StartupNorth

Category: Investors

  • How to get the most out of AngelList: As a VC and as an Entrepreneur

    I love AngelList.  I truly believe it is disrupting the way early stage deals are being discovered and funded.

    When I was with BlackBerry Partners Fund (now Relay Ventures), I used AngelList to virtually meet and screen tons of companies.  I set up Super Fridays for myself, filling my mornings and/or afternoons with back-to-back 30 minute calls with 10-12 companies.  I really recommend this to any young VC looking for both dealflow and honing their game.  The velocity and juxtaposition of all these entrepreneurs, pitches, and companies really taught me how to evaluate deals along the VC spectrum:

    • (NO) polite and immediate no thank you
    • (NOT YET) check back with traction
    • (NOT SURE) send me your pitch deck so I can another set of eyes on this
    • (POTENTIALLY) let me bring this up at the next Monday partner meeting and see if someone bites
    • (YES) holy moly let me get John Albright right now

    All told, I probably screened 150-200 companies every three months on AngelList alone.  Ultimately, after all those Super Fridays, the firm funded two great companies: PubNub and ClearFit.

    Now as I sit somewhat on the other side, running Extreme Startups, I am spending time trying to get VCs to view our companies’ AngelList profiles.  To help figure out what companies should be doing on AngelList to help maximize their exposure, we at Extreme Startups recently had a session with Ash Fontana from AngelList to get his advixe.  Ash shared some best practices that I’d like to share with our community.  His advice included a lot of great tips and some common sense details that time-crunched entrepreneurs might glance over.

    Company Profiles

    1. Fill it out completely.  All the sections and tabs.  Comprehensive profiles are definitely the best so that there is both pertinent and substantive information.  One good tip is for the Founder Bios – include university info as well as some investors search for key schools.
    2. Be open / generous with information.  Specifically for the Fundraising tab, the Deal Terms should be filled out.  You don’t need to put valuation, but some indication helps investors looking for certain price ranges or structures (convertible note vs. equity).
    3. Use graphics – slides, screenshots, graphs, and videos to make a static page pop.

    Key tips to stand out

    • State the most original thing or function your product and company does.
    • Information about the market size is key.
    • Name something extraordinary about your company or founders.
    • State the hardest problem you solve.

    How do you get featured?

    For those lucky four startups on the feature page on the front page of AngelList, what is the process to get there?  It’s curated by Ash, who uses a number of different tools to track interest and traction.  Note that there are now over 80,000 startups on AngelList, with ~100 getting added every day.  Only five get featured per week – so only top 0.5% have the chance to be featured.  We are lucky to have our alumnus Granify on the feature page!  ShopLocket, SimplyUs, and Verelo all have great profiles as well (shameless plug).

    So what should you do after your profile is up?

    1. Be active.  It’s a social network.  Start and engage in conversations.  Follow interesting companies, entrepreneurs, and investors.  Comment on people’s status updates.  Refer interesting deals to other people.
    2. Be proactive.  Reach out to investors and advisors.  Ask for referrals and recommendations!
    3. Match your offline activity to your online profile.  Add an advisor or investor?  Make sure you AL profile reflects that.  Have your network post and share your traction and successes online!

    Other AngelList resources recently launched

    • AngelList Docs is in beta, but only for US incorporated companies for now.  It’s a great resource to close your deal online, industry standard docs and no legal fees.
    • AngelListTalent recently launched and helps startups recruit, and talent identify great jobs.  It uses a double opt-in structure, so you only get shown the jobs of the companies you follow.  It’s a great resource for recruiting.

    Hacking AngelList articles

    Lastly, Ash mentioned he loved and supported the hacking AngelList posts.  Somewhat analogous to the black art of gaming the iTunes stores, there are ways to succeed on AngelList outside of what is included in this post.  I just googled and found a couple of hits.  There are the most useful imho.

