StartupNorth

Category: Startups

  • Lean Startup Tools

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    Back in May, Nat Friedman wrote about the tools used in setting up Xamarin. They include a great set of basic tools for getting a startup off the ground with very little investment. We have seen a lot of startups using a similar set of tools and I thought that we’d compile a list of the tools that we’re actively using (and some of the others we evaluated). There are the tools and blogs listed by Steve Blank that include many

    Landing Pages

    We’re big fans of WordPress at StartupNorth. We’ve powered StartupNorth on WP since the beginning. The combination of WordPress, Premise, and the WordPress MU Domain Mapping plugin is a pretty powerful combination for creating mutliple sites and landing pages to test your landing pages. But we’ve also developed a sweet spot for Vancouver’s Unbounce, it took us less than 5 minutes to have 2 landing pages and a domain set up. We’re big believers that you can use Adwords and Facebook Ads to quickly create a landing page to test ideas before writing a single line of code.

    Analytics

    We primarily use Google Analytics and WordPress Stats for StartupNorth. We’ve been working with startups and using a KISSmetrics and Mixpanel to measure activity on their web properties and applications. Make sure you read Ash Maurya’s 3 Rules to Actionable Metrics to understand how the analytics can be used in combination with split testing and/or cohort analysis to better track your optimization before product/market fit (What do you measure before product/market fit? – check out Ash’s conversion funnel and metrics).

    Mailing Lists

    We haven’t been as proactive in building a mailing list for the StartupNorth community as we probably should have been. I’ve used have started using MailChimp because of the quick integration to GravityForms and WooFoo, but have had very positive experiences using both Campaign Monitor and Constant Contact.

    Billing and Accounting

    What is amazing is that both of these companies are local to Toronto. We use WaveAccounting integrated with our bank account and PayPal for tracking expenses, billing, and financial operations. And we use Freshbooks to bill for sponsorships. They are a must have in our back office. What we’re missing is a really easy to use and integrated payroll system (I hear that it might be coming).

    Human Resources

    For full disclosure, I’m an advisor to TribeHR. It doesn’t change the fact that they rock. It is the easiest way to get an HR system in place. And there is no better way to get feedback and help employees improve than Rypple.

    Surveys and Feedback

    We are actively using Survey.IO to gather feedback from users about the state of StartupNorth. It helps us figure out the state of our product market-fit, if there is such a thing for a blog about Canadian startups, fill it out and help us be better.

    Project Tracking

    We use Pivotal Tracker. We like them so much, we actively recruited them as a sponsor for StartupNorth. There are lots of other tools from project tools to issue tracking. Curious at what others are using.

    Source Control

    We use Github Bronze for our project hosting. Most of the code we work on is PHP against MySQL (see WordPress), though we have additional apps in development like the StartupNorth Index (which will be moving to startupnorth.ca/index shortly) but all are LAMP.

    Hosting

    Full disclosure: VMFarms is a sponsor of StartupNorth. However, their hosted VMs that are backed up and hot mirrored coupled with the outrageous “white glove” makes them a dead simple choice. We also use Rackspace Startups and EC2 for access to easy Linux and Windows VMs for development and testing environments.

    Customer Relationship Management

    We don’t have any strong recommendations. There are platforms like Salesforce that are fantastic and sales teams are used to. There is Highrise which is broadly supported with a lot of 3rd party tools. But so far, neither of these has been the clear winner for us. There is a great Quora question about “What is the best CRM for startups” that lists SFDC, SugarCRM and Highrise. There are a lot of choices for CRM including Nimble, Insightly, Woosabi, Capsule, Solve360,AppPlane, Batchbook, PipelineDeals, TactileCRM, ZohoCRM and many others.

    Conferencing, Screen Sharing & Telecommunications

    I’ve been using Calliflower for conference calling. It’s $5/call for up-to 5 callers, or for $30/month unlimited minutes and >70 participants, it’s a great solution. It is not a replacement for a office phone system.

    Google Voice and Skype have been the least expensive way as a Canadian startup to get a US phone number. This is great for me as an individual. However, this does not scale to an enterprise or an organization. I’ve been looking at Grasshopper, RingCentral and Toktumi, but I have yet to settle on a solution.

