Category: Startups

Social lending is coming to Canada. Founded more than a year ago by Michael Garrity and Colin Henderson and following the successful model of Zopa in the UK and Prosper in the U.S., CommunityLend will be launching a P2P lending service in Canada.

P2P lending works like this. Borrowers provide their details to CommunityLend, including a public profile and reason for the loan. CommunityLend performs a credit check on the borrowers and then posts the borrower’s story, profile and credit rating to a community of prospective lenders/investors in an eBay-like interface. Investors then bid on pieces of the loan (each loan is typically divided up among many lenders which mitigates everyone’s risk). After the bidding process the loan is then issued at the minimum rate required to satisfy enough lenders to fund the full amount.

The company will be offering, at first, one standard type of loan – 3 years, fixed rates to a maximum of 25k. Judging by other services like Prosper.com, social lending seems to fill a gap in the product offering of a traditional bank. Rates are typically in the 10-18% range, which fits above bank rates for unsecured lines of credit and below that of high interest credit cards. CommunityLend makes money by charging a small spread to both the borrower and the lender.

With the current “sub-prime” troubles in global credit markets, the timing may be perfect for CommunityLend. Banks in Canada and the US have been tightening their credit policies making borrowing more difficult, especially for marginal creditors. The transparent, market-based P2P model may well prove to be a solution than can judge and price loans in this segment better than the big institutions.

In addition to the funding announcement (of mostly non-Canadian investment dollars btw), CommunityLend is also announcing a new slate of directors including Barry Campbell, former MP and Secretary to the Minister of Finance and Jim Jones CEO of GMAC Residential Capital [100B lending portfolio].

Congratulations to the team for reaching this milestone. We look forward to providing a more thorough review of the lending service once it goes live (we’re told early to mid next year).

For the time being you can get more info at the company’s newly launched website: CommunityLend.com.

Homestars.com is a publicly accessible reviews site that does not require any registration in order to read reviews. Posting reviews requires an account. Homestars is focused solely on the “home improvement companies and resources for homeowners” niche.

Homestars’ focus on a single vertical is smart and they are executing on it well. The most specific advantage of this approach is that selling targeted advertising at a premium will be much easier for HomeStars, who have very specifically motivated users in the home improvement space. These people are ready and willing to spend money, and if HomeStars can get them to the site, there is no doubt that advertisers will be ready to pay.

Perhaps it is a result of the narrow focus of the site, but the user interface is very easy to navigate and it is a lot of fun to just dive in and start (as I did) looking for pissed off people skewering their plumber or driveway repairman. As you dive in you will notice “Sponsored Ads” on some pages. If you look up a review for Plumber Bob, who seems like an honest and hardworking guy, you will see that Canada Wide Plumbing & Mechanical Services Inc. have a “sponsored” ad on Plumber Bobs page. To get one of the premium spots, and to add pictures and a few other things to your own page, you pay a monthly fee of $80. These premium spots make up the bulk of HomStars’ revenue.

Because people often want a review of something as specific as a Plumber or a Roofer only intermittently, I think HomeStars have done the right thing in making the site as public as possible. Home Rennovations is a niche that has been overlooked so far and unlike books, music, travel, or cars, it has been hard to get decent local reviews of these services.

Homestars have also recently done a deal to provide their review data to another Toronto based startup: ZipLocal.com, who, as we have mentioned before, appear to be treading water and perhaps are hoping that bringing in more high-quality review content will generate some additional traffic. I think HomeStars has to be careful about licensing their reviews outside of Homestars.com; I am not sure that when a user enters a review on HomeStars the user expects it to be syndicated.

The most glaring problem for HomeStars is accountability. As far as I can tell there is no way to see what other reviews a particular user has posted, so it is hard to know if a review is just a one-off from someone, or if they are an established and helpful reviewer. I think HomeStars will need some sort of scoring system that gets applied to the individual reviewers, based on their participation. Otherwise, HomeStars risks filling up with spam reviews.

Toronto is currently in the throws of labour, giving birth to two distinct but potentially competitive review services.

