StartupNorth

Category: Angel Investors

  • 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?

  • Startup funding – Why is there a gap?

    David Crow’s post on incubators nicely summarized the startup support ecosystem situation in Toronto and in follow-on discussions some key areas have been identified on what is needed to better support entrepreneurs in Toronto:

    • Available financing
    • Access to mentors
    • Culture/community to support startups

    In terms of financing, I see two sides to this point depending on who you talk to. From the entrepreneur’s standpoint, you would hear comments on the difficulty of finding financing (i.e. who to approach, time it takes, terms imposed, etc). From the funder’s standpoint, you would hear comments on the difficulty in finding quality companies (i.e. viable business model, good pitch, strong management, etc).

    To help closethe gap, I would like to capture more information about the funding requirements, concerns, experiences of startups. I have put together a quick survey (3 parts – should only take 5 minutes to complete).

    If you are part of a startup that has either raised funding before or will need to raise funding in the future, I would value your input and participation in the survey.

    Click here to launch the survey.

    Summarized results will be published on StartupNorth and will help drive future educational topics around the funding process.

    If you would like an overview of the angel funding process you can read an organized collection of articles here.

    craig at mapleleafangels.com

  • Pitch coaching – YowTRIP

    Thanks to everybody who has submitted a pitch in response to my post on pitch coaching. As I mentioned in the post, I’ll post some of the pitches & my feedback to help people refine their pitches. I’ll focus my commentary on 3 main questions:

    1) Have you clearly outlined the problem & how your product/service addresses it?
    2) Have you covered the main areas investors are interested in?
    3) Have you generated a sense of interest that your company has real potential that people will want to take the time to learn more in a more in depth meeting?

    As I’m not familiar with every company’s domain, I’ll more focus on the structure of the pitch and leave the fact checking of the content to the wisdom of the crowd.

    For YowTRIP, the presentation is located here.

    My feedback I gave is as follows.

    Have you clearly outlined the problem & how your product/service addresses it?

    Yes – this was well communicated

    Have you covered the main areas investors are interested in (market potential, revenue model, competition, management, go to market strategy, exit, deal terms)

    This needs some work. Some key questions I would have would be:

    a) How does your site make money (ads, taking a commission on travel booked, etc)?
    b) What is the market potential? How much revenue do you think your company can make based on point (a)?
    c) Who are your main competitors (direct and in-direct)?
    d) Who is on the management team?
    e) How will investors likely realize an exit (acquisition, dividend stream, etc)?

    Have you generated a sense of interest that your company has real potential that people will want to take the time to learn more in a more in depth meeting?

    Granted this is subjective, but to me this seems like a very specialized niche in an already crowded space. i.e. on-line travel sites, other social networking sites could be used to offer a solution to your problem statement. I’m not sure what your previous business model was, but since you have some past history, if you can show some traction that people would use your site (i.e. visits, user sign-ups), this would go a long way to showing the viability of your idea. Otherwise you are in the same position with other social network based start-ups – the viability of your company will be largely based on how many people you can get into your network and how achievable is this in a crowded marketplace with already established dominant players.

  • Pitch coaching – Reasonably Smart

    Thanks to everybody who has submitted a pitch in response to my post on pitch coaching. As I mentioned in the post, I’ll post some of the pitches & my feedback to help people refine their pitches. I’ll focus my commentary on 3 main questions:

    1) Have you clearly outlined the problem & how your product/service addresses it?
    2) Have you covered the main areas investors are interested in?
    3) Have you generated a sense of interest that your company has real potential that people will want to take the time to learn more in a more in depth meeting?

    As I’m not familiar with every company’s domain, I’ll more focus on the structure of the pitch and leave the fact checking of the content to the wisdom of the crowd.

    The first pitch I’ll discuss is from a company called Reasonably Smart. Their pitch is located here.

    My feedback I gave is as follows.

    Have you clearly outlined the problem & how your product/service addresses it?

    To level set, I have a corporate IT background so can understand the points you are making on slides 2 & 3. However, if you are pitching to a general angel group, you would probably loose 90% of the people on the first 2 slides as they would not have technology backgrounds. To make your pitch more accessible, I would re-cast these 2 slides to discuss the business problem from your end customer’s standpoint. i.e:

    For app developers – cost advantages of micro-unit hosting vs per server or per slice hosting options
    For hosting providers – cost advantages to higher utilization of their server inventory capacity
    From a functionality standpoint, advantages of a richer set of technical services in your platform and what this means in terms of speed to develop, quality, operations, etc. and ultimately how this lowers cost.

    All angels will have seen many deals involving a start-up developing and selling a software app. So if you can frame your company in terms like by using this platform a company can develop an app quicker (save on product development), get to market quicker (faster revenue ramp), and pay less in operational cost (accelerate time to profitability) – this is something they will be able to relate to.