    SEO & SEM Tools

    This part of the list is pretty much cribbed from Steve Blank’s list of tools for entrepreneurs. Go read it for a more comprehensive list of tools beyond the SEO/SEM listing included below.

    What are we missing?

    I’m going to cover in the next post: discounted travel, conferences, business cards, design services, and other tricks for being relentless resourceful as a founder.

    There are a lot of online tools that startups are using to make or break their business. And there is a lot missing, monitoring like NewRelic, PagerDuty, Pingdom and Blame Stella for example. But I’m curious what are the indispensable tools being used at iStopOver.com, HighScoreHouse, CommunityLend, Idee/Tineye, Massive Damage, Empire Avenue, Indochino, Lymbix, Hootsuite, AdParlor, Locationary, Chango and others. What are you using? What gives you the edge in quickly and effectively gathering feedback to test your hypotheses?

  • 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.

  • Nina Sodhi returns and BluTrumpet launches

    One of the great things about the number of exits (be they big or small) since 2010, is that they are enabling a new class of veteran, serial entrepreneurs. The knowledge, the contacts, the street cred, the capital – the second time around can be easier than the first. And it should be good for investors, hopefully some of the returning class will go for building big companies with $100mm+ exits instead of “getting paid” with a $20-$30mm exit.

    Take for instance Blu Trumpet, who launched a few days back. Led by Nina Sodhi, former COO of Bumptop – who were acquired by Google in 2010, Blu Trumpet is the first company to launch out of IAC’s Hatch Labs mobile incubator.

    Hatch Labs, a joint venture with IAC and Xtreme Labs, today introduce Blu Trumpet, an app discovery wall that lets advertisers reach millions of devices with clean, user-friendly ads. Blu Trumpet uses sophisticated design to provide publishers a non-intrusive app discovery tool that users actually enjoy, an alternative to banners, and a more creative way to monetize any app.
    “At Hatch Labs, we know the mobile space and we really saw a need for a new type of mobile ad platform that caters to the new app economy,” said Nina Sodhi, CEO at Blu Trumpet. “That’s why we aren’t focusing on display or pop ups. Blu Trumpet gets integrated into an app’s tab bar, allowing users to find us when they are curious and interested. The consumer is happy — and the publishers and advertisers benefit from that.”

    Blu Trumpet offers consumers a new, non-intrusive way to find cool apps without searching through lists of a million apps through Blu Trumpet’s in-app ad platform, “the app wall.” While in a favorite app, consumers can view the Blu Trumpet app wall to discover new recommended apps based on those they’re currently using.

    “It’s like getting a tip from a friend,” said Karthik Ramakrishnan, Blu Trumpet Product Director. “Consumers avoid intrusive pop up and banner ads, and get to discover recommended apps they’d probably never find otherwise.”

    I think Nina Sodhi becoming a GM at IAC and CEO of BluTrumpet, along with her amazing bio (UW Elec Eng, Harvard MBA, VP at Merril Lynch, COO Bumptop, etc, etc), puts her up there in the elite rank of Canadian entrepreneurs. And hopefully her results at IAC and with BluTrumpet will push some of the other recent “exitees” to come back and fight the entrepreneurial good fight. For instance, Jeson Patel, Anish Acharya, Anand Agarawala – aren’t you guys all coming up to 1 or 2 years at Google.. isn’t that enough time to claim your prize and start something new??

  • 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…

  • The Story of Quack.com and How It Changed the Canadian Startup Ecosystem

    A few weeks past I posted about the hockey stick growth of exit in Canadian startups. Well, let me give some interesting colour to some of the cause of that growth.

    Quack.com is a company that most of you probably know very little about, despite its relative fame in the hey-day of the dot com boom. Back in the day when I was a student at Waterloo, I remembered Quack.com coming on compass and having some great recruitment events at the local pub, The Bomber. That was the last I heard of them. Little did I know that Quack.com would eventually help permanently alter the Canadian eco-system.

    Quack.com was a Silicon Valley based company. They built a really cool IVR service, cutting edge stuff in 1998 when they were founded. Steven Woods was co-founder, CTO and Chief Product Officer at Quack.com. Dan Servos later joined quack as its SVP Alliances and Sales. In the year 2000, they sold to AOL for a hefty $200mm price tag. Big exit, even by that era’s standard.

