StartupNorth

Category: Venture Capital

  • 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?

  • Making 2011 a BIG year

    2011 is the year for us to find some winners and to make them explode on to the international scene. 2011 is the year for Canada to pull out of the pit and to hit the track hard. It is going to get a bit crazy and you have to decide for yourself whether that is a good thing or not.

    2011 is the year we capitalize on some of the hustle of the last 3 years and when we all focus on building some huge successes.

    For a lot of people 2011 is the year of winning big.

    Economic indicators continue to suck, but it doesn’t seem like anyone cares. Competition is heating up and everyone is ready for a good brawl. Year of gluttony. Present company excepted of course.

    Howard is going to Russia. As an EIR I have been practicing sitting back in my chair, putting my hands behind my head and saying “What’s your China strategy??” (that’s a joke BTW)

    The IPO market will not be back in 2011 though. Frankly, I don’t care.

    You are going to hear less editorial from us at StartupNorth in 2011 because we are going to be focused on the big wins. I am putting my money and time to work in startups that I think are going to KILL IT. Where are you focusing on 2011?

    2011 isn’t about kumbaya for me. It’s about making the best of a good time. We live in good times. I’m not throwing the baby out with the bathwater, but I want to see the baby put to work.

    This is the year to take your shot. Either exit or go big

    Opportunities in 2011 will be outsized compared to what we have seen and may be better than we will see again for another five years.

    The bears are all tired and the bulls will be back to buying. The “early exits” and “talent acquisitions” we have seen in the last 18 months will continue, but we will also be back to some really big opportunities.

    This is the year to take that leap.

    Whether you’ve been working on an OK business that needs scale, or you have a killer founding team ready to come together to attack a huge market, then this is the time to gather resources and to really focus on making it happen.

    Can you do it in Canada? Good teams are going to get funded. Good teams and big ideas. Before you start worrying about your idea, think about your team and how you are going to execute.

    This is the year to try that big idea.

    Whatever you are passionate about, 2011 is the year when people with big ideas will finally be listened to again. No more “that will never work” — it’s going to be optimism and opportunity. People are ready to listen to visionaries again and we need them. Whether it is social change, a new startup or a research project — this is your time to roll.

    If you have been sitting on the sidelines then it is time to get off your butt and make your move. Now or never.

    Losers will be lost

    For some reason people always think that it is the losers that win in “good times”. That’s a load of crap. Bad companies will always be bad companies. They aren’t going to get any further ahead in 2011.

    Focus is still the name of the game

    Smart entrepreneurs will not be focused on valuations they are going to be focused on working with winners, because the wannabes are going to be coming out of the woodwork. Smart VCs will double down on the markets that they know well. This is not the year to spread yourself thin looking for the next sexy deal, it’s the year to double down on deals you understand and that you can ride right to the end.

    Canadian funds need to avoid being used as “runway” in later stage US deals. DIG IN and focus on taking good opportunities from Seed to Exit. Making things is still worth more than buying things.

    I normally hate predictions, resolutions and anything “year end”, but this time I am too optimistic to hold it back. I am already waving goodbye to 2010 and as far as I am concerned it is 2011 already.

  • 5 Thoughts on 5 Things I learned in 48 Hours

    5 Things I learned in 48 Hours – Techvibes.com.

    Some of my thoughts on some of his thoughts:

    #1 The Valley Feel- yes, it is true it does exist and it is unique to Silicon Valley.  That is not to say other areas don’t have a great innovation vibe, far from it! Some other areas have great innovation. But regardless where you are, it is good to stay on top of what is happening in the Valley.

    #2 The Valley Model- This I could take or leave. Yes, the Valley does have a unique VC-backed approach to innovation. But it isn’t the only way to fund and promote start-ups.

    #3- Think Small in Scope, and Large in Market- I love this idea. So true. Focus on what you want to do, do it super-amazing well, and then do what you do to conquer a huge (and growing) market.

    #4- You Can’t Phone It In- You really can’t. It takes work and preparation.

    #5- Be Yourself- Leave the impersonations to the comedians.

    #6- Start Local- I think this is the most interesting and ties in with points #1 and #2. Yes, be aware of what is happening in the Valley. Hell, be inspired by it, but don’t try to copy it (so I guess this ties in to point #5 also.) Find what is unique about your area and then build on that existing strength found, fund and grow your start-up.

  • John Ruffolo joins OMERS to manage new Venture Capital arm

    Some great news for Ontario, and the national startup community, today. We are hearing from multiple sources that John Ruffolo will be joining OMERS as Senior Vice President of Knowledge Investing. He will start in the position on January 3rd 2011.

