StartupNorth

Author: David Crow

  • Built to Exit

    Image by konstriktionIs a company that is built to exit the same as a company that is built to flip? Not in my opinion. Understanding how to build a company that is attractive to a potential acquirer can help entrepreneurs understand how to build product suites, acquire customers and pick technologies.

    Possible Exits

    Entrepreneur.com list five (5) possible exit strategies:

    1. The Modified Nike Maneuver: Just Take It (basically preferred shares that pay a huge dividend)
    2. The Liquidation
    3. Selling to a Friendly Buyer
    4. The Acquisition
    5. The IPO

    For me, #3 and #4 are almost identical. And #2 is not something you should aim for just staring out. Liquidation is something that happens at the end of your business. Whether it is something that happens in bankruptcy or other it is not a useful model when you are trying to grow a business. So if you merge #3 & #4 it leaves you 3 realistic exit strategies. This is not rocket science.

    • Operate profitably
    • Get acquired
    • Go public

    We know what the IPO market for tech companies looks like. That leaves companies with 2 choices. Build a profitable business or get acquired.

    When I talk to startups everyone seems to think that acquisitions are a dime a dozen. That even based in Toronto, Montreal, Ottawa, Waterloo that they are prime acquisition targets for Microsoft, Google, Oracle, Cisco and other Valley companies. Which surprises me! Sure all of these companies have done Canadian acquisitions, they are the exception and they are done for very specific reasons.

    Why acquire a startup?

    Benjamin Kuo talks about the takeaways looking at the acquisition deals done by Google, Microsoft and Yahoo. The other companies that have done a lot of acquisitions include Oracle and Cisco. Summarizing the 2007 Microsoft acquisitions including Multimap (mapping), Global Care Solutions (healthcare), Palarno (enterprise chat), AdECN (advertising network), aQuantive (public traded – advertising tech), TellMe Networks (mobile voice solutions), and Medstory (health search), he concludes:

    Key takeaways from this, at least if you want to be acquired by Microsoft: you really need to expect to be in business for at least seven to 10 years; you need a lot of traction and a product that people have been using for awhile; enterprise software is hot, consumer web services are not; and you need to have a fit to their strategic plans.

    Companies get bought for a variety of reason:

    • technology;
    • customers;
    • people/talent;
    • the scale for monetization offered by a corporate giant.

    It starts to make a very short list for entrepreneurs about what’s important regardless of the type of exit you’re looking for. You need to have technology, customers, the right talent and a path to monetization. Companies are looking for technologies that solve problems with shared customers and that round out their offerings (then there is a the whole question about do we build it or buy it). They are looking for great teams of engineers, sales people, designers, i.e., the talent. And often large public companies bring a scale and access to market and manufacturing that are just not available to startups without huge amounts of cash. 

    Does this all sound familiar? It’s pretty similar to investment criteria. There’s nothing wrong with building defensible technology that solves a problem for customers with a team of rockstars on a common technology platform.

  • Weekend Reading

  • Extreme University

    extremevpExtreme Venture Partners is hosting a summer program for start-ups called Extreme University. It’s reminiscent of the Trilogy University, which should come as no surprise given Farhan Thawar is ex-Trilogy Software (TU98 to be exact). The Extreme University program is a rapid start 12 week program that aims to bring the rigor and mentoring and connections for start-ups. The program is based in Toronto, but given Extreme’s strong ties to Silicon Valley, New York, and around the globe you can imagine that these companies will gain access to their network.

    Applications are due by June 12, 2009. The program runs June 22 to September 4, 2009. And will conclude with a Demo event on September 12, 2009.

    What: A summer technology start-up program that focuses on industry networking, technology mentoring and above all delivering a product to potential follow-on funders after only 12 weeks.

    Who: We are looking for four smart and fast moving teams to participate. Typically all members of the two-three person team will be deep technically, but at least one of the founders should have a technical background.