    Final thoughts

    I really hope more Canadian companies use and publish on AngelList, Gust, and others.  It’s a great way to get your profile out to Canadian, US, and international investors.  Not to mention its a great way to help entire cities and regions get noticed for great deal flow.  Maybe some young VC down south will start arranging their own Canadian Super Fridays…

    Please follow me on AngelList! (and Twitter).

  • Round13 Capital puts founders first

    Scott Pelton, Bruce Croxon and John Eckert - Round13 Capital

    Round 13 CapitalWhat’s interesting about the Round13 Capital announcement today isn’t the size of the fund – they are targeting $100MM. It isn’t the people who are involved – they are amazing. It isn’t the LPs – they are different. The team, Bruce Croxon, John Eckert and Scott Pelton, are bringing together a group of entrepreneurs to serve as mentors. This is not uncommon in the US with a number of funds like SoftTech VC, Felicis Ventures, Founders Fund and similar to Founder Collective (if you are interested read the Kauffman Foundation’s Do Entrepreneurs Make Good VCs? [PDF]).

    “Venture capital firms with a greater fraction of entrepreneur VCs have better firm performance. The positive relation between entrepreneur VCs and performance is stronger for venture capital firms specializing in high-tech industries and in early-stage investment.”
    — Do Entrepreneurs Make Good VCs – Entrepreneurial Finance and Innovation Conference – The Kauffman Foundation

    The Round13 Capital team has done an amazing job of bring together founders with exits as both LPs in the fund, and more importantly as mentors for their portfolio companies. This is a critical differentiator for Canadian entrepreneurs. Hopefully the Round13 fund will close and they can start funding Canadian entrepreneurs soon.

    Round13 Investors/Founders

    This is great new for Canadian entrepreneurs!

  • Go big and stay home

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    Wattpad announced today a $17.3MM raise from Khosla Ventures, Golden Venture Partners, Union Square Ventures and Jerry Yang. This is huge.

    “It has been recognized as highly significant due to having two top-tier US funds investing at this level in a Canadian-based consumer internet company.”

    We are seeing Canadian entrepreneurs build companies and demonstrate global traction. The changes to foreign investment related to Section 116 changes in the Tax Act, have allowed Canadian companies to go big and stay home.  The changes to Section 116, coupled with the desire of Canadian entrepreneurs to go big and stay home. Evidenced by Wattpad’s big raise, Wave Accounting’s $12MM series B from Social+Capital, Hootsuite’s $20MM round from OMERS (sure they’re not foreign capital but its a big round), Shopify’s $22MM ($7M series A + $15M series B from Bessemer), Beyond The Rack’s $36MM raise, Fixmo’s $23.4MM Series C from KPCB, Achievers’ $24.5MM Series C from Sequoia, and others. There are startups and there is capital. It’s possible to build a growth company in Canada and raise foreign capital. The game has changed for Canadian VCs, geography limitations can help these funds identify early but it potentially will relegate many to second tier status if they can not enable their startups beyond their geographies.

    The great thing in talking with many of these entrepreneurs is that they want to build successful companies in Canada. Allen Lau, CEO of Wattpad, mentioned that his desire was to grow a large successful company in Toronto. He is not looking to move the company. The same is true of my conversations with Kirk Simpson at Wave Accounting, Tobi at Shopify, Mike at Freshbooks, etc. There are a lot of reasons to want to be way from the tensions and pulls the exist in the Bay Area. Canadian startups have access to great talent. While there is some pull between the different startups, many of these companies aren’t competing with each other for employees or mindshare. Just check out Shopify’s recruiting video and tell me why you wouldn’t choose to work for Harley and Tobi instead of a financial institution or a government organization.

    It’s a great time to be an entrepreneur in Canada. It’s a great time to work for a startup. You should check out the opportunities on the StartupNorth job board.