    This position, which is focused on managing direct Venture Capital investments, has been the subject of speculation since OMERS announced that they planned to take a similar direct investment model with Venture Capital as they have with Private Equity deals, which has been a successful model for them so far. Pension and other labour sponsored funds like OMERS have historically taken Limited Partner positions in third-party funds (the VC funds you know and love already) and this hands-on approach is unique in Canada.

    John Ruffolo was previously a Managing Partner at Deloitte’s Toronto office and he conducted the survey of Canadian VC GPs that we wrote about earlier.

    John’s reputation is positive and his knowledge of both the past and current startup and Venture Capital environment in Canada is unique. It is great to see things moving ahead in the development of a new capital source for startups in Canada.

  • What do Canada's VCs really think?

    If you were to ask Canadian VCs, which Deloitte did this past April, what they think about Canadian entrepreneurs and startups, and the VC business in Canada in general, you might not get the warm and positive response that you expected.

    Based on these responses, Canadian Venture Capitalists think less of their entrepreneurial countrymen than their counterparts in Brazil, China, France, Germany, India, Israel, the UK and the United States. There is, based on this survey, a larger divide between entrepreneurs and VCs in Canada than there is anywhere else in the world.

    • Only 36% of Canadian VCs believe that an “improving entrepreneurial environment” is one of the factors that make Canada  a good place for Venture Capital. That is in contrast to 60-88% of VCs in countries such as Brazil (59%) , China (82%), France (67%), Germany (72%), India (88%) and the UK (59%).
    • When asked which factors contributed to creating a “non-favourable climate for venture capital”, Canadian VCs were again quick to blame entrepreneurs. 47% of VCs said that they believe a “lack of entrepreneurial talent to build a new company” is one of the problems with their industry. Only German VCs were more contrite – 72% of them said lack of talent was a problem. Other countries had far more benevolent VCs: Brazil (5%), China (42%), France (22%), India (15%), Israel (0%), UK (33%), US (6%).
    • Another answer to the question “factors contributed to creating a “non-favourable climate for venture capital”” that generated a big response from Canadian VCs was the idea that “reduced entrepreneurial activity” was a big factor. 28% of Canadian VCs said that they believe there is a lack of activity in Canada, that is in contrast to Brazil (3%), China (10%), France (11%) , Germany (39%), India (0%), Israel (10%), UK 14% and USA (5%).

    Is it possible that Canada is an exception to the rule in the rest of the world? How can it be that Venture Capital class investors in every other type of economy (emerging through to advanced) have a more positive opinion of entrepreneurs in their home countries?

    I decided to put the question to some of the VCs I respect the most in Canada. The folks who I believe are doing good things and who really get it. In these conversations there were a few major themes. Overall, the outlook seems pretty positive, while remaining realistic about our past performance. Nobody would agree with the consensus from the Deloitte report. Some of the responses:

    1. “It’s bullshit”. Nobody was ready to argue that the current attitude toward Canadian Entrepreneurs is justified.  The consensus was that it is the result of a lot of fund managers who got a rough ride and they don’t want to take responsibility for it.
    2. “It’s still early in Canada”. With a few exceptions, Venture Capital in Canada didn’t start until as late as 1995, and when it started it went off with a boom. A lot of money was raised by GPs who were not necessarily experienced operators (an old complaint). There are two common conclusions from this: We need new GPs who are experienced operators and We need to back the old GPs because they have finally learned their lesson
    3. “We are finally seeing a crop of 2nd-timers”. “Reward failure” is a popular refrain. The idea that entrepreneurs need to learn from doing is well established, but we haven’t seen the cycle of entrepreneurs here in Canada that we could really use. This was something that practically everyone expressed no matter how positive they were. This is a fundamental change in the entrepreneurial landscape in Canada.
    4. “The talent is here”. Canada has good product related talent. We need to focus on keeping that talent here and to build our capabilities in international marketing and channel development. “It really needs some work” is hard to argue with, but is it an industry breaker? No.
      The recent growth of seed funds in Canada is also helping to address many of these concerns. These funds are accelerating the pace of learning for new entrepreneurs so quickly that many are becoming high-quality second-timers within a few years and a very small amount of capital. This brings them back to the table with their hunger and some talent.

    Let’s move on

    This “blame the entrepreneur” attitude is now worn out. Whatever truth there is to it is in the past. Canadians are as, or more, connected to the internet than any other country and Canadian entrepreneurs no longer sit around learning from other Canadians, they are learning from a global A-list.