    How: After you apply and are accepted you will:

    • Get $5,000 (US) per founder in exchange for a 10% ownership stake in your company
    • Move your team to our shared ExtremeU office space at Yonge & King (downtown Toronto)
    • Have weekly mentoring sessions by industry experts in technology, funding, legal, PR, marketing and HR
    • Meet a who’s who of experts at our weekly socials and have an opportunity to practice your pitch and demo your in-progress prototype
    • Have access to local shared resources to accelerate product development (mentors, servers)

    When: Applications are due by Friday June 12th, 2009. The program starts Monday June 22nd, 2009 to Friday September 4th, 2009 at the ExtremeU offices in Toronto at Yonge and King. The final demo day will be Tuesday September 15th, 2009 at Demo camp.

    It’s a great opportunity for entrepreneurs and founders to come to Toronto. Work with a group of people at Extreme Venture Partners, gain exposure to a local, national and international network to help you build and grow a new company and product.

    Apply Now!

  • Big Hairy Audacious Goals for Startups

    Reid Hoffman talks about LinkedIn’s startup story on CNN. It’s a very interesting story about a successful entrepreneur becomes a serial entrepreneur by focusing on both a vision and a set of success metrics.

    We had this initial challenge of, "How do you get a million people?" The first challenge was getting enough people so that functions like searching for people or sharing information had enough people in it to be valuable. The year 2003 was all about tuning and viral growth.

    I’m a huge believer in getting a million people, getting them engaged, and then building a business model on top of that.

    Why does a million people matter? Is this a good metric for other startups? How will know if you are successful? This requires having both a set of measures and a set of goals.

    AARRR! Be Bold. Be Humble.

    What should you be measuring? The good news is that others have done a lot of the heavy lifting. Dave McClure has a great presentation on Startup Metrics for Pirates. The

    Dave has a quick 5 point plan for understanding how to frame a startup, the business model and the performance of both the marketing and product development efforts.

    • Passion for problem/solution + Hypothesis of Customer Lifecycle
    • 1 page Business Model: Prioritized List of (Users + Conversions + Priorities)
    • Critical, Few, Actionable Metrics + Dashboard of Measured User Behaviour
    • 1 page Marketing Plan: (Channels + Campaigns) * (Volume, Cost, Conversion %)
    • Velocity of (Product Execution + Cycle Time of Testing) * Iteration

    This shouldn’t feel like rock science. It’s a way to frame the problems that all startups should be used to answering. What problem do you solve? What is life cycle of your customers? Who are your customers and how are you acquiring them? How do you reach your customers? How do you know if your development process is healthy? How will you know if you’ve been successful? It’s not rocket science.

    BHAGs

    Startup Metrics provide the baseline set of things a startup should be measuring. You should be building the data collection into your application, and he suggests you should “delegate each metric to someone to own”. This is the what, but it’s missing the Big Hairy Audacious Goal. The metrics are the starting point for measurement, and not they are not the target for an organization. 

    What is your “million users” goal?

  • Hustle ventures

    I’ve been thinking that we need to create a local incubator, and I’ve started to wonder where this fits in Jevon’s vision of saving VCs in Canada. And it’s an easily understood way to go about deploying small amounts of capital and managing the risks associated with the investments. There are folks beginning to do this in Vancouver, and Montreal. They provide entrepreneurs with capital, education, mentorship, promotion mechanism, market development, among other offerings. They are angels, VCs, and others hustling to find deals, to help their portfolio grow and be successful. Most of all we need to lead by example. We need to build real companies like Well.ca, FreshBooks, DayForce, Rypple, PlentyOfFish, ElasticPath, Idee, and others. The focus needs to be, not on raising money, but on finding customers and solving problems for the marketplace. There is money is available to help companies once they’ve found a customer, when they need to do marketing, additional product development, etc.

    The gap that is identified is at the very earliest stage of the investment pipeline. There are less entrepreneurs starting fundable companies. This is because there have been less successful startups that spinout human capital, culture and ideas. The lack of Fairchildren means there are less successful individuals that have earned their pedigree and training at a successful startup. Basically, there is a bunch of stuff that can be best learned by doing it for another startup (success or failure). It’s not only about technology, it’s about finding customers, raising money, building products, doing business development, developing personal and professional networks, learning how to do sales, etc.