  • CVCA, #FFdemoday and AccelerateMTL

    Chris Arsenault (LinkedIn, AngelList, @chrisarsenault) sent me a message yesterday about writing about the CVCA conference. And I was looking at the conference trying to figure out why as an entrepreneur that I might want to attend this event. It is “the premiere networking and professional development event for Canada’s venture capital and private equity industry”. Well I don’t work in venture capital or the private equity industry, and the professional development I can get that at Ladies Learning Code or Udemy or O’Reilly. So why should I care? Maybe a “free Blackberry Playbook” would get me to pay for the registration. Disclosure: RIM is a sponsor of StartupNorth, though we don’t have any free Playbooks. 

    Then it struck me.

    1. FounderFuel DemoDay
    2. AccelerateMTL
    3. CVCA

    My goodness, this is an incredible opportunity for Canadian entrepreneurs. If you plan this correctly, you can connect with investors, other founders, folks form NYC, Boston, the Bay area. While the specific sessions at CVCA aren’t necessarily my cup of tea, you could sit in the lobby at the Fairmont Queen Elizabeth and meet every investor in one shot.

    CVCA attendees will have a “free Blackberry Playbook” . Just like LinkedIn, I’d be building an HTML5 optimized version of my application and making sure as hell it works like gold on a Playbook (which has a great implementation of WebKit browser). You could call the Fairmont and set up an espresso stand and give away coffee to everyone that demos your application. Hell if nothing else a big sign with “Free Latte” for all of the hung over CVCA attendees and have a student running to a local coffee shop for fulfillment. Great opportunity to get out and hustle.

    On top of all of this you get to see some brilliant demos at Founder Fuel. This is going to be a killer event, and you could make it a very interesting opportunity to get in front of potential investors, partners and folks from outside Canada for relatively little cost.

  • Work-Life Separation and Institutional Funding

    I met with a friend this week who has a job. He’s working on a side project with a friend. They both hope to leave their jobs in the near future to work on this new side project full time.

    Both partners in this side project have kids, young families. One of the questions he asked me was around fund raising. Specifically the concern that raising funds from institutional investors or angels may put them in a position where they’re being forced to work more than the 60 to 70 hours they’re currently working. Ultimately the concern being that they’ve seen people lives ripped apart by this.

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    My response was reasonably simple. Product based businesses can, and likely will, consume you and everything in your life. Services based businesses are a lot of work, products are all consuming. If your personal relationships and your support systems aren’t strong, they will get ripped apart. You can’t blame that on investors or entreprenership.

    Now for the good news. If your project does not consume you then you have the wrong project. Drop it and move onto the next one or go ask for your job back. Investors won’t force you to work long hours. If they need to, wrong project, drop it, move on.

    I’ve said this before, I don’t believe in the myth of work-life separation. In fact, anyone who brings it up with me, I immediately know they have a job they don’t like. Work-life separation was born of the industrial revolution. You need it to shield that crappy job from your life. Now, full disclosure, I’m drafting this post at 4:21am while you’re cozy in bed. People often use that measure “are you excited to get out of bed and get to work in the morning?”. I use the measure, if you’re sleeping well every night then you may have a job.

    My work is my life. My life is my work. I bring all of me to both. Work makes my family stronger, it makes my relationships with my kids stronger, they all feed off each other. The last time I had a corporate gig, my family suffered. That’s just me, I’m not suggesting it’s you.

    If you have a great work-life separation today, I’m not advocating you change anything. If, however, you want to work for yourself someday then it’s time to start tearing down that divider. Start by bringing more of you into your work and more of your work home. Don’t worry about losing it or maintaining that barrier, start destroying it. It’s the only chance you have of success out there.

  • Toronto: Why Are We Here?

    Editor’s note: This is a cross post from Zak Homuth (LinkedIn, @zakhomuth, Github). Follow him on Twitter @zakhomuth. This post was originally published on February 1, 2012. And like many startups, Upverter is hiring.