Homestars.com and Gigpark are both, at their core, places to post reviews. In the case of Homestars, their current focus is on home renovators and service providers (an industry that needs to have some accountability injected in to it!). Gigpark, is more generalist in its approach, but layers a social network on as the main hook. The idea being that you will trust reviews from people you know more than you will trust reviews from just anyone.

I think both approaches have a few strengths and a few glaring weaknesses. First up for review is HomeStars.com, and we will take a look at GigPark later on.

iBegin has been doing all the right things, right from the beginning. It wasn’t that iBegin had the perfect business model from the start, they didn’t. Very few startups do, but instead of getting stuck on one idea, they have transformed within their niche and have shot in to profitability.

iBegin started out as an experiment: a user generated local search site for Yorkville, a ritzy 4 block neighborhood in downtown Toronto. The number of visits to the hyper local site surprised Ahmed Farooq, the site’s founder, so he started exploring purchasing business listings to expand. Dealing with the data providers proved to be a big hassle. Worse still, the data providers used opaque variable pricing schemes and demanded princely sums. And so iBegin discovered a business opportunity, hassle-free fairly-priced business listings: iBegin Source.

iBegin charges $1000 per state or province, $40,000 for the entire US, and $8,000 for all of Canada. Customers love the transparent pricing. iBegin has already made over 50 sales, 80% of which required no interaction or hand holding. And it is not just customers that have noticed iBegin… this year Ahmed received (and turned down) a buyout offer in the low seven digits.

As a local search engine, iBegin used to compete with Toronto based and venture backed startup Ziplocal, which has undergone several redesigns and appear to be struggling with the local search business model.

It is worth reading iBegin’s philosophy. Notice what they didn’t have from the start: “iBegin was not created by a dozen people brought together to work on it. It didn’t have a CEO and CFO and other related positions. It didn’t have bankers and venture capitalists backing it with millions, helping finance user research groups, and hiring expensive and unneeded consultants and advisers.”

Ahmed is no one trick pony. He has a number of other ventures including: vB Skins, Is My Home, and the Bloggy Network. Building a stable of successful businesses and reinvesting those cash flows, instead of raising outside financing, has allowed allowed iBegin to experiment, iterate, and evolve. Getting to product/market fit is a significant achievement.

There are many opportunities for iBegin going forward. Next year we’ll see iBegin expanding into other English speaking countries and offering categories (e.g. health, legal) in addition to regions. How does Ahmed do do it? By listening to customers and bootstrapping his way to a big success.

Contact: Ahmed Farooq
Blog: www.techsoapbox.com

Ryan Coleman blogged about the Dragon’s Den the other day and made a good observation that the actual makeup of the Dragons makes them almost useless.

Ryan also mentioned one of the “deals” that got me to do the most screaming at the TV. Jodi Sinden had launched her stationary business (HomeBox) only just over a week earlier, and had one the #1 prize at a trade show in New York, she came on the show offering 20% of the business for $50,000.

The cast, I mean: Dragon’s, came back with the usual demand for control and offered $50,000 for 50.1% of the company. Jodi took the deal.

The story however, is not a nightmare, it has a happy ending. Jodi commented on Ryan’s post and said:

There was a missing piece that wasn’t put to air, but only hinted at: I would’ve needed large future investments of capital to finance inventory, and $50,000 wasn’t even close. The extra little push that made it an attractive deal was that they said future cash investment on their part would never reduce my equity in the company. That is very different than most venture capital groups, where every further investment is in return for another percentage. At the time of the filming, I had a good idea but it launched only a week before, so I only had $5000 worth of sales. Over the two months of negotiation time afterwards, my FIRM orders grew to twice the value of the dragon deal. So I did. Run away that is! Speaking of which, now looking for investment to finance that inventory… Look for the Homebox this friday on The Shopping Channel and in the spring at Indigo and Staples!

She went from $5000 worth of sales to $100,000 in just a few weeks and told the Dragon’s to take a hike. It sounds like Jodi still has some need for cash to holdover her inventory to handle big orders, but that is a typical bump in the road for a startup that is producing real goods.

Jodi is not only on to something, but she is executing as well. She went out and got order before she could fulfill them and then worked out the details — smart move.

You can buy the HomeBox’s online during the holidays. I have bought one already as a gift and think I will go back and buy some more.