    A few years later Steven Woods & Dan Servos were at it again. Classic serial entrepreneurs – Steven started another company, NeoEdge which Dan joined. Not quite as big a success as Quack.com, but not every venture leads to a $200mm sale of your company.

    Fast forward to 2008. Dragged from the startup world kicking and screaming, Google steals Steven Woods and hires him as site manager and engineering lead for Google Waterloo. You have to understand how big this is. Steven Woods is a 2x entrepreneur with a big, big exit under his belt, also serving as an advisor & investor to several startups. He is a big deal in Silicon Valley, let alone in Waterloo where he should be recognized as an entrepreneurial god. Only the duo at 295 Philip St hold more entrepreneurial street cred than him in Waterloo. Not only is his startup background a big deal, but he has a fricking phd in computer science. An immense example of reverse brain drain if I’ve seen one. Which is ironic, since Quack.com/Steven Woods was famously ripped as being a big cause of Canadian brain drain when they hired 50 Waterloo grads in 10 months before selling to AOL.

    Check out what started to happen shortly after he came to Google Waterloo:

    1. Google acquires Toronto-based company BumpTop for $30m.

    2. Steven Wood’s old colleague, Dan Servos, ends up as CEO of Social Deck.

    3. Shortly thereafter, Toronto-based Social Deck gets acquired by Google.

    4. Toronto-based Zetawire gets acquired by Google.

    5. Toronto-based Pushlife gets acquired by Google for $25mm.

    6. Waterloo-based Postrank gets acquired by Google.

    (and now Dan Servos lands as COO of Locationary. Hmmmmm…)

    Steven Woods & Dan Servos have been machines, invigorating the Canadian startup ecosystem with new possibilities. Via his role at Google, Steven Woods has provided a real source of opportunity for entrepreneurs in Canada to do something with their company other than “move to the Valley”. 6 exits probably at near $100m in total money in under 2 years. Dan Servos has provided huge leadership to Canadian startups like Social Deck, Locationary, etc. This should be massive motivation to entrepreneurs. If you have success, find ways to be like Steven Woods and Dan Servos and help the ecosystem continue to grow. Don’t be like this.

  • 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?

  • More GrowConf tickets via ShinyAds & Nokia

    Grow Conference - August 17-19, 2011 - Vancouver, BC

    Need a ticket for the Grow Conference?

    The generous sponsors of the Grow Conference are continuing to offer a few free tickets to some starving startups over the next week. We call this Conference Ticket – Ramen Class.

    Today’s tickets comes from ShinyAds.com and Nokia. These are two very different companies. One is the largest mobile phone manufacturer in the world, the other is a small startup trying to get companies on to their ad serving platform. They see the benefits for startups to attend Grow.

    To win these passes tweet the following today:

    RT to enter! “Hey @nokia – Please send me to the @growconf #growconf in Vancouver http://www.startupnorth.ca/ .

    Tuesday August 9th, Grow Conference organizers will pick the winners who will get a pass for Days 2 and 3 at the 2011 Grow Conference. *Note that travel and accommodations are not included, pay for your own flights and hotels and drinks you cheap and resourceful founders.

    The Grow Conference is a unique three-day conference that brings together the top minds in business, entrepreneurship, technology, and capital to inspire and engage the next generation of disruptive entrepreneurs. It doesn’t matter if your business is on or offline, the next-gen entrepreneur knows where their customers are and how to engage them. Today’s entrepreneurs are creating new opportunities, disrupting age-old markets, leveraging technology on their path to being tomorrow’s leaders. The Grow Conference is bringing the best minds of Silicon Valley and Canada together to share lessons learned and inspire action. Be part of this entrepreneurial revolution as we work together to drive innovation for the future. GROW is more than a conference, it’s a movement.

    Follow #growconf on Twitter @growconf

  • On becoming Silicon Valley North…

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    I am a bit of a shrinking violet. And I hate expressing my opinion about things. Like most Canadians I’d rather apologies for things and be polite. But I hate when I get asked by journalists, policy makers and others about how do we make Toronto (or Waterloo, or Ottawa, or where ever), the next Silicon Valley. This is just such an asinine view of how macroeconomics works and the historical development of the ecosystem in Silicon Valley.

