgescale Venture Partners invests in Toronto-based Bluecat Networks.
    • FTV Capital invests $35M in Toronto-based Varicent.
    • Altos Ventures invests $4.5M in Toronto & SF-based Kontagent.
    • Metamorphic Ventures invests $1.5M in Toronto-based Chango.
    • Grandbanks Capital invests in Toronto-based iLoveRewards.
    • Grandbanks Capital invests in Toronto-based xkoto.
    • Panorama Capital invests $8M in Calgary-based Tynt.

    So just what is going on. Why the sudden interest and opportunity?

    1. A History Lower Valuations, Less Capital & More Traction
      When you look at the historical news archive from the Canadian Venture Capital Association (CVCA) about the state of venture capital in Canada you begin to see a common thread. Canadian companies generally raise less money than their US counterparts at each stage of growth. This leads to lower valuations and more traction from local investors and has created a generation of Canadian entrepreneurs that are used to funding growth from profits. In 2009, the US market saw US$18 billion invested through venture capital. Canada startups only raised approximately US$1 billion representing 5.5% of the US number (source: Wellington Fund blog). The challenge is that the Canadian economy is approximatley 12.5% of the US economy and this leaves a significant gap in the amount of potential capital being deployed to Canadian startups. There is a gap in the level of investment and the overall economic performance in Canada. This leaves a huge opportunity for other funding sources.
    2. Strong Local Communities
      When you look across Canada entrepreneurs are using the web, events and models developed locally and internationally to connect each other, share information and build successful startups. There are examples ranging from government funded initatives like the Accelerator Centre in Waterloo, WavefrontAC in Vancouver, the RIC Centre, MaRS, Lead to Win in Ottawa, and Communitech (there are a ton more). There are grassroots movements like DemoCamp, MontrealNewTech, StartupCamp and LaunchParty happening across the country. There are an emerging set of incubators and early investors like BootupLabs, Extreme Ventures, Montreal StartUp/Founder Fuel, and Mantella VP. These communities provide entrepreneurs opportunities to connect with other entrepreneurs and seed investors to share methods, pursue informed development and find mentorship and funding.
    3. Close Proximity
      As soon as you decide to get on a plane, the game has changed. It’s not about can I drive to a board meeting in less than 45 minutes. It’s about can I make return travel in the same day. Flights to Vancouver from San Francisco are only minutes longer than flights to Seattle. If you’re leaving the comforts of Silicon Valley to travel to Seattle, Boulder, or other destinations than you should consider Vancouver. Toronto and Montreal in the same geographical proximity to Boston, New York and Chicago. The decision for most investors has less to do with travel and more to do with finding great companies whose growth can be accelerated. Having an international border throws a couple of new complications (see the next section Taxation Reforms) into the mix but it should not prevent investment or acquisition. There might be taxation and immigration impact on
    4. Taxation Reforms
      Charley Lax at Grandbanks Capital was a vocal critic of Section 116 of the Canada Tax Act. However, on March 4, 2010 Finance Minister Jim Flaherty announced amendments to the Act that excluded shares of Canadian private companies. Basically, this removed a major tax barrier to foreign investment opportunities. A few of the deals listed above where completed before the changes to Section 116, significantly more seed and early-stage deals involving capital from US investors can be seen.

    The times are a changin’

    Grow 2010

    Conspiracy theories of Canadians infiltrating American companies are mostly true. But the brain drain is a thing of the past. Silicon Valley is heading north to find new deals, new talent, and new opportunities. Grow Conference in Vancouver is a prime example of the exploration north of the border. Elite investors like Rob Hayes of First Round Capital, Dave McClure of FoundersFund, Jeff Clavier of SoftTech VC are heading across the border to engage with Canadian entrepreneurs and startups. The Canadian Tech Mafia, sorry the C100, continues to show a strong presence with Rob Chaplinsky from Bridgescale, Chris Albinson of Panorama and others.

  • My favourite flavour Vanilla Forums

    Vanilla Forums 2

    Congratulations to the team at Vanilla Forums. In the past year they’ve attended TechStars in Boulder, moved to Montreal, and released version 2 of Vanilla Forums. What is Vanilla?

    “Vanilla is an open-source, standards-compliant, multi-lingual, theme-able, pluggable community forum.