    In the end this is all to say: It isn’t as simple as pointing a finger and laying blame. Nobody is squarely blaming the VCs of the last 10 years for our problems, and it is similarly wrong to throw dirt back at Canada’s entrepreneurs.

    The lifetime of Venture Capital in Canada has been short and it could be argued that practically every economy must go through a “churn” phase where the asset class underperforms before a handful of factors come together in order to create a healthy industry. With some new funds starting to close and a mix of new and old blood actively trying to do the right thing, we might just have a shot at this.

    I leave you with some thoughts from Howard Gwin that I think show a fair balance of both blame and optimism for everyone involved and it contains some antidote for what’s going on. Read it in its entirety here.

    Where do we start?

    I am a “double down” kind of person.  Anybody who has worked with me has heard me yap about 80/20/80.  I think we need an 80/20/80 attitude in the Canadian tech marketplace.  We need to focus 80% of our energy on the 20% of companies that have an 80% chance of succeeding.  Set much higher bars across all of our ecosystem from mentors, to angels, to incubators, to VCs, to board members, to anyone providing advice to our community.  A few more thoughts:

    * Mentors must bring value or stay out of the game.  If founders are not coachable, move on to the next opportunity.  If VCs do not bring value beyond money, do not engage with them.  If incubators are coaching, set much higher bars for the outputs your companies produce or shut down.

    * Funding “good companies” does not work.  We need more $ in potentially great companies. Whether we are funding pre-revenue companies with seed $ or growth equity, the bar must be higher.  At a minimum, here are some high-level standards to measure potential of success independent of stage:

    • Big frigging market – no debate.
    • Massively differentiated value proposition that’s not  we are smarter, nicer, cheaper, faster etc.
    • Significant competitive barriers to entry.
    • Tailwind versus headwind – the market is out looking for a solution.  “Market makers” make good road kill.
    • Excellent team that’s open to coaching.

    If there is ambiguity over the above, the ecosystem needs to either address it or move on.

    * Post-seed VCs must spend more on less.  Work the models so companies can get through the troughs — or don’t fund them.  Available capital in Canada for venture is not enough, so we must spend our capital on the best and brightest or nothing will change.

    Founders, do not fall in love with your product or your people.  Before you talk to anyone about funding get experienced people to rip your strategy and pitch apart.   You only get a few chances to get it done so make sure they count. Network like there’s no tomorrow.  Gather people around you who have proven “big league” execution skills.  Talk to everybody who can spread the message and bring value.  Get yourself down to the Valley. Cold-call and get connected to anyone who can make your business move faster and smarter.  If you don’t your competitor will.

  • Real Ventures closes

    Real VenturesThis is great news for Canada, well at least Quebec until additional funds close. Real Ventures has launched today. With both JS Cournoyer and Mark MacLeod writing about the close of approximately $40MM of money that must be invested in Quebec. They are actively looking for seed investments in Quebec software, SaaS and Internet deals.

    “We are seed investors in software startups based primarily in Quebec, though we will do deals in other markets. We like to be 1st money in and like to lead. We can do seed rounds in the six figures to get a product in market and can participate in series A follow ons for those companies that are hitting the gas pedal.” – Mark MacLeod

    The great part about Real Ventures is the pedigree. The team is: John Stokes, JS Cournoyer, Mark MacLeod and Austin Hill. These are world class investors, entrepreneurs, executives and people who have had a hand in shaping policy, companies and entrepreneurs over the past few years.

    “For those of you who don’t know, Montreal Startup is a $5M seed fund that was founded by John Stokes, Daniel Drouet, Alan MacIntosh, Austin Hill, and yours truly. Mark MacLeod has since joined the team for Real Ventures. We invested in 15 web, mobile and software companies between February 2008 and March 2010, including Beyond The Rack, Status.net, Whatsnexx, Vanilla Forums,Recoset, mConcierge, Oneeko and SocialGrapes. For the majority of our investments, we were the first money in, acting as the lead investor. We hold board seats in most companies.” – JS Cournoyer

    Real Ventures is the real deal. Any entrepreneur in Quebec looking to raise a seed round should be talking to Real Ventures.

    Congratulations guys, here’s to closing some money that can be deployed in Ontario.

  • FedDev steps up with $190MM for S. Ontario

    Photo by anitakhart http://www.flickr.com/photos/anitakhart/2737188217/in/photostream/
    Photo by anitakhart

    The Federal Economic Development Agency for Southern Ontario announced a new Investing in Business Innovation program. The program offers matching for early-stage venture funding. This is a $190MM running from 2010-2014.