    We should not try to be the next Silicon Valley or New York City or Shenzen or anything. We are Toronto. We are Montreal. We are Vancouver. We are Waterloo. We are something different. We should reject the label because it makes us look like fools. But we should learn from Silicon Valley as entrepreneurs and policy makers to create an environment that helps stimulate a similar environment.

    This is an old conversation. Joey and I have talked about it in the past:

    Debunking the Myth of “The Next Silicon Valley”

    Let’s start by removing the first myth that Toronto, and you can substitute in anywhere, can be the next Silicon Valley. Toronto does not exist in a valley. Sure there are valleys, like the Don River Valley in Toronto but the concentration of technology startups in this location is fairly low due in part to the conservation and provincial protections.

    Silicon Valley was quoted in 1971 to describe the number of emerging semiconductor companies and the surrounding computing companies that were concentrated in the Santa Clara Valley between San Francisco and San Jose, California. As far as I’m aware there are a few companies in the GTA working in silicon like AMD. Ottawa might have been able to make a claim in the 1990s for the Silicon Valley North with companies like Nortel Networks, JDS Uniphase, Tundra Semiconductor, Newbridge Networks and others. But for Toronto, just not going to happen. Waterloo might also have a claim with Pixstream, Rapid Mind, MKS, Arise Technologies, Research in Motion, and others working in semiconductors, wireless, hardware and software.

    Silicon Valley might at best be a concept for the concentration of new economic wealth creation. It is hard to argue about the amount of wealth created in the Silicon Valley region. It has been called “The Greatest Creation of Wealth in the History of the Planet”. The number of companies and the rise of modern venture capital has created a circuitous loop, a self-fulfilling prophecy, of companies and entrepreneurs that can generate more wealth. It has created the Traitorous Eight, the PayPal Mafia, Xooglers, the Facebook Mafia, the Netscape mafia that created Opsware & Andressen/Horowitz, etc. There are lots of reasons that regions should want to emulate the economic development that is present in Silicon Valley.

    But the desire to emulate a region, does not mean that we should expropriate a label like “Silicon Valley” when in fact it has very little to do with the people, the environment, the economy that we are trying to build. I’m sure if we personified “Silicon Valley” it would be flattered, but we should be trying to be something different. We are something else.

    Zombie Economies

    No City has a Lock on Innovation by Fred Wilson (@fredwilson) refers to a great article by Chris Dixon (@cdixon):

    “The entire world is now a rival to Silicon Valley. No country, state, region, nor city has a lock on innovation in technology anymore.

    The Internet has made this so, and there’s no going back. We will see Apples and Facebooks get built in China, India, Brazil, Eastern Europe, Western Europe, the Middle East, Africa, and plenty of other places.”

    We are competing globally. Don’t believe me, look at the firefight that our most recent billion dollar Canadian technology company is in for customers, brand, and it’s own survival. We need to build global companies. There are a great number of advantages to living in Canada, but we seem to be lead to by organizations that are interested in fighting for government dollars to build innovation clusters rather than creating new entrepreneurs and new wealth. Instead we’re happy to build a zombie-economy of companies around programs like SR&ED that are often used and abused by consultants and companies to sustain companies when there are no markets, no profits, no brains, no future. All things considered, free money is free money and as an entrepreneur in Canada I would/do apply for SR&ED credits and encourage others not to leave this on the table. But from a policy perspective, it drives me crazy! I hear about academics that run mediocre companies with <$2MM in revenue but sustain because of SR&ED. They’d rather raise 50 cents of government tax credits than “pivot” and get to “product-market fit” because that would require getting customers and actually understanding that we’re in this to build successful, sustainable companies.

    SR&ED and credits from other programs (OMDC, New Media Funds, etc.) are economic realities of our ecosystem. It is capital that is available to entrepreneurs. It is potentially non-dilutive capital that can be leveraged for growth and operational efficiencies. It should be embraced and explored, but it should be understood in the context that every dollar of customer revenue is infinitely more valuable than any tax credit or government grant. We are in business. The role of a startup is to find a scaleable business model, you might not find it the first time and the freedom/flexibility that programs like SR&ED offer you is the ability to get it wrong, to pivot and to try again. These programs are not a life support system for a bunch of non-businesses (or the people that can’t find a scaleable business model).