    Over 350,000 sites use Vanilla Forums to manage feedback, spark discussion, and make customers smile.”

    There are competitors ranging from bbPress, phpBB, and punBB (like others we’re torn between bbPress and Vanilla – the proxyConnect plugin allows us to integrate Vanilla with WordPress). But Vanilla is a leading solution offering a great user experience, simple customization and hosting with a large user community. Plus they’re funded by our friends at Montreal Startup which makes them an easy choice.

  • A year in the life

    GuestlistHappy 1st Birthday Guestlist!

    Guestlist has had a couple of weeks. On July 12, 2010 they launched their paid service which finally allows the company to generate fees for the great service they provide. We started using Guestlist for events starting on September 24, 2009 for DemoCamp Toronto # 22 aka An Evening with Yossi Vardi.

    “What began as a dare between three friends to actually finish a software product has turned into full-fledged web service that has helped hundreds of event organizers sell tickets online and keep tabs on their cash flow. Over that period we’ve collected half a million dollars on behalf of our users, a near-majority of which was delivered directly to charities. All powered by word of mouth.” – Ben Vinegar, Guestlistapp

    It’s been a great year for Guestlist enabling over $500,000 in transaction revenue. This is great traction for the small team. Sure it’s only $10,000 using the 2% paid service fee. But this is fantastic traction given that this is a part time project with all 3 team members working other jobs. The demonstrated traction helped the team realize the potential of Guestlist as a business.

    “That’s the story of what our team put together, part time, over one year. We can’t say it was easy; building and maintaining a quality application part-time requires a lot of dedication and free time. That’s why we’re excited to announce that 2/3s of our team has opted to work full-time on Guestlist going forward.”

    If you’re planning an event and you want a great event application, I can highly recommend Guestlist.

  • State of VC in five years?

    Canada has a great financial sector, a growing economy, tons of smart people and a bunch of pretty snazzy exits recently. Yet, with all this Deloitte and the National Venture Capital Association still predict that the number of VC firms in Canada will continue to decline (hat tip: TechCrunch).

    ?

    Sure, Canada is doing better than US and Europe but we’re not doing so well versus the BIC. The first reaction may be that it is now conventional wisdom that China, India and (lately added) Brazil will  take over the world so it stands to follow more VC will set up in those countries. Fair enough.

    But deconstruct this a little further. The Canadian VC industry has already been decimated over the course of the past few year and yet, according to this survey, over a quarter of the respondents think it will shrink further. (The VC industry’s shrinkage in the US is a good thing I and many other would argue. Too much dead weight)

    And VCs follow exits, well recently Canadian companies have exited to Apple, Google and not to mention a pretty killer IPO. That should bode well for the VC industry over the next five years, but it appears that it doesn’t (Yes, these exits happened after the survey was held, but still….)

    In fact, it seems that achieving exits in Canada  is the number one barrier to expanded investments in the minds of VCs when they think about Canada.  Number 2 barrier is “lack of established venture capital community” which seems like a bit of a vicious circle.

    So what do you think? Should Canada be worried? What can be done to improve the five-year outlook on the Canadian VC scene?

  • Week in Review

  • Vancouver based Layerboom acquired by Joyent (?)

    A few hours ago Techvibes reported that Vancouver based Layerboom has been acquired by Joyent.

    The post was subsequently taken down however, but once you tweet it, it is there for the world to see. I assume Techvibes was asked to take down the post as they jumped the gun on posting. We always respect embargo’s and I am sure this was a mistake, but I am happy to take the jump and push the speculation along.


    Joyent, which started as a shared hosting provider and online office suite, has long had a Vancouver office. Toronto native Rod Boothby has been part of the early Joyent team and is currently their Vice President, International. As soon as he starts picking up his cellphone I hope to have confirmation on the acquisition.

    This win could be two-fold for Vancouver: Layerboom is a Bootup Labs incubated company and competes with Toronto based Enomoly, among others.

    Layerboom provides hosting companies with a comprehensive solution which enables them to build and sell virtual private server clouds. After installing Layerboom software, hosting companies can manage their physical and virtual server inventory, customer accounts, define virtual machine sizes, packages, and pricing, as well as customize a hosted dashboard.