    Have you covered the main areas investors are interested in (market potential, revenue model, competition, management, go to market strategy, exit, deal terms)?

    You have covered off some of the points but questions I would have would be:

    The slide on competition is very complicated – I would simplify to a few key direct competitors and position them on how they stack up relative to your company.

    How large is this market, how much revenue do you feel your company can make? Since this is a new market, if your competitors are more mature, show their revenue which can help validate this market space and give relative benchmarks against your revenue targets.

    Who are your target customers. The list you provide on page 6 is quite large and would require very different sales approaches for a start-up vs. an enterprise company. What are you going to focus on and how will you do it?

    What are the terms of the deal & how will investors realize an exit?

    Have you generated a sense of interest that your company has real potential that people will want to take the time to learn more in a more in depth meeting?

    This is a tough one to call for me. If I put my technical hat on: On one hand it sounds interesting due to the benefits in developing and operating apps but on the other hand I’m not that familiar with the PaaS space so can’t really judge if your offering is something that is already offered by other direct competitors.

    If I put my business hat on: My comment would be that you have talked about a bunch of technology but have not provided any insight to ROI of customers to use this technology. So its hard to gauge the demand in the market for your offering or get a feel of what your company’s revenue potential is.

    This is my take on the pitch. Feel free to post comments with other insights / alternate viewpoints as there is never one right way to craft a pitch.

    If anybody else has pitches they would like feedback on, send to me at craig (at) mapleleafangels.com

  • StartupEmpire – Pitch coaching

    Last week I was at the StartupEmpire conference. Thanks to Jevon, David, Rick and everybody else who helped in putting the conference together. It was a great demonstration of how the local tech community can come together to help entrepreneurs.

    One session of particular interest was the ‘insta-pitch’ session. In this, 5 companies came up on stage to give a 2-4 minute pitch. They then received candid feedback from a panel of VCs on what was good / not good about their pitches. First off, kudos to the companies that took this opportunity to do their pitch and be willing to receive the panel’s feedback in a public forum. However, as was mentioned by the panel, the pitches all needed work. Being able to successfully secure funding is an important factor in the success of a startup and this all starts off with being able to pitch well.

    So, in the spirit of interactivity, lets try something out. E-mail me your pitches in the form of a powerpoint presentation. I’ll select and post some of the good ones to show examples of good pitches. For the non-so-good ones, I’ll give some suggestions for improvement and post the before / after.

    A few guidelines:

    Keep it to 6 slides of content.

    If you are in stealth mode, feel free to doctor the name of the company / facts but just let me know this is not real.

    Craft the pitch as an initial pitch (i.e. one you would give to an angel group selection committee or use to get a meeting with a VC). Your goal is to give a brief overview of all important aspects of your company & build interest and excitement that people will want to spend the time to learn more about the opportunity in a more detailed follow on meeting.

    The standard no-harm rule applies.

    craig (at) mapleleafangels.com

  • Your Business 2.0

    One type of pitch companies sometimes make goes something like this:

    • Founders have a reasonably successful consulting services company where they do development or other project based consulting in a particular industry niche.
    • Based on their knowledge of the space and seeing a need, they come up with an idea for a product.
    • They divert some of their companies time/money to develop the product and maybe get a beta version installed at a couple of their customers.
    • Now they are looking for money to take things to the next level.

    In comparison to a ground-up startup, this type of investment opportunity does have its share of advantages due to the consulting services part of the company:

    • There is some level of cash flow to help fund the new company
    • There are existing relationships with customers in the industry
    • Management has proven their ability to run a services company in the industry

    However, in terms in of pitching to investors, there are a few aspects that need to be positioned compared to a ground-up startup.

    Company – investors will probably not be that interested in investing in a low ROI services based business. The up-side will be with the product business. As such, since you are looking to bring in outside investors, now is the time to formally split the two parts of your company. This means separating into 2 different legal entities, setting the share capitalization of the new company, transferring any assets into the new entity, etc.

    Intellectual property – since you probably did a large part of the development of your product as a side project to your consulting services business, you need to be clear where the intellectual property lies and who has ownership of it. Often the exit value of a company will be heavily dependent on its IP. Investors will not want to get into a situation where the services entity of the company retains the IP ownership and the product entity does not own the IP.

    Revenue – past revenue generated by the services part of your business is not meaningful in terms of the new product part of your company. It is good to show for historical purposes to show stability, growth, etc of your consulting services business. But in terms of how well your product is selling, investors will want see this separately as most likely its only a small part if any of your current revenue.

    Management – until the new product company takes off, most likely management will be splitting their time on the new company as well as keeping things running on the services side of the business. Investors will want assurances that management will be able to devote enough time to grow the product company without getting bogged down in fighting fires to keep current customers happy on the services company.

