StartupNorth

Category: Exits

  • It’s indescribably beautiful!

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    On the surface this might not seem like a Canadian success story, Eloqua was acquired by Oracle for $871MM. Eloqua by all appearances is a publicly traded company with headquarters in Vienna, VA. But they are probably the best kept secret in the Toronto technology community. Eloqua was founded in Toronto in 1999 by my friend and co-founder, Mark Organ (LinkedIn,) along with Abe Wagner (LinkedIn) and Steve Woods (LinkedIn, ). This is nearly a $1B dollar deal that was born and breed in Toronto (yes, I can do basic math it’s $129MM short but that’s pocket change and unlike when Siebel acquired Janna in 2000 for $975MM at the time of the deal the price changing with the Siebel’s stock price, this is an all cash deal). I had started figuring that it would be Salesforce that acquired Eloqua, so I am surprised that it is Oracle, and so soon after their IPO. Here is a great analysis of the marketing automation industry and the assessment for Marketo, Act-On, ExactTarget, etc.

    Congratulations to all of the Eloqua employees. I continue to hear stories about an amazing group of people including:

    It’s an amazing story that still has a big chunk of the product development team based in Toronto. Congrats to the entire Eloqua team and alumni.

  • The Pending Talent Wars

     

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    Did you know that accelerators are heading for a shake out? We’ve talked a lot incubators, accelerators and cyclotrons. And the proliferation of the accelerator model is generally positive, it started me thinking about a possibility for slightly different model. One that Kevin Swan posted an insightful comment on the talent shortage for Canadian startups. I don’t think I’m the first to propose this, but it starts to make sense. Incubators/accelerators don’t need to only hasten the formation, creation and ideation of companies. They are fertile grounds to accelerate people. And it’s not just incubators and accelerators, companies participate in HackDays to find talent.

    Need proof?

    Vuru acquired by Wave Accounting

    Vuru founders Cameron Howieson and Yoseph West reached out to the Wave Accounting team for advice on building a free, web-based financial services tool. Over time, the two companies traded notes as Wave took on a an informal advisory role, and that led to a sense that Vuru’s talent and direction were something that would be well suited to the Wave Accounting mission. — Darrell Ethrington, Aug 21, 2012 in BetaKit

    Vuru was a 2 cofounder team in the FounderFuel (full disclosure: I am mentor in FounderFuel and I now employed by Wave Accounting investor OMERS Ventures). They were building a “investment tracking tools aimed at managing personal finance, which is not something Wave currently offer[ed]”. It was a great fit, a team that had the entrepreneurial culture to make a difference at Wave and a product that filled a known product roadmap gap.

    Algo Anyhere acquired by 500px

    Ok, before Zach Aysan slaps me for being totally incorrect. AlgoAnywhere was not in an incubator or accelerator program. But they had raised a seed round and were building very interesting technology.

    The 500px founders met Algo Anywhere at their Pixel Hack Day last year, and were impressed by what the team brought to the table. Algo Anywhere’s tech was originally intended to be sold on an SaaS basis, providing companies with the data crunching power of sophisticated recommendation algorithms, without the need for those to be developed in-house or hosted on a company’s own servers – Darrell Ethrington, July 9, 2012 in BetaKit

    The interesting point here isn’t about incubators or accelerators. It’s about founders of early-stage companies looking for relationships and gaps in the market left by other players.

    Pulpfingers acquired by 500px

    It seems that 500px has been strategically acquiring companies. It looks like both Pulpfingers and Algo Anywhere were part of the PixelHackDay (see photo from TechCrunch). Which gives 500px access to see designers, developers working in their domain space. It’s a great way to round out the product roadmap, Pulpfingers was a iOS discovery application. And they aren’t alone. Hootsuite acquired Seesmic and Swift.