    Bootup Labs has recently had their share of problems and Boris Wertz, Vancouver’s rockstar angel and early stage investor, has stepped in to turn it around with original Bootup partner Danny Robinson. This could mark a turning point which would help Bootup regain needed credibility in the Vancouver startup community.

    You heard it here first folks.

  • Quebec City based Poly9 group acquired by Apple

    Techcrunch is reporting that Quebec City based Poly9 group has been acquired by apple. Details are thin and it looks like the team has gone dormant.

    It will be interesting to find out exactly what has transacted in this case. Just last night I was telling David that Quebec City is consistently underrated for startup potential in Canada.

    We have been tracking Poly9 since they added themselves to the startupindex.

    Poly9 is a technology studio in Quebec City specializing in 2D & 3D web mapping, and interactive media.

    Since 2005, we have designed and developed some of the most exciting and popular web mapping applications for major clients. We are also behind highly visible Google Gadgets, running on iGoogle and the Google Gadget Ads platforms. Take a look for yourself at the Our work page.

    Our company’s flagship product, Poly9 FreeEarth, is the first geographic 3D globe that works in all browsers, and does not require any download or installation.

  • Going global from day one

    Arguably, two of the most important centers of innovation outside of Silicon Valley are in India and Israel. The reasons of why this is are numerous and could form basis of someone’s PhD thesis but for the purpose of brevity I’ll only highlight one: global from day one.

    You talk to entrepreneurs from either India or Israel and they’ll surely weave great yarns about their companies (these are also two great storytelling cultures) but one thread that will be consistent is when the entrepreneur founded their company, they were immediately thinking of the global marketplace.

    In Israel, it is because the domestic market is too small and there are limited opportunities to sell regionally. The story in India is that while population is huge, it is very poor so the actual local market for technology or technology services.

    Faced with these challenges, Indian and Israeli companies would market to the US and Europe and often place key personnel in those geographies. Overseas became their across the street.

    In the past year, Canada has been thrust upon the global stage several times. Whether it is praise for our banking system, our brave forces, our Gold-medaled athletes, or our ability to throw a party, Canada as a country has been seen as a global leader.

    Will our entrepreneurs follow suit? Sometimes it seems that cross-cultural expansion from a Canadian perspective is an Alberta company selling into Quebec.

    Unfortunately, as often as you hear of grand global ambitions from Israeli, Indian (and American!) entrepreneurs, you hear of relatively modest ambitions from Canadian ones.

    All too often global expansion = US expansion. That is not the right formula.

    Here’s a fact that is sometimes a bit uncomfortable, many American companies consider Canada as part of their domestic market. The effort and planning these companies put into Canada is the same one they put into Wyoming. (OK, maybe I’m overstating the point)

    But here’s a suggestion, we should return the favor. Canadian companies shouldn’t think of the US as a “global” market but rather just an extension of the domestic one. When Canadian companies say global, they should mean it and have Asia, Latin America, the Middle East and Africa dead in their sights. These regions all have burgeoning and tech-savvy populations and are eager to get online.

    So whether we’re talking about consumer, enterprise, SMB or SP services or products, let’s see Canadian entrepreneurs putting the “world” into their WorldWideWeb plans. Canada’s got the world stage for the moment. Entrepreneurs, make your entrance.

  • Beyond the Rack raises $12million

    MontrealStartup is reporting that their portfolio company, Beyond the Rack, has secured a new round of financing with BDC Venture Capital and Highland Capital Partners.

    I have been watching Beyond the Rack since Montreal Startup’s initial investment, but I had no idea they were getting so much traction. The company is just under two years old and is led by Yona Shtern, who was an employee at My Virtual Model, one of the bubble-era startups that swept through Montreal. More recently Yona was the Chief Marketing Officer at Ice.com.

    The Montreal Startup team recently secured the first commitments for Founder Fuel, which will be a larger sister-fund to Montreal Startup. Their early stage investment in Beyond the Rack will hopefully make it easier to secure the remaining commitments for the new fund, and this puts the team squarely in the top-tier of early and seed stage investors in Canada along with Extreme Ventures and Scott Pelton at Growthworks.

    This also represents one of the most significant follow-on rounds for a Canadian micro-fund. The fact that BDC Venture Capital was able to participate and keep some of that action in-country is nice.

  • Week in Review