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    Its winter right now, and that means for those of us in the north east its cold. We try to pretend its a good thing; that it keeps us focused. But the reality is we dont live and work here because of the snow, we live and work here because smart people love, more than anything else in the world [pg], to work with other smart people. And, make as many snow jokes as you want, but…

    Pay attention to Toronto

    Canada is the best country in the world to do business in [forbes], Toronto is the most multi-cultural city in the world [wikipedia] (suck-it NYC ;)), we get tax incentives for R&D [gov], and its the only city within an hour of one of the worlds foremost engineering schools [uwaterloo,coop program].

    So, I say again, you should be paying attention. And if you’ve got your shit together you should be trying to figure out how to get a footprint here. Because believe it or not, we dont all want/have to be in the valley [fred].

    All that being said, I still get this question a lot

    There is a (very reasonable) expectation that YC companies make every effort to relocate to silicon valley as part of the program. And the fact that we have most of our operations in Toronto raises some eyebrows. My answer is really simple: The talent is here and it wants to be here. Sometimes I even go as far as talking about how much further our investment takes us when we spend it here instead of in the US, but at its root its a talent thing.

    Toronto isn’t the only place in the world

    Its true. I still spend a tremendous amount of time in the valley. And we have customers all over the world. Simply put there is no perfect place for everything. But if youre building a product business, or looking for talent, you could do much, much worse! Toronto is great for talent, and its a great place to live. Oh… and Im sure its not supposed to matter but like my good friend dave [blog] would say, “look at the scenery”.

    But, its also a terrible place to raise money. Like I said, nowhere is perfect.

    About Me

    Upverter is my 3rd startup. I dropped out of highschool, and then university, both times to run startups. I’ve worked in Ottawa, Waterloo, Stuttgart, Bangalore, and Mountain View. I have never lived in Toronto before, so its a first for me, but we’re here because its where our team wanted to be. We are currently 7/7 kick-ass, and 6/7 Uwaterloo engineers who would just rather be here at home in Canada, than down in the valley. Oh, and if you’re smart, we’re hiring.

    Editor’s note: This is a cross post from Zak Homuth (LinkedIn, @zakhomuth, Github). Follow him on Twitter @zakhomuth. This post was originally published on February 1, 2012. And like many startups, Upverter is hiring.

  • Call us when you have traction

    Editor’s note: This is a guest post by Kevin Swan (LinkedIn, @kevin_swan). Kevin has cut his chops doing product management at Nexopia.com before becoming it’s CEO. He moved to the dark side with Cardinal Venture Partners and is now a Principal at iNovia Capital.   Thankfully he is an MBA dropout and that’s why we like him. Follow him on Twitter @kevin_swan or OnceABeekeeper.com. This post was originally published on January 12, 2012 on OnceABeekeeper.com.

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    This is probably one of the most common phrases you hear from venture capitalists. It has become the de facto phrase from an investor that really isn’t interested in your startup, but wants to let you down easy. I make a conscious effort to avoid taking this backdoor, but I know that I have been guilty of it as well.

    Recently, I was digging into a company and providing the entrepreneur with some feedback. After sharing a few thoughts I used the traction excuse – in this case it was legit. We liked the space, the entrepreneur and what he had accomplished so far. However, he didn’t have enough traction for it to be attractive as an investment yet. He quickly emailed me back with the question – “What do you mean by traction, specifically?”

    Then it hit me – I have never actually been asked that! I think that investors are so used to using the term that they never put any quantifiable information behind it. I thought that it would be a good exercise to provide a quick overview of what traction looks like. Note that what follows is completely a generalization and their are many other factors that come into play in an investment decision. Also, traction looks very different depending on the type of company you are building and the market you are targeting. I will tackle three common ones in this post and try to estimate some figures that would be required for a Series A investment.

    In consumer internet or mobile startups that does not have a transactional revenue model attached to it traction is all about the audience. The bar for what traction looks like in these companies has been significantly raised from 5-7 years ago when everyone was starting social networking and digital media companies. To be compelling to a VC you will need to show early signs of growth, 30%-50%+ month-over-month (MoM), and start to build an active user base of 100K+. Some VCs I have talked to say not to get your hopes up for a Series A investment unless you are around the 1,000,000 mark.

    uvs-to-pinterestLets take a look at one of the hottest companies in this space that just recently closed a round of financing, Pinterest. Don’t focus so much on the incredible growth they have recently experienced, but rather notice that they had it even when their user base was small.