    Built to Last versus Built to Flip

    I’m not arguing that founders should be looking to build companies to flip. There is lots of conversation about building lasting value. I’m arguing that companies that have raised capital to scale are looking for alternative methods to acquire talent. Get access to the API, build a meaningful service, acquire shared customers and go forward, it’s Biz Dev 2.0 (as Caterina described back in 2006). What’s new to the game for Canada (well Canadian startups) is that for the first time since RIM we are starting to have web startups that are reaching scale and are able to acquire talent, teams and companies. The goal isn’t to look for a acqui-hire or a manquisition, but to look at where working with an existing company or API gives you immediate access to distribution or monetization that you might have to work harder to build on your own.

    I’m betting that companies like Wave Accounting, 500px, Influitive, Hootsuite, Shopify,Freshbooks, Top Hat Monocle, Wattpad, Upverter, Chango, Fixmo, Desire2Learn, Lightspeed are all actively looking for teams that are building on their APIs or filling product gaps (it becomes a buy versus build decision).

    If I was a developer or looking to get into an incubator program, I’d start looking at the hackathons and APIs that are aligned with my vision where I could accelerate customer adoption.

    Events

    APIs and Developer Starting Points

    Find an API (be it local or otherwise) that aligns with your vertical, figure out if you can solve one of your immediate challenges (like distribution and customer acquisition). Maybe strike up a conversation with the product teams at shop. But build something that delights customers and users! Go! Now!

    Who has something built on one of the above APIs?

  • Summer’s over, but it feels a little like Spring

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    Editor’s note: This is a cross post from Let the Sparks Fly! written by Mark Skapinker. It is a delightfully positive outlook on the prospects for the Canadian startup union. Mark is Cofounder and Managing Partner at Brightspark, which earlier this week was awarded CVCA’s deal of the year award.

    Normally this is the time of the year that really stresses me out. It is late September in Ontario, summer is over, the leaves are starting to change colour, and while it is still pretty nice out, it’s real clear that it is downhill from here to winter, with warm days more than seven months away.

    But something in the local tech industry feels a little different, and it feels like things are getting better. Some of us have been lamenting the state of the Canadian VC industry for years now, and Rim’s woes should by all rights make the local scene seem even bleaker – but people in the industry don’t seem to be listening. A whole lot of activities that are happening seem to signal an awakening spring and everyone seems just a little more optimistic.

    Of note are more entrepreneurs pitching really interesting offerings. I keep meeting Canadian entrepreneurs with great ideas, great opportunities and a yearning for success.

    Surrounding that are a number of exits from local companies – most notably (for the industry and especially for us at Brightspark, where we saw more than a 23X return on our investment) is the Radian6 sale to Salesforce.com. This exit proved that great, money-making businesses can be hatched in Canada with local talent, local VCs and a positive outcome for the local economy. Add to that a series of other small acquisitions along with some interesting exits.

    And then there are the new micro-funds which are growing despite the stalling of the traditional industry, with experienced and talented managers helping a new series of companies – I am referring to our colleagues – Duncan and Robin at Mantella; Matt at GoldenVP; the teams at Xtreme, bnotions and Real Ventures; Daniel at Klass Capital; Bill Dinardo; and Joel at Trilogy; all who are making a very meaningful difference to our industry. MaRS is expanding, IAF is investing, I hear some traditional Canadian VCs may be finalizing new funds, and the government funds continue their part in providing capital.

    We aren’t out of the woods yet, but it definitely feels like now is a great time to be part of the Internet, software, mobile, Cloud, and payment industries. Markets are growing, and these industries are creating value while the rest of the economy questions itself. If this really is a marathon, now is a great time to be heading out.

    If we can keep up this momentum and deliver a few more winners, we may look back at this time as the period when the new Canadian industry started thriving.

    At Brightspark, we remain thrilled with our VC fund’s performance. Our multiple exits puts our performance way ahead of top quartile funds anywhere in the world. And we think the remaining companies in our portfolio have the potential of taking our fund to new levels. Our focus on investing in great teams, markets we understand, and with an early stage fund of entrepreneurs helping entrepreneurs is paying off really well.

    To those people who have written off our participation in the industry, we continue to focus on remaining a significant part of this industry, and we think the next few years could be very exciting for our funds and the Canadian industry.