    The Next Silicon Valley

    Who knows where it will be? Fred Wilson assumes that “we will see Apples and Facebooks get built in China, India, Brazil, Eastern Europe, Western Europe, the Middle East, Africa, and plenty of other places”. This is great news for Canada and Toronto. Toronto is a diverse immigration hub:

    • Between 2001 and 2006, Canada received 1,109,980 international immigrants. The City of Toronto welcomed about one quarter of all immigrants (267,855) to Canada during this period of about 55,000 annually.
    • Half of Toronto’s population (1,237,720) was born outside of Canada, up from 48 per cent in 1996.

    Much of what we think of as innovation, is really just the creative tension between differing viewpoints. Toronto is diverse. We are home to many different cultures, peoples, ideas and ideologies. We have the basis to be a gateway to the rest of the world as we transition out of the American Century into something new. We are an excellent breeding ground for the mashup of culture’s, people, and ideas. The next Silicon Valley might not be in Canada, but we could become the bridge between cultures.

    What can you do?

    “Fortune favors the connected entrepreneur.” @jcal7 #trueuniversity via @hnshah

    There have been some changes to the Canadian startup scene in the past few years that are critical to continuing to help Canadian entrepreneurs:
    1. Stop referring to any part of Canada as Silicon Valley North.
    2. Set your expectations high! Don’t aim to be the Facebook for Canada. Why? Because the Facebook for Canada is Facebook! You need to be trying to build global companies, and you might validate it locally first. You want to play in the sandbox with the big kids, you need to act like you can play with the big kids.
    3. Stop thinking it will be easier if you move to the Valley. If you really feel that your only solution or course of action is to move to the Valley, then go, and show me that you can make it there. Otherwise it is just hot air, and a regurgitation of some rhetoric you read on TechCrunch or VentureBeat. If you can make it Silicon Valley or Hollywood, you should go try and stop telling me that it is easier to make it there than here.
    4. Start talking about all of the other great companies in Canada. We can all be coopetition. Help your friends. Make frenemies. The more people talking about activities, startups and people in Canada the better. There are a tonne of great startups and we all need to be ambassadors for the community as a whole. End your pitch deck with: 5 most recent fundings of Canadian companies and 5 other startups in Canada any potential investor might be interested in.
    5. Support legislation that makes it easier for entrepreneurs to immigrate to Canada. Support Startup Visa Canada. This can’t and won’t hurt any of your chances of making it. To be protectionary or isolationist is silly. Embrace one of the things that makes Canada great.

  • Can’t make it to GrowConf? Try TechTalksTO

    Tech Talks TOWe’re big fans of all of the technical community efforts going on across the country. I have the privilege of going to Vancouver next week for GrowConf, but we want to return the favor to local entrepreneurs and students in the GTA. We have 5 tickets for TechTalksTO.

    The effort to encourage participation by local students was led by the team at Uken Games.

    Uken is planning on sponsoring tickets for 3-4 students to attend http://underground.techtalksto.com/. We’ll also be sponsoring the event in general. I was wondering if we could promote this giveaway through an article on StartUpNorth. We haven’t figured out the criteria for selection but we’re thinking either a short paragraph of why we should choose you and a short code puzzle.

    I have purchased my ticket for the event, but I am unable to attend. We will give away one ticket per day starting today until all 5 tickets are gone. Someone else can figure out when that is.

    Uken Games

    How to win a ticket TechTalksTO?

    To win these passes tweet the following until Thursday:

    RT to enter! “Hey @startupnorth @ukengames – Please send me to the @techtalksTO Underground ($INSERT_LINK_TO_YOUR_BLOG/COMPANY).”

    This is a great local event. For developers by developers. Must attend, like the venerable events like FutureRuby and RubyFringe. It is great to see Toronto Ruby Brigade, TechTalksTO, TechnologicTO, AndroidTO, HTML5 Web App Developers and others engaging and supporting the community.

  • Lowered Expectations

    Lowered Expectations on MadTV featuring Keanu Reeves

    I keep wondering about some entrepreneurs living in a bubble.