    In today’s challenging investment climate, start-ups are going to have to rely on bootstrapping even more than ever. Providing cash flow by doing consulting services is a perfectly viable way to do this. When looking for outside funding, you just need to ensure you correctly communicate some of the unique structural aspects of the deal.

    craig at mapleleafangels.com

  • You better be on the upside of the downturn

    You could argue that we are always in a downturn. Even when things are on the way up, a smart entrepreneur realizes that it will be followed by the downward sloping of the curve. It goes up, it goes down.

    So here we are. I posted just a few weeks ago that I thought things were rough, and were going to be rough. I have to say, even though it was only two weeks ago, things have changed a lot since, at least in terms of people’s outlook.

    So here is the trick. It is time to use this period to your advantage.

    A handful of VCs in Canada have put together “seed” options in their funds when they raised them a few years ago. These range anywhere from $250k to $500k and are usually simple convertible debt notes. Until now it hasn’t been very cost effective for them to spend much time issuing these. Either an opportunity was good enough that they wanted to invest in it full-tilt from their regular fund, or they just didn’t like it. Most didn’t want to spend much time with the “it might work” group of startups (which is where all good ideas start!).

    Watching the gameMy sense is that this is changing. Some of these VCs are starting to think that these might be just the right instrument to get some startups off the ground in the next little while. Those are the smart VCs, the ones who adapt quickly and who understand that the upside will be coming back in to focus.

    This is your chance to start to hustle while others are taking a breath on the sidelines. The challenge for we startups is to structure our companies in a way that makes sense for the current environment, and for VCs the challenge is to realize that this is a critical point for the industry in Canada, and those who are left have to jump in the game and send a signal.

    And this isn’t all about getting funded. This is the time to hustle even more if you are going to bootstrap. Build your product now and test it, when the upside comes again, you will be ready with a product and some customers, then you can focus on going deeper in to the market.

    The truth is, we will never know when the bottom of this situation will show up. Like it or not, the upside of this downturn is coming and the best way to lose is to stop working hard right now.

  • Top 5 Do's and Don'ts for Raising Funding

    After what seems like a very short summer break, things have started up again at the Maple Leaf Angels. We held our first investment breakfast of the season in September and look forward to another great season of seeing great companies and closing deals. Since the group was started in early 2007, Maple Leaf Angel members have made investments in over 10 companies.

    One of the functions of the board is to do company screening and select the companies that will present at our investment events. Having seen pitches ranging from very good to very bad, I thought I would start off my first post of the season with my top 5 do?s and don?ts of securing investment.

    1) Do start early – raising money takes time

    Remember that the timeline in the referenced article assumes you go from start to finish and close the deal. You may very well find you get part way through the timeline with one investment group only to be turned down. That means you need to start over again with alternate groups. The best time to look for financing is when you are in a position of strength (i.e. things are going well with your company) and not when you are in dire need of financing to survive.

    2) Do ensure you have the fundamentals down pact (product, market, competition, management, financials, goto market)

    Throughout the funding process investors will want to gain a comfort level with a potential investment in your company by assessing these areas. Not being prepared with details will seriously weaken your prospects of getting funded.

    3) Do be memorable for the right reasons

    During the early stages of the investment process, the goal is to stand out from the other companies pitching and get people interested in your company to want to spend the time to undertake a due dilligence process. At any organized investment event you will be one of many companies presenting to a group of investors. All will be pitching with the same message (our company has a great new idea, that can be sold to a large market, and make a lot of money). Often time the amount of interest you garner is largely dependent on the person who is presenting. You have probably all been to industry conferences & events where you have sat through presentations where you had to try hard not to doze off. But every once in a while you have attended a presentation with a great speaker that you leave feeling energized and challenged. This is the type of person you want to give the pitch to get people interested and excited about investing in your company.

    4) Don?t have an unrealistic idea on valuation

    Valuation can be complicated and difficult to determine an exact value for your company. However, when you are first asked what your valuation is, do not give an unrealistic number if you are an early stage company (i.e. a pre-revenue company is generally not going to support a valuation in the 8 figure range). Also, if asked about valuation during your initial meeting, always preface it that it is open for discussion. At this point each side is only just beginning to get to know each other and what they bring to the table. Being adamant about an unrealistic valuation number (usually mistakenly rooted in the belief of not wanting to give up more than 51% of the company as to retain control) will quickly cause people to loose interest.

    5) Don’t have people walk away from your pitch presentation without having a clear idea on what your company does and how it makes money

    Even if your product is a very technical product, you need to be able to clearly articulate what it does, what pain point it is solving, and how your company makes money. You would be surprised how many pitches I have sat through and left without having a clear idea on what the company did. If you cannot cross this basic hurdle, your chances of getting investment are going to be very slim.