  • Kanetix acquired by Monitor Clipper Partners

    Kanetix, Canada’s first online insurance marketplace provides over a million quotes per year to consumers looking for insurance, yesterday announced it has been acquired by Monitor Clipper Partners, a Cambridge based private equity firm that manages $2B in capital.

    Co-founded in 1999 by George Small and Gregory Ellis (who will retain significant stakes in Kanetix), the Toronto based company will now be led by Yousry Bissada who has joined on as CEO and Andrew Lo who has joined as Chief Information Officer.

    Yousry and Andrew previously grew Filogix from $3M to $60M in revenue. Monitor Clipper Partners leveraged recapitalized of Filogix in 2004 successfully exited for $212M to Davis & Henderson in 2006. It is encouraging to see experienced repeat teams growing Canadian companies.

    Here’s to a repeat performance.

     

     

  • Did we hit a billion?

    Dr. Evil "One Billion Dollars"Today IBM just announced the $387MM acquisition of Toronto-based Algorithmics. It begs a couple of open questions. Is Algorithmics after being sold to Fitch for $174MM in 2004 still a Canadian startup? Can a 30 year old company like MKS be considered a startup? Is Eloqua who’s HQ moved to Virginia still a Canadian company?

    If you imagine that Algorithmics is the second Canadian software startup acquired for more than $300MM in the past 6 months. Then to answer Dan Morel’s question,  if this was “The One Billion Dollar Year” for Canadian startup acquisitions, yes it is.  Only if you consider Algorithmics still a Canadian startup and 30 year old MKS a startup, then combined with Radian6 the acquisitions total just over $1B, everything else is icing on the proverbial cake.

    Congratulations to the Algorithmics team and alumni.

    Adding to the TechVibes list of Canadian Acquisitions:

    1/5/2011 – Victoria’s Flock acquired by Zynga

    1/6/2011 – Edmonton’s Attassa acquired by YouSendIt

    1/31/2011 – Toronto’s Adenyo acquired by Motricity for $100 Million

    2/8/2011 – Toronto’s MyThum acquired by OLSON

    3/3/2011 – Toronto’s CoverItLive acquired by Demand Media

    3/11/2011 – Vancouver’s Sayvee acquired by Bandzoogle

    3/26/2011 –  Waterloo’s Tiny Hippos acquired by RIM

    3/30/2011 – New Brunswick’s Radian6 acquired by Salesforce for $326 Million

    4/7/2011 – Waterloo’s MKS acquired by Parametric Technology for $292 Million

    4/8/2011 – Toronto’s PushLife acquired by Google for $25 Million

    4/27/2011 – Montreal’s Tungle acquired by RIM

    4/28/2011 – Montreal’s Coradiant acquired by BMC

    5/10/2011 – Toronto’s Conversition acquired by e-Rewards

    6/3/2011 – Waterloo’s PostRank acquired by Google

    6/7/2011 – Toronto’s DealFrenzy acquired by Intertainment Media

    7/8/2011 – Toronto’s FiveMobile acquired by Zynga

    8/30/2011 – Vancouver’s Zite acquired by CNN for an estimated $25MM

    9/1/2011 – Toronto’s Algorithmics acquired by IBM for $387MM

     

  • Trying to understand incubator math

    Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

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    Incubators are not a new addition to the financing and support for startups and entrepreneurs. On the surface, incubators and accelerators seem like a low cost way for VCs and government support organizations to cluster entrepreneurs and determine the top-notch talent out the accepted cohort. The opportunity to investing in real estate and services that enable companies where the winners are chosen by the merits of the businesses being built. It feels like a straight-forward, relatively safe bet to ensure a crop of companies that are set to require additional growth capital where part of the products and personalities have been derisked through process.

    However, its not as simple as putting small amounts of investment into a high potential company. An incubator is a business and it’s sole purpose should be to make money.

    What are the basics of an incubator?

