StartupNorth

Category: Venture Capital

  • CVCA – Interview with David Adderley

    I had a chance to catch up with David Adderley, the Chair of the conference this year, before this week’s CVCA annual conference in Ottawa. I wanted to find out more about what he thought about some of the new fund models that are emerging in Canada and just where the business as a whole is going.

     

    Is Venture Capital in Canada at an inflexion point this year? Will we emerge from these two days with an entirely new business in this country? I think the answer is No — and I think that is a good thing. We have stopped looking for a silver bullet or a dramatic sea change, but from what I can see people are ready to get back to work and to find a way to make this work with a model that makes sense for this country.

     

    On with the discussion:

     

    The introduction to the conference  says that the world is emerging from a crises and then says re: VC “In response, new innovative models and strategies for creating value are emerging.” Do you think that Venture Capital in Canada is developing a new model? What are some examples?
    The investment strategies that many VCs employed during the bull market for technology venture capital of the late 1990s and for the first half of the past decade—which were arguably focused more on a “gold rush” approach of selling companies rather than building them—do not work in a more “normalized” market.

     

    What we are seeing in Canada (and elsewhere) is venture capital returning to its historical roots, when VCs acted like entrepreneurs and applied their domain knowledge and know-how to help start-ups get off the ground. This means VC firms who have small nimble teams of partners with multiple business experiences and technology domain expertise. The investment projects are generally “local”, with founding entrepreneurial teams that have skills developed around the core technology and managerial competencies of the specific geographic region. Professors Kaplan and Lerner’s recent paper, “It Ain’t Broke: The Past, Present and Future of Venture Capital”  is informative on this point.

     

    There should be more focus on investing around the core technology competencies in Canada rather than simply following US trends (e.g. “me too” Web 2.0 companies) without having the depth of talent in Canada to execute. For example, both Toronto & Waterloo have deep domain expertise in Digital Multimedia and Wireless & Mobility around which clusters of VC-backed projects can be built.

     

    As for specific investment strategies, there is renewed focus on the “intensity” versus the “velocity” of capital. This means more of a back-end loaded, milestone-driven approach to investing. Also, the more successful firms are applying a “Seed-to-C” funding approach, with the formation of syndicates that can take companies all the way to cash flow positive, meaning less reliance or no reliance on “late stage” VCs or “B round” VCs.
    What do you think the story of Venture capital has been in Canada since the last CVCA?
    What we’ve seen in Canada is a restructuring and consolidation of the VC market, resulting in a significant reduction in investment activity over the past number of years. What remains is a much smaller set of mid-sized (sub $200 million) and smaller (sub $50 million) funds. Whether or not this represents the “normalization” of investment activity in Canada remains to be seen.

     

    You’ve seen “declared” interest in Canada by some US funds, but relatively little investment activity from them.

     

    VC plays a key role in any industrialized or emerging economy, driving innovation and job creation in high-growth sectors, as demonstrated by many academic studies. There does appear to be a growing awareness at the government level that action must be taken if Canada is going to continue to innovate and leverage its R&D strengths, and fund its most promising ideas, entrepreneurs and start-ups.
    A new crop of micro-funds have started to emerge in Canada. What role will these funds have to play in the future of VC in Canada.
    Yes, a number of “micro funds” have emerged in Canada. They go after what they describe as less capital-intensive projects, or projects where the injection of capital can be very back-end loaded, such that a small investment is made at the beginning, allowing the start-up to attract key industry-specific angels and to secure customer traction before bringing in significant money. This sounds more like the historical way VCs acted rather than necessarily a “new” approach.

     

    I’d also ask whether the emergence of new micro funds in Canada is driven more out of necessity, i.e. an inability to raise significant capital in Canada, versus a systemic need to find a new model for VC funding that works.

     

    Will these funds have a real impact in positioning Canada as a leader in innovation? For Canada to develop the next RIM, we need entrepreneurs, start-ups and investors who are targeting the same kind of ambitious, platform technology projects that have made Silicon Valley an engine of growth for the US economy.

  • Open Coffee Ottawa – May 26

    Next Wednesday (May 26) StartupNorth is organizing an Open Coffee in Ottawa. It is an opportunity for entrepreneurs, developers, and investors to connect at an informal meetup. We’ll be heading to Bridgehead Coffeehouse (109 Bank Street, Ottawa) from 10am to 1pm.

    Open Coffee Ottawa
    Bridgehead Coffeehouse
    109 Bank Street, Ottawa
     10am to 1pm

  • Build Locally, Market Globally

    I read The Mark’s special on venture capital in Canada and while I agree with all of the hub-bub about a lack of early stage financing in Canada, what I want to talk about is the other side of the equation; the Canadian entrepreneur