    Seems pretty basic – right? You would be surprised how many pitches get passed over as a result of tripping up over one of the above points. The ability to secure funding will play an important role in your company?s strategy and growth. Make sure you put your best foot forward!

  • How Startups will save Venture Capital in Canada

    Last night I pitched the audience for the second time on How Startups Will Save Venture Capital in Canada. I first gave this talk in Moncton at Third Tuesday NB and the response was great.

    The title is “Why Startups Will Save Canadian Venture Capital”, and it doesn’t let anyone off the hook. It isn’t a criticism, but instead it is an analysis and a call to action for both Angels, VCs and Entrepreneurs. Things are pretty busted up right now and it is time to start talking about what we need to do to make a difference.

    My thesis is simple: Startups just aren’t getting started in Canada nearly as often as they should. This isn’t about education levels, creativity or even for a lack of cash floating around this country. This is about ambition.

    This is about hustle.

    Most entrepreneurs have heard that things aren’t great for VCs right now. LPs are shaky, some funds are crashing, others are just throwing their hands up, and for a lot of startups it seems like no matter how many people you pitch, you aren’t getting anywhere. I tried to put some hard number behind that, and they paint a scary picture.

    This goes two ways, and nobody wants to sit around while we all whine and moan that nobody can get funded. It’s time to build companies that are worth something.

    We need to focus on building our local startup communities more than ever. Local communities are important because they are far easier for local Angels and Entrepreneurs to connect to, and they also act as a great filter to help find people who need national and international exposure.

    Smart funders are going to see these communities as huge opportunities. There ROI for VCs getting connected to the startup community is not only obvious, but well documented. In the US we see VCs hustling in a way that you just don’t see much of here in Canada. Every time I hear a VC rant on about how Canadian entrepreneurs aren’t aggressive enough, it drives me nuts, because they are no different.

    It is great to see Third Tuesday’s taking off on the east coast, and events like DemoCampEdmonton really starting to get going (there are 90 signups for their next one!), but we also need to focus on making sure that there are Startup-focused events where people need to answer to questions about their market, operations and sales.

    If we can get early stage companies off the ground, then the outlook for VC in Canada starts to look a lot different. Canadian funds will have to compete against American money, but they will start to get to see great ideas and entrepreneurs at the early stage. There are a few missing pieces to this plan, but the point is that it is time for us all to stop fretting and just get on with it.

    If we can build amazing startups, the money will find its way.

    This is my manifesto for saving Venture Capital. It isn’t sexy, but it just might work.

    *because someone inevitably does not “get it” — the comic strip at the top is a JOKE meant to characture what some would say is the VC impression of entrepreneurs, and the entrepreneurs impression of VCs.

  • Pride and Prejudice – Why startups need community

    I was feeling extraordinarily proud of Idée last night when I saw that they received glowing coverage on TechCrunch. It is well deserved, and it seems like they are just getting started in terms of press coverage. They recently had a huge profile in the Financial Post, written by David George-Cosh (who has been getting more and more connected with the Toronto community as of late). We have been tracking Idée for a while now.

    Then as I kept flipping through my news feeds, I came across an embarrassing update about MediaScrape, which Heri and Mathew Ingram both covered well. When we first posted about MediaScrape, Tyler Cavell, the founder, responded in a much more succinct way than he did to TechCrunch’s latest post. Heri had even convinced me to lay off and see how things work out.

    I almost feel like I am doing Idée a disservice by mentioning them in the same post as MediaScrape. Where Idée has focused on perfecting their technology and winning customers, MediaScrape seems to be prone to distraction and tends to make simple matters much more confusing and difficult than necessary.

    Heri made the point in his post yesterday that when entrepreneurs are disconnected from their local community, they seem to be more likely to go off the rails. I think Heri is on to something that investors need to take in to consideration when investing.

    Again, Leila and the crew at Idée are a great contrast and example of how to do things right. While Idée is possibly the busiest startup in Canada, and one that is spending its own money (ie: they have no time to waste), they still manage to be tightly connected to the community here in Toronto. Leila is constantly organizing, co-organizing or speaking at events, and when she isn’t doing that, she spends a lot of time each week mentoring other startups.

    Capazoo and MediaScrape, according to Heri, have never made it out to a single Montreal event and have generally kept a distance from their local startup community.

    Perhaps one of the measures that investors, both Angels and VCs, take in to account when deciding whether they want to put money in to a startup or an entrepreneur should be whether or not that person has been able to take the time to connect with a community of startups. That way you know they have a social and professional circle that will keep them accountable, demand progress and that will criticize their execution, rather than patting them on the back and telling them they are going to be rich.

    If your friends tell you that you will be rich and famous, then you have the wrong friends.