    The basic variables in setting up an incubator business are:

    • Cost of the expertise, facilities, services and other overhead
    • Amount of $ to be invested/deployed
    • Number of startups
    • Equity being given in exchange for cash
    • Return on the total investment

    There are cost of operations: real estate, connectivity, marketing, programs and services for the entrepreneurs, and the salaries of the individuals to find the startups, provide the services and build successes. These costs are often covered by governments, in exchange for the impact in job creation and taxation base. We’ve seen a rise in incubators that are funded on an investment thesis, where an individual or a set of “limited partners” provide the initial investment in exchange for an investment in the companies being incubated.

    How much do incubators cost?

    The goal is to efficiently deploy capital to produce successful investments. I’m going to explore how incubators make money by making a few assumptions based on the incubator/accelerator models we’ve seen in Toronto, Montreal, Palo Alto and New York.

    Basic assumptions:

    • Capital Investments: 10 startups x 20k = 200k invested with an assumed ‘post-money valuation’ of $2.2MM
      • This means you now own 9.1% in 10 startups each with a post-money valuation of $220k
    • Support Costs: 10 startups x $10k = $100k
      • This is the cost of real estate, furniture, telecommunications, internet connectivity, etc.

    Alright, we’re planning to deploy $200k and it need to provide approximately $100k in services just to provide the basics for the startups. We’ve spent $300k for the first cohort and and that is before you pay any salaries, host an event, etc.

    Additional costs:

    • People:
      • $100k per year salary for one person to rule them all. Call them executive director or dean or something.
      • Assuming you’re not doing this to deploy your own capital, the person or people in charge probably need to collect a salary to pay their mortgages, food, etc.
    • Events – Following the model set forth by YCombinator or TechStars we have 2 main types of events. Mentoring events where the cohort is exposed to the mentors and other industry luminaries to help them make connections and learn from the experience of others. The other event is a Demo Day, designed to bring outside investors and press together to drive investment and attention in the current cohort, plus attract the next cohort of startups.
      • Mentoring event: $1k for food costs with 25 founders
      • Demo Day: approximately $5k
      • Assumption: 10 mentoring events plus a demo day per cohort adds $40k.

    The estimated costs are approximately $340,000/cohort. Assuming 2 cohorts/year plus the staffing salary costs, an incubator is looking at $780,000 that includes 40 investments and a total of $4.4MM post-money valuation. If we assume that I’m a little off on the total capital outlay, and we build in a 30% margin of error this brings the annual budget to appromimately $1MM/year to operate.

    How do incubators make money?

    Incubators make money when the startups they take an equity stake in get big and successful. The best exits for an incubator come when one of their startups is acquired. Why acquired? Because the path to getting acquired path is shorter than the path to going public which would also allow the incubator to divest of their investment.

    Let’s do the math. If your running an incubator hoping to get respectable returns on the $1,000,000 you’ve laid out above, let’s say it’s not the mythical 10 bagger but a more conservative 3x, the incubator needs one of the companies to exit at near $30,000,000. It can be one at $30MM or any combination smaller than that totalling $30MM. This needs to happen before any dilution and follow-on funding for your cadre of companies. You have to assuming that they can make it to acquisition on the $10,000 and services you’ve provided. For more on incubator math, check out there’s an incubator bubble and it will pop.

    The bad news is that it isn’t as simple as that. Startups are not just something that exist in a vacum. There are a lot of unknown variables that can make or break an incubator.

    • percentage of startups that fail (or turn into zombies) in the first two years after investment
    • time frame return is expected
    • how many startups currently produce that kind of return annually
    • total number of startups that receive investment in any given year
    • total number of acquisitions in any given year
    • avg. number of years a startup takes to get to acquisition (because they aren’t going public)
    • avg. price a startup sells for (I bet those talent acquisitions drag the average way down)
    • what do VC’s currently spend on their deal pipeline?

    It is the unknowns that are where the gamble exists. You can tweak the numbers all you would like but assume startups have a no better fail rate then any small business. The common thinking on that is 25% of businesses fail in the first year, 70% in the  first five years? If just more than half of those companies are alive in one year you are doing well. If one out of those 20 is acquired in 5 years and you get 3x return do you succeed? Do you have to run the incubator for the 5 years at $1MM/year to be able to play the odds?