    But we’ve had a dearth of these startups? Maybe not, but there has definitely been a dearth of Fairchildren from these companies. Definitely not enough to create a viable, self-sustaining ecosystem of entrepreneurs and angel investors in the technology space. And this has left a gap in the very early-stage entrepreneurs and funding creating early-stage technology ventures. This gap may have longer term repercussions, the most easily identifiable is in the declining number of early stage investment in Ontario.

    Who is motivated to create an environment with early stage deals, educated entrepreneurs and culture of educated risk taking? Who is going to do the hustling to make these ventures happen?

  • Workbrain Children

    Joey deVilla, Austin Hill, and I (here & here) have written about one of the best indicators of a strong startup community is the number of repeat entrepreneurs and the number of successful follow on/spinout companies. It’s the “Fairchildren” principle that is one of the many complex factors attributed to the rise of Silicon Valley.

    Workbrain agreed to be acquired back in April 2007 for $227M. This was one of the largest software acquisitions in recent history in Toronto, Platespin’s $205M acquisition by Novell being the other. It has been 2 years since the the announcement, and it appears that many of the Workbrain’s ex-founders and senior executives are starting to turn up running the next generation of Toronto startups poised for massive success.

    • dayforce 
      Dayforce is an enterprise solution that enables companes to integrate performance with planning, scheduling and management of their workforce. The company’s management team is a mix of ex-Workbrain leadership (David Ossip, Paul Sandusky, Ozzie Goldschmied, Warren Perlman) and new blood (Bob Brooks & John Orr [Note: Andrew Giblon comments John Orr was previously the VP Industry/Retails Solutions at Workbrain]). The company is building a world-class enterprise application. Dayforce launched on April 16, 2009, roughly 2 years after the Workbrain acquisition. There’s no data about the funding, but one would guess that David Ossip is able to bootstrap.
    • rypple 
      Rypple is a bottom up solution to collaborative performance management. It is a collaborative tool that enables employees and managers to request and give near real-time feedback about their performance. The team is also a mix of ex-Workbrain founders (Daniel Debow, David Stein, Tihomir Bajic, David Priemer) and new talent (George Babu, Ryan Dewsbury, Jay Goldman, and others). Rypple is funded by Peter Theil, EdgeStone Capital, Roger Martin, Seymour Schulich, and others. That’s some heavy valley hitters and some of Canada’s most respected busines individuals.

    These are 2 very prominent Toronto-based startups that are poised to knock it out of the park (again). And it provides further proof, that one of the best training grounds for young entrepreneurs is to work in successful companies. By the way, both Dayforce and Rypple are hiring.

    Are there other Workbrain children?

  • Up-Start Competition 2009

    Update from Tony Redpath at MaRS:

    “An important correction – the actual competition runs from 2:00 PM to 5:00 PM on the 29th, with the class party starting at 5:00 PM and running to 7:00 PM. (12 pitches x 15 minutes = 3 hours, hence the 2 – 5). Anyone can attend to watch the pitches – but they will have to sign an NDA at the door since many entrants will have to disclose confidential ideas in order to make their pitch. The party is wide open however …and the winner of the competition will be announced, a large cheque handed out etc. I will have non-confidential summaries of each pitch available for interested parties, and they can buttonhole any team that interests them. We’ve got a great crop this year.”

    CIBC_Ent101-250px The MaRS Entrepreneurship 101 is coming to a close for the 2009 season. The season ending wrap party, aka Up-Start Competition, is happening on April 29, 2009 from 5:00-7:00pm at MaRS. Twelve (12) companies will be pitching a 10 minute presentation followed by 5 minutes of questions to a panel of three judges. Unfortunately, the judges are not currently listed on the site. However, a quick assumption is that it is probably someone from MaRS Venture Group (Tony Redpath or Peter Evans), a successful past entrepreneur and a local venture investment professional.