    A SaaS company will not experience the same kind of growth as a consumer internet company. It is, however, generally able to produce revenues from day one. The definition of traction for these companies looks more at the signs (or specifically, data) that the company is moving to a scalable and profitable model. In simple terms, the separation between the cost of customer acquisition (CCA) and the lifetime value of a customer (LTV) is shrinking and repeatable. This combined with a growth of 10%-30% MoM shows signs of traction.

    An e-commerce company takes a longer time to show signs of traction that is attractive to investors. This stems from the fact that it requires a considerable scale to make an e-commerce company profitable in light of low margins and expensive infrastructure. The same key performance indicators (KPIs) apply – CCA and LTV. However, unlike SaaS companies there are going to be considerable capital and fixed costs in an e-commerce company to consider. In general, growth rates of 10%-30% MoM and a 12-month run rate of over $1 million are signs that the company has traction.

    I want to re-iterate that this is a generalization and their are many other factors that come into play in an investment decision. However, I wanted to try and provide some quantitative numbers for context.

    Another question that I know will come up is in relation to what kind of traction is required for seed/angel investments. That is a whole other post, but I will share a great comment from my colleague Karam. While a Series A is all about traction, seed investment is all about momentum. This momentum can take a lot of forms – traffic, sales, product development, recruitment of a team or even investors who have already stepped up to the plate.

    Don’t wait until you have hit these metrics to reach out to investors either. In every case, an investment starts with a relationship that has to be built and investors want to see lines not dots. If you are moving in the right the direction and building traction make sure you reach out!

    Editor’s note: This is a guest post by Kevin Swan (LinkedIn, @kevin_swan). Kevin has cut his chops doing product management at Nexopia.com before becoming it’s CEO. He moved to the dark side with Cardinal Venture Partners and is now a Principal at iNovia Capital.   Thankfully he is an MBA dropout and that’s why we like him. Follow him on Twitter @kevin_swan or OnceABeekeeper.com. This post was originally published on January 12, 2012 on OnceABeekeeper.com.

  • Another Monster Raise – Paymentus Closes Big Round From Accel-KKR

    Yesterday we posted about iLoveRewards closing a big growth round from Sequoia. Well today, another JLA Ventures company did a big round of growth money as well. Paymentus raised a big round from Accel-KKR, rumoured to be at $20mm. That’s $45mm in capital to two Canadian companies in a very short period of time. I imagine John Albright, @johnalbright, has enjoyed a celebratory cocktail or two after seeing two portfolio co’s do big growth rounds. Lets also not forget the story of Dushyant Sharma who looks well on his way to yet another entrepreneurial highlight reel entry. And of course big hats off to GrowthWorks for being the initial funders of this company and providing funds to Canadian companies when many others were not. PR post is here.

    Paymentus Corporation, a leading electronic bill payment, presentment and customer communication technology and services company, today announced that it has received an equity investment provided by Accel-KKR, a technology-focused private equity investment firm. The investment will be used by Paymentus to accelerate development, drive growth, and enhance the footprint of its real-time payment network.

    Paymentus’ unified, SaaS platform delivers enterprise bill payment, presentment and revenue management technology through a self-service model, simplifying, automating and streamlining the bill payment process.

    I found an old post from Rick Segal, @ricksegal, about the initial investment JLA did in Paymentus, which I think is a valuable repetitive lesson for all entrepreneurs about how to build a big successful company (something Dushyant has done a few times now):

    We invested in Paymentus for a number of reasons. Our basic business thesis was that there are a number of places where (surprisingly) automation of paying certain types of bills is still in an evolving state. Paymentus has identified a number of these market segments and came to us with some great traction, proprietary technology, tons of industry knowledge, and an impressive plan for growth.