    Maybe this is why so many incubators focus on office space, it’s easy to show LPs what they are getting for their $5MM for 5 year investment, plus an impressive number of “new” startups that have been touched by the program (often without an exit, you know the way incubators make money).

    What am I missing?

    Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

  • Why Wasn’t BackType Funded in Canada?

    This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting.

    BacktypeFor those of us who work in the Canadian social media and startup circles, there was some celebrating earlier this week when BackType announced it had been sold to Twitter.

    Lots of credit goes to founders Christopher Golda and Mike Montano, who have made BackType one of the leading services to track and analyze social media activity.

    Without raining on the BackType parade, a question that begs to be asked is whether BackType should have been funded in Canada as opposed to the U.S.

    To provide some background, Golda and Montano were electrical engineering graduates from the University of Toronto, who showed their entrepreneurial chops by starting a service called iPartee. While the business didn’t succeed, Golda and Montano proceeded to start BackType in 2008 as a way to search for blog comments.

    To jump-start the business, they applied and were accepted into Paul Graham’s YCombinator startup program in Silicon Valley, which coughed up $15,000 for a 6% in BackType. This let Golda and Montano create a prototype they could pitch to investors. Over the next three years, BackType raised $1.3-million and expanded into Twitter search.

    In hindsight, BackType is a big fish that got away from Canadian investors. I would hazard to guess that in 2008 getting seed capital from Canadian investors was a remote possibility for Golda and Montano, which is likely one of the reasons they applied for the YCombinator program.

    The question is whether BackType would get funded today in Canada. It appears the seed and startup investment landscape has changed with the emergence of new funds such as Real Ventures. Meanwhile, there has been a growing number of startup acquisitions, which should bolster the confidence of investors and entrepreneurs.

    Do Canadian investors now have the ability and willingness to finance smart entrepreneurs with ideas? Or do Canadian investors still need to see traction such as a finished product, customers or revenue?

    For more on the BackType story, check out this TechVibes story.

  • BackType acquired by Twitter

    Backtype has been acquired by Twitter

    Congratulations Christopher Golda (@golda) and Michael Montano (@michaelmontano) on Twitter acquiring BackType. We’ve written about BackType since their acceptance in YCombinator (fortunate that we didn’t give iPartee their previous startup too much attention). This is another amazing acquisition of Canadian startups by a Silicon Valley company (make it 16 acquisitions since Jan 2011 see TechVibes). I think Dan was right, this could be a $1B year for Canadian startup acquisitions.

    The BackType team had already relocated from Toronto to San Francisco. And it looks like the relocation to the Twitter offices should be much easier:

    Our team’s relocating to the Twitter office. We’re very excited to not only join an amazing company that’s changing the world, but to continue building products in pursuit of our shared vision with Twitter.

    Finally, I’d like to thank all our investors and advisors, especially Y Combinator, Toni Schneider and True Ventures, Josh Felser and David Samuel from Freestyle Capital, Manu Kumar, Chris Sacca, Raymond Tonsing and Seth Berman.

    What is amazing/disappointing is that there are no Canadian investors along side the group of amazing investors assembled by Chris and Michael.

  • Does RIM Matter to Startups?

    If you haven’t heard by now, RIM is having a horrible year. Their earnings meeting yesterday was chock full of bad news:

    Q1 revenue: $4.9 billion vs. $5.15 billion consensus
    Q1 EPS: $1.33 vs. $1.32 consensus
    Q1 shipments: 13.2 million vs. 13.5 million units expected
    Q2 revenue: $4.2-$4.8 billion vs. $5.46 billion consensus
    Q2 EPS: $0.75-$1.05 vs. $1.40 consensus
    Q2 shipments: None given vs. 13.5-14 million units expectation

    One caption I read put it best – RIIMMMMMBEEEERRRRRRR.

    Out of the downfall the Globe and Mail was hypothesizing that the fall of RIM was catastrophic for Canada’s tech eco-system. The article was a bit light on fact as to why it would rip apart the Canadian eco-system, and my initial gut reaction was “RIM has almost no impact on any of the startups I know.” But then I decided to go and look at the facts.