    The twelve entrants selected from the executive summary stage each give a 10-minute presentation, with a further five minutes for questions, to a panel of three judges on a day in late April (date to be confirmed). Presentations will be made under cover of a non-disclosure agreement that all audience members will be required to sign. The judges will pick the winner on that day and the first prize of $10K will be awarded. (Note that the prize will be paid out against an approved expenditure program that advances the business upon which the pitch was based.)

    All of the presentations will be judged against the following criteria:

    • Has the summary/presentation clearly articulated the value proposition?
    • Has the summary/presentation demonstrated competitive differentiation/intellectual capital?
    • Has the summary/presentation demonstrated a business model that makes money?
    • Has the summary/presentation demonstrated market awareness?
    • How effective was the overall presentation?
    • Would you invest?

    Should be a great night of pitches from the Entrepreneurship 101 class. See you there.

    What: Up-Start Competition 2009
    The Up-Start Competition is a business pitch competition open to participants enrolled in CIBC Presents Entrepreneurship 101. Individuals, or teams of individuals, have to give a ten minute presentation on an idea for a technology based business that they wish to implement (or, if appropriate, for a business that they have already started). They are expected to apply the concepts that they have learned from the course to their business idea, and to make a compelling case that this will lead to a very successful business.
    When: Wednesday, April 29, 2009 5:00 PM to 7:00 PM
    Where: MaRS

    101 College St
    Toronto, ON   Canada

  • Incubators, accelerators, and ignition

    I am still curious about startup incubators. Mostly because I think that they do a great job focusing attention and driving buzz around the startup activities in a community. ReadWriteWeb has a great summary of seed fund incubators, including:

    I keep wondering why there isn’t an tech incubator in Toronto. We have a Fashion Incubator, a Food Business Incubator, a Research Centre with Advisory Services for entrepreneurs, 2 great universities with business and engineering schools located downtown with active student entrepreneurship groups: Rotman New Ventures Group and StartMeUpRyerson, entrepreneur focused events like StartupEmpire, Founders & Funders, Dicovery09, TiEQuest, Impact Conference and a few active seed investors (Scott Pelton and Roger Chabra at GrowthWorks, Rick Segal at JLA Ventures/Blackberry Fund, Derek Smyth at Edgestone).

    Maybe we don’t need an incubator. But LaunchBox and DreamIt have been successful in building the local communities in Washington, DC and Philadelphia respectively. And there are local entrepreneurs heading to Y Combinator, there is a need and a desire for the benefits these programs bring for the entrepreneurs and the community.

    All of these programs provide:

    • A cohort
    • Mentorship & Networking
    • Training
    • Funding
    • Timelines
    • Attention

    I wonder if the best Toronto specific program would include a distributed community approach to access the available resources. There is a strong community and a strong series of events that could facilitate a similar program locally. The community of entrepreneurs can find a way to build a similar program informally using many of the existing events and activities.

    A Cohort

    This is easy enough to define, however, potentially difficult to recreate in a distributed manner.

    Y Combinator, LaunchBox, TechStars, Capital Factory all use an application process and timelines to define a cohort of companies. The number of companies is defined by the amount of available resources:

    • Available funding
    • Mentor availability
    • Training spots

    The process should be easy to replicate from the above mentioned incubators. Plus all applicants must present their idea using Ignite format or a demo at a DemoCamp style event. The goal would be to help identify the best prospects, create excitement to find potential funding or at least to fine them the appropriate first mentors.

    Having a shared space helps to begin to build shared experiences. Like grad school, where everyone shares the triumphs and challenges because of the close proximity. It’s not dependent to have a shared office space, but common meetings, shared mailing lists, badges of honour, and shared timelines can help entrepreneurs feel part of something that is bigger. As the program evolves it becomes a shared pedigree, much like an alumni program. You can see this developing from the Y Combinator cohorts, i.e., YC Summer 08, TechStars 08 etc.