    Dushyant did all the right things as a start up. Self-funded until he hit milestones that started to prove out the business stood out to the investors as well as a very clear and deep understanding of the bill payment and presentment business.

    We’ve done the list of acquisitions and celebrated, I think next up its time to tally the list of big raises, as I think there are more companies “going big” than we give credit.

  • Red flags

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    This is an unfortunate story that entrepreneurs should read and understand.

    We start companies for a number of different reasons. We want to change the world. We want to solve problems. We are unemployable. We are crazy. And we stay up at night worrying about taking care of our employees, our customers, our investors.

    So it is hard to understand how well regarded funds wind down companies without providing information to employees.

    Investor immorality: The strange case of Blue Noodle

    Start-ups fail all the time. But there is a right way and a wrong way to do it. This is an example of the wrong way.

    On Monday, most employees of social media startup Blue Noodle didn’t get paid. They called their lead venture capital firm, which wouldn’t discuss the situation with them. They called their former CEO, who refused to pick up the phone. They called their lender, who said to call the venture capital firm. And thus the circle began anew.

    “In my more than 20 years of working in Silicon Valley, I’ve been involved on more failed companies than I’d like to admit, but there is always an orderly win-down process,” says John Montgomery, chairman of law firm Montgomery & Hansen. “It sounds like the VCs in this case are treating the company like a car they abandon in a parking lot with the keys in the ignition.”

    Read on…

  • Aaarggh – VC Funds Are Drying Up?

    Yesterday and today I’ve been trying to make sense of two different data points that came out on the Canadian business scene.

    One data point confirms that we are having a banner year across Canada. Check out the numbers:

    * Q2 private equity deals worth C$5.7 bln in Q2
    * Total deal value more than in all of 2010
    * Deal volumes up 40 percent over Q2 2010

    (Side nostalgic note, I love that Berkshire bought Husky, it was actually my first co-op job and I have always had huge respect for Robert Schad – a giant amongst Canadian entrepreneurs)

    As you know from several of my posts on exits, this and this, the startup high tech scene are big contributors here.

    So, this means that we are returning capital on investments made into companies in Canada, right? Which means, since there is a healthy market for exits, folks should be willing to supply funds to VCs to start companies…. right?

    Well, according to CVCA, it looks like VC fundraising fell flat on its face.

    Smith said slow fundraising by venture capital funds was undermining deal-making, with new commitments sliding to C$132 million in the quarter, from C$308 million last year.

    “VC investment, which has historically been the catalyst for knowledge-based economic growth, cannot effectively do this job until we take determined steps to ensure more stability,” Smith said.

    Falling fundraising is part of a continuing trend.

    In 2010, new commitments fell 24 percent from the previous year to their lowest level in 16 years. They fell further in the first three months of 2011 against the first quarter last year.

    WTF!?!?! Did VCs forget to cut cheques to their LPs? Are the companies getting bought out not VC funded? Something feels out of whack here. Are there simply not enough fund-makers ala Radian6 to make a reliable return on investment? We are doing some digging to get to the bottom of this. It does resonate that entrepreneurs should focus less on VCs for funding and need to be looking towards angels & incu-ellerators for their early stage funding needs.

    UPDATE: This article from the Globe really outlines how VC funds have been in long decline.

    Year VC invested/Companies Financed
    1998 $1,511,000/807
    1999 $2,617,000/810
    2000 $5,876,000/1,007
    2001 $3,747,000/720
    2002 $2,583,000/663
    2003 $1,613,000/615
    2004 $1,677,000/545
    2005 $1,699,000/558
    2006 $1,701,000/406
    2007 $2,051,000/402
    2008 $1,406,000/388
    2009 $1,039,000/337
    2010 $1,129,000/357

    These numbers tell something interesting – apparently in Canada its gotten more expensive to start companies??? In 1998 $1.5mm resulted in 807 companies getting financed, while in 2008 $1.4mm results in 388 companies getting invested. What gives?