    Since roughly 2008 RIM has bought the following Canadian startups:

    So they’ve probably flushed about $60mm-$80mm into the Toronto ecosystem over 3 years in exits. On top of that they have the BlackBerry Partners Fund (with about $150mm in cash) which has invested in several Canadian startups. Lets also not forget that the eco-system around their partners. BlackBerry’s platform has created opportunity for mobile dev shop’s like Fivemobile and Xtremelabs to exist. But it feels like those guys do most of their business in iPhone and Android.

    So between exits and investment via BB partner funds they have probably kicked in about $100mm to the Canadian startup eco-system over the past 2-3 years. Which is not something to sneeze at. Having said that, Google (not HQ’d in Canada) has kicked in probably close to $100mm in the past 12 months… just in exits. So maybe its also not something to brag about either.

    Putting these numbers together, makes me feel more ambivalent about RIM’s impact on the tech eco-system in Canada. Lets be clear, we’re talking about a decline in the short to medium term, not a total shutdown. In that decline I expect RIM to take an even lesser role in the eco-system than before. And I’m not sure it matters.

    (Small end note as a UW alumnus. I’m not sure RIM’s downfall will have that big an impact on the school either. Big companies like Microsoft, Google, Facebook are still going to fight over UW’s top talent – their won’t a shortage of jobs for UW’s engineering community anytime soon. Maybe Laurier’s business & marketing grads… oh low blow).

  • 2011, The 1 Billion Dollar Year??

    Edit 1 – Techvibe just put together a more comprehensive list than mine – http://www.techvibes.com/blog/techvibes-comprehensive-list-of-canadian-tech-acquisitions-50-and-counting-2011-06-08. It is an even a bigger year than I thought!

    Edit 2 – I have been corrected that the Coradiant acquisition was more likely $100m-$150m. Updated below. Bigger than I thought! Glad to see I was “under-reporting”

    Interesting first 6 months to 2011. Check out this list of exits:

    Radian6 – $326mm
    Coradiant – $100mm (guess – this one has been tougher to size, some searching shows them to be around 100 employees with 10mm revenue?? That Akamai partnership feels pretty strategic though…)
    Pushlife – $25mm
    Tungle – $20mm (guess off of last raise/valuation)
    PostRank – $15mm (consensus guess from asking around)
    CoverItLive – $10mm (big guess)
    tinyHippos – < $1mm (4 employees)
    ———————————-
    About $495mm. Give or take $25mm depending on my math.

    Firstly, this is a perfect example of how VC exit math works and the power of a fundmaker like Radian6.

    But get this, we are exactly 6 months in and almost half way to…. well… July/August/December all kind of suck for doing deals… buuuutttt… maybe… maybe if I utter the amount… people will dream and we could maybe dreamily hit 1 BILLION DOLLARS in returns this year. Wow, 1 BILLION. Thats nine 0’s.

    The Net Value of All Exits for 2011?? (by Adam Crowe, some rights reserved)

    We’d need another big mama ala Radian6, and another 4 $20-$30mm exits. I could hazard a guess at a few companies that could exit for $20mm+ today and now, but the big, big question is, where will the big exit come from?

    Kobo Books (@kobo)

    They just raised $50mm. Not sure about the valuation, but we could size it at say $150mm – $300mm (I’d go higher because they are very young and having a $50mm raise means they have a vertigo inducing growth/revenue curve). And lets not forget the mainstream press chatting about an Apple acquisition. This could be a high 9 figure to billion dollar plus exit if something happens.

    Freshbooks (@freshbooks)

    They state over 2mm users on their home page. Lets say 10% are paying customers and they pay on average $30/month (looking at their pricing plans). 200k * $30/month * 12 months = $72mm in annual revenue. Even at 5% freemium conversion they are at $36mm. Thats a big customer base and a big chunky, sticky subscription revenue base.

    Would love to hear from folks. What other startups do we have hanging about that could do a big exit? Am I missing any of the 2011 exits to date?