    Mentorship and Networking

    There are a great number of individuals engaged in the community with varying levels of success and experience. Many of these folks would make great mentors, they just need to be asked and engaged. Here is my list of folks that need to be involved (in no particular order):

    There are mentors in Toronto. It’s just a matter of finding the right people based on the company and problem space. The question is how to compensate a m

    entor/advisor will need to be addressed at some point. But I think that at this early stage, most mentors should be doing this to help young entrepreneurs. Compensation is something that each of the new school incubators solves with their funding equation. Not always possible during these early stages, most mentors can look to programs like TiE or CYBF which are volunteer driven programs. The goal should be to provide time-limited direction and guidance based on domain expertise. The CYBF program requires that mentors meet with a startup for “ a minimum of 4 hours per month”. This is one lunch a week. It also limits the number of startups that each mentor should engage with.

    Training

    A program should take advantage of the existing training opportunities and create a few new opportunities.

    The active programs that happen in Toronto include:

    • MaRS Entrepreneurship 101 – an approximately 32 week program that runs October to May. Best part all of the previous training videos available on Vimeo.
    • MeshU – business, management, technology and design for entrepreneurs. Some good stuff.
    • StartupEmpire – happened last year, we’ll try to make it happen again
    • Founders Lunch – run by John & Gosia at LearnHub. Great way for entrepreneurs to connect with each other. No funders or others around.
    • Founders & Funders – a monthly opportunity to connect with other founders and the people that fund companies. This will include invitees from Toronto, Montreal, Waterloo, Vancouver, Boston and Silicon Valley.
    • Refresh Events – interesting mix of technology, marketing, entrepreneurship and design training lectures at the Centre for Social Innovation
    • This training coupled with a weekly dinner program with a guest speaker from the local community. The weekly dinners will serve as a coming together point for the cohort, but also as a great introduction to the cohort. There is the question of cost. But obviously it might be limited by the resources and the size of the cohort. There will be lots of pho, dim sum, and pizza.

    Funding

    Every time I try to run the numbers it doesn’t make any sense to run this as a fund. The fund is too small to operate on the fees and the carry. And unfortunately, I don’t know a single individual that is willing to use $10M and try this as an investment thesis. Or a group of angels that need this for dealflow and risk reduction. There are some funds (GrowthWorks, JLA/BlackBerry Fund, ExtremeVP, iNovia Capital, TechCapital) that are doing seed stage funding in Canada. It is extremely difficult to run an early-stage fund of this nature and make the numbers work for operations and to compensate a staff to run it.

    There is an opportunity to create a Farm Team Fund (FTF) that assume a zero IRR and start funding these early stage entrepreneurs. The funding is a big challenge. We need to make sure both the extremely early capital and the follow on capital is available to help these companies sustain until profitability. 

    Timelines

    • Capital Factory = 10 weeks
    • TechStars = 12 weeks (May to August)
    • Y Combinator = ~12 weeks (June – August)
    • Seedcamp = 1 week + 12 weeks
    • LaunchBox = ~12 weeks (May 18 – Aug 5)

    Looks like 3 months is the magic number. That makes the 32 week program (October to May) for MaRS Entrepreneurship 101 program too long. The program needs to be focused on generating successful companies and entrepreneurs quickly.

    Attention

    What are the premier potential  events in Toronto? DemoCamp? Mesh? OCE Discovery? Are any of these events equivalent of Demo or TechCruch50 or Y Combinator Demo Days?  What is the event that attracts press, later stage investors, potential acquirers to find out about these companies? How do we highlight the great startups that are happening?

    This is the one thing missing from the local ecosystem. A killer launch event. Currently if you want real attention, you are probably launching at a US event. In Vancouver, there is LaunchParty which turns out is cofounded by the team running BootupLabs which were part of the BarCampVancouver, DemoCampVancouver and NorthernVoice teams. It’s one moDemoCampToronto is a good starting point, however, it was designed as a monthly gathering for the local entrepreneurial technologists and designers to share what they are working on. It is a good local event for driving attention, attracting and hiring talent and getting that first sanity check.

    What’s next?