    There are provisions for startups and angel networks. Since we’re StartupNorth, let’s try to deal with the startup side first.

    • Startups who receive a termsheet from a qualified angel investor (as defined by the Ontario Securities Commission) or venture capital firm (registered with the Canadian Venture Capital association) are eligible to apply for up $1MM in loan from the federal government.
    • Restrictions:
      • Start-up businesses will be eligible for repayable contributions up to $1 million for no more than one third (33? percent) of total eligible and supported project costs.
      • An angel and/or venture capital investor(s) must be committed to provide at least two thirds (66? percent) of the cash contribution toward eligible and supported project costs.
      • In-kind contributions related to mentoring, networking, and other business skills cannot be considered as part of the angel or venture capital investor’s cash contribution.
      • A maximum of one project per eligible start-up SME can be funded under the initiative.
      • Direct eligible costs for start-up businesses may include:
        • Labour, capital and operating expenditures;
        • Materials and supplies;
        • Consulting and/or professional fees (limited to market rate); and,
        • Minor and non-capital acquisitions (e.g., software).
      • All project activities must be completed by March 31, 2014;

    Basically there is federal government matching loans up to $1MM for startups that are raising angel or venture funding in Southern Ontario. This is a fantastic start.

    It’s great for startups in Southern Ontario, it’s curious that the program is only available in Southern Ontario. Why not all of Canada? How are the repayment terms set? Is this a zero percent interest loan from the Federal Government? Does the term sheet have to be equity investment? Is convertible debt eligible? How do startups “demonstrate they are using business mentoring, counseling, or related services”?

  • Rypple raises $7m in new round


    Rypple has gone public about their latest round of financing which appears to include Bridgescale. Bridgescale’s participation likely came through their acquisition of Edgestone. Edgestone’s GPs participated personally in Rypple’s initial angel round.

    We will post more as we hear it.

    Here is the official word from Ryple:

    Toronto, Ontario – September 29, 2010 – Rypple announces it has raised $7 million in financing led by Bridgescale Partners. Rypple makes social software that makes workplace feedback easy. Howard Gwin, a Bridgescale partner and former EVP at PeopleSoft, and Roger Martin, Dean of the Rotman School of Management, will join the company’s board of directors.

    Additional investors include: Edgestone Capital Ventures, Extreme Venture Partners, Peter Thiel, Seymour Schulich, Roger Martin and Joe Sigelman. To date, the company has raised a total of $13 million in financing.

    “Employees and managers are fed up with HR software that sucks. They don’t want top-down performance software focused on process, not results. What people really want is frequent, useful feedback to do their jobs better. Rypple delivers this feedback so people can stay on track, learn faster, and consistently hit their goals.” said Daniel Debow, co-CEO, Rypple. “Our customers are innovative companies including Mozilla, Rackspace, and VivaKi (Groupe Publicis). Their employees use Rypple because they love it, not because they’re forced to.”

    “Rapid adoption social software is providing companies big and small with a significant competitive advantage,” said Howard Gwin, partner, Bridgescale Partners.  “Rypple is a key solution for companies today as it enables the process of continuous feedback. Their customers tell us that they have seen a noticeable improvement in employee engagement, focus, and performance since they started using Rypple.”

    “We were up and running within an hour of introducing Rypple to our organization. We were customers before we were investors.” said Amar Varma, co-founder, Extreme Venture Partners. “Our team’s love of Rypple was a big part of our motivation to get involved. People want relevant feedback at work and no other company can deliver it as easily and effectively.”

  • How to prepare for a C100 Mentoring session

    We gearing up for the next 48 Hrs in the Valley here at C100 global HQ. We’ve learned a lot from previous 48 Hrs events so expect a few surprises, to be announced soon.

    But in the meantime, a few dates for you to be aware of:

    • Sept 29: Drop dead deadline for companies to complete the application form
    • Oct 7: Selected companies will be notified
    • Oct 13: First draft of mentor deck due
    • Oct 27-28: 48 Hrs in the Valley

    I know what you’re saying, “What the heck is this Oct 13 deadline? We gotta hand in drafts of our presentations??”

    Short answer: “Yes!”

    The upcoming 48 Hrs will be the C100’s eighth mentoring event and after each one the mentors always told us the same thing, “We wish the companies were more prepared.”

    That is a strange coincidence, because the companies always tell us, “Damn, I wish we were more prepared.”

    Well, the good thing about the C100 mentoring team is you only have to tell us something seven times before we start to take immediate action.