    Not the usual doom and gloom startup bubble or a Incubator Accelerator Bubble but a reality distorting bubble that causes them to completely forget about why people (VCs, angels, banks, others) make investments in early stage companies. They seem to read TechCrunch and think that raising capital is easy. Investors are tripping over each other to make angel and seed investments in any Tom, Dick, or Harriet that can use Keynote and string together enough words to make buzzword bingo. And, of course, with nothing more than a PowerPoint presentation and hired developer these entrepreneurs figure that they should get a $4MM pre-money valuation and be able to raise $500-$1MM, just like any of the companies coming out of YC or Techstars.

    I get emails with quotes like:

    “I am tour de force, the type of person people want to invest in. Driven, smart, visionary, able to build a tech team and an excellent communicator.”

    All I can say is, you need to wake up and smell the sweat. It’s time for me to be the harbinger of brutal honesty. The wrecker of unfettered dreams. The resetter of expectations.

    1. Ideas require execution.
    2. Your track record may not allow you to raise any capital without demonstrating traction.

    Ideas are a Multiplier of Execution

    “Same exact idea. Better execution. Big winner.” Fred Wilson.

    The section is borrowed from Derek Sivers post. Ideas are part of it, but it’s execution that differentiates. It’s execution that is the massive multiplier. Stop thinking that ideas alone will differentiate. You need to demonstrate your ability to execute on the idea as a scalable business.

    Execution = Demonstrate Traction

    Before raising money, entrepreneurs must read The Capital Raising Ladder. This article is more than 2 years old but the key principles have not changed. Make a good guess which rung you are at? Do not pass go, do not collect $1MM on a pre of $4MM. You need to figure out where on the proverbial Ladder you fall and then figure out how to demonstrate traction. Just because you observe high tech startups and you think you can do better, this isn’t a reason that anyone should give you capital. You actually need to DO better. Go do the smallest thing to get the most bang for the buck. Call it lean. Call it customer development. Call it something. It doesn’t matter. You need to go do it.

    What is traction?

    It depends (go read Getting Traction). It can be revenue growth. But since many startups are too early for revenue, or are working on Dave McClure’s Startup Metrics for Pirates gives examples of consumer web applications metrics that can be measure to show growth and serve as a proxy for future revenue. Not building a consumer facing web application? Look at David Skok’s SaaS Metrics or Designing Startup Metrics to drive Successful Behaviour. It is your job to figure out how to demonstrate traction. These are starting points.

    It might be as simple as demonstrating that you’re able to hire/build a team of committed developers. If you can’t convince a developer to work for sweaty equity, then you might have a hard time convincing others you are the right person to invest. If your expertise is unique and critical to the success of the venture but you can’t design the product and you can’t write code. And you can’t convince a technical cofounder or others that they should be able to work for sweat equity on the idea. Hmmm, it doesn’t lead me to think that you can convince a sophisticated (probably even an unsophisticated) investor that they should invest in you.

    Start kicking butts and taking names

    The goal is not to stop entrepreneurs from trying. The goal is to reset expectations about fundraising and to build world-class market changing companies. You want a $4MM pre-money valuation, go earn it! Get users! Get customers! Get big numbers on $0. What are big numbers? In true wishy washy manner, it depends. But I’ll tell you a for a startup aimed at cracking mobile for neighbourhoods in Toronto, the number of users better not be in the 100s. I’ll be impressed if the numbers are in the 10,000s, knocked over in the 100,000s and blown away in the millions. Are these number high? Are they outrageous? Maybe. But if you want a spectacular valuation, go prove to me that you deserve it.

    Want to get $150,000 from Yuri Milner? Maybe you should figure out how apply to YCombinator. If you think it is so easy, prove me wrong and go do it. Maybe I’ll start a StartupNorth Fund, that all it does is bet against entrepreneurs. If you loose the bet you owe me a token amount of money, $100-500. If you win we’d invest in the next round at the negotiated price (we don’t actually have a fund to do this, but I’d be willing to stake $10-25k for matching).

    Stop trying to get people to lower their expectations. Set you goals high. Figure out ways to hustle and be relentlessly resourceful, and make the metrics happen. I know we can build world-class companies (it was a busy funding week last week for Canadian startups). But we need to stop the charade that funding is flippant, easy, etc. Raising money is hard. Building a great company is hard. But it’s worth the effort.  Let’s go show the world that we can build bigger, better, badder startups.