    It’s possible for local entrepreneurs to replicate many of the features of the new school venture creation programs. The funding challenges related to a zero IRR can make this a challenge, but Rick and others have stepped up to the plate to bring attention to bear and hopefully solve this for early-stage entrepreneurs. It would be a lot easier to start with an application and funding process, the $6,000-$30,000/founder isn’t a lot of money, but it does help pay the rent and food bill during the 12 week dash.

    Are there a group of young entrepreneurs that want a program? Are you looking for a 12 week startup program in Toronto?

  • ParkVu launch iTunes to Blackberry app

    i2b - iTunes Library on your BlackBerry Jeff Fedor and Terry Goertz of ParkVu launched i2b service today. The service allows BlackBerry Bold, Curve and Storm users to remotely retrieve their music their iTunes libraries.

    i2b makes some assumptions about user behaviour that allows the application to automatically sync users music to their BlackBerry. The i2b service is limited to 1Gb or 100 files. This requires users (and the applications’ designers) to make a decision about which music to sync by default. The i2b application makes some initial assumptions that Favorite Playlists, 25 most played tracks, and most recent iTunes library additions are the files that should be sync’d out of the box. It’s a great starting point for users and can be configured by users after the fact.

    The service creates a sync’d intermediate store of up to 1Gb or 100 songs in the cloud allowing users to access the sync’d files on their BlackBerry devices.

    Songs on their home computer can be retrieved even when it’s off. Up to 100 tracks (1GB maximum) from the i2b user’s iTunes library will be replicated to the Internet cloud, making them available from their BlackBerry even when their desktop or laptop is turned off. When their computer is on and connected to the Internet, all of their iTunes playlists are available on demand to their BlackBerry. Users can easily set i2b not to receive updates in areas where extra roaming charges would apply. i2b combines a BlackBerry application with a small application for the user’s home computer that works in the background with iTunes to allow users to replicate their playlists on their BlackBerry. i2b maintains any DRM restrictions and preserves the integrity of the user’s iTunes library.

    Hopefully the ParkVu team is able to quickly get i2b into the BlackBerry App World to enable broader distribution for their $2.99/month service. It would be fantastic to see them get similar exposure and distribution as Viigo in the BlackBerry App World’s Featured section.

  • New Ventures BC Competition is now open

    new ventures bc competitionNew Ventures BC is a competition for BC startups that has been running since 2003. The competition is open to new companies that have “not yet secured significant financing from “outside investors” (ie. investors other than friends, family, and company founders)”. The competition costs $100 to enter and is open to B.C.-based privately held companies (full eligibility requirements).

    Registration for the 2009 New Ventures BC Competition is now open! Competition deadline is April 20th, 11:59pm.

    REGISTER NOW

    The new 2009 prize structure includes:

    • $120,000 British Columbia Innovation Council First-prize package
    • $63,000 British Columbia Innovation Council Second-prize package
    • $37,000 British Columbia Innovation Council Third-prize package
    • BC Hydro Sustainability $40,000 prize
    • BC Bioenergy Network $20,000 prize
    • British Columbia Innovation Council Economic Impact $20,000 prize

    If you’re an early-stage entrepreneur with a new technology business idea, join us!

    For details and to register for the competition, visit http://www.newventuresbc.com or call 604-725-5740.

    Competition deadline is April 20th.

    The questions and evaluation criteria are very interesting set of metrics for any startup looking to raise money. The questions are not all encompassing, but they are an extremely complete list of the types of discussion that is required during the initial fund raising. Check out Round 2: Feasability Test and Round 3: Venture Plan of the Contest Rules for details about what your business plan should cover.

    1. Product/Service: Describe your product or service and the nature of the technology.
    2. Technology Development: Describe the development stage of your product/service.
    3. Team: Describe your company’s strengths and weaknesses. List the credentials of your technical and management teams, and if applicable, advisors and board of directors. If you don’t have a team, describe the key positions and critical skill sets that you need to add.
    4. Business Plan Status: What research has been conducted, what remains to be done, and how and when you anticipate doing so. What key sources are included to document and support your plan?