    To make sure everyone feels they are properly prepared, we are asking… nay, demanding… that all companies complete their mentor decks and submit to us by Oct 8 for feedback by our crack team of mentor experts.

    To help you out, here are some useful tips on how to prepare you 48 Hrs mentor deck:

    • Think of the biggest challenge  facing your company and talk about it. What exactly do you want to get mentoring on? (In C100, we call this the “challenge statement” meaning, what is the biggest challenge  facing your company right now)
    • Don’t get bogged down in technology: Mentors want to talk about business issues, not about speeds-and-feeds
    • Don’t talk history: Mentors want to discuss the here and now, the long road you took to reach your current destination probably isn’t relevant
    • Be specific: generic presentations get generic feedback. Drill down into one aspect of your business, describe what is going on, and ask for specific advice and feedback

    Here is a deck template all companies should follow. Your deck shouldn’t be more than nine slides long:

    1)      Executive Summary: Short bullet points what your company does and what is your “challenge statement”

    2)      The Market: Give mentors background on the market your company addresses

    3)      What do you do?: How do you address your chosen market

    4)      Who are your competitors?

    5)      Short background on the team (emphasis on short)

    6)      Financial snapshot including funding, revenues and expenses

    7)      Challenge statement: This is the most important slide of the deck… what issue do you want mentoring on? Be very clear and specific here

    8)      Context: How did this challenge come about? How have you addressed similar challenges in the past

    9)      Importance: Why is addressing this challenge important? What would happen if this challenge was addressed? What would happen if it wasn’t?

    Trust us, follow this template and your mentoring session will be way more valuable than if you didn’t.

    The goal is always to make the mentoring sessions as useful and impactful as possible. So we at C100 will be asking the companies early and often to provide drafts of their decks so we can help ensure they are prepared for the mentoring session and ready to go.

  • How to pitch to corporate VCs

    One way to segment  the world of  VC is into two camps: (1) financial investors and  (2)  corporate investors. My guess is that a lot of the VCs lurking around here are what you would call financial investors; meaning, they take other people’s money, invest it in start-ups and try to make more money.

    But there is the other type of investor, the corporate ones. These investors tend to work for a large corporation and invest the company’s money. Their goals are also to make a lot more money off of their investments but they are also tasked with producing a strange and esoteric thing called a “strategic return”.

    In a nutshell, these investors have to invest to make money, and to make their company smarter by learning from you, the clever start-up.

    For start-ups, having a corporate VC as an investor can have many benefits if the relationship is correctly managed including credibility, access to the corporations sales and engineering teams,  access to go-to-market channels, and opportunities to conduct joint R&D.

    So it is important that start-ups realize that pitching to strategic investors is not like pitching to financial investors. So here are a few ideas to get you started on your corporate VC pitch:

    1. Prepare a pitch: Sounds obvious, right? You’d be amazed at how many start-ups show up without a pitch. I guess  they think they can come in and talk shop for 30 or 45 min and that will be enough to land a deal. It isn’t. Show up prepared and ready to go.
    2. Know the company’s investment thesis: Companies aren’t shy talking about their investments, so there should be a lot written about past deals. Don’t come in with a canned investor pitch, read up on past deals and come in with a pitch tailored to the company’s investment thesis.
    3. Tell them why you’re relevant: Corporate VCs often have to get support from a BU for a deal, so help them position your company with the BU. Figure out which part of the company will be most interested in you and explain that in your pitch.
    4. Better yet, have traction: Come in with a history of working successfully with a BU. Show how investing in you will help you scale/innovate and make the BU relationship even more successful
    5. Don’t come in as a competitor: If you’ve built a competitive product that is better than theirs (or so you think), don’t think you’ll get money from them to keep you off the market. They won’t invest in you. They’ll probably just try to crush you. It is easier.
    6. Come in as a partner: If you and the larger company are in the same space, it doesn’t mean they will necessarily be interested in you. “You do software, we do software” is not a compelling reason for a corporation to invest.  Rather, tell them how your software (product, service) will help better position their software (product, service) in the market.
    7. Finances: Oh yeah, nothing drives corporate investors battier than being treated as  dumb money. You’ll need to come in and talk strategic alignment, but very soon the conversation will turn financial. Remember, these people live and breathe your markets every day,  so they can tell if your market sizes/growth assumptions are for real

    Meeting with corporate investors can be a maddening, time consuming process. They will ask a million question not only about your business, but on how your business relates to their business. So you need to know your business cold and their business cold. But if you come prepared with insight and some existing wins under your belt, this crazy process may have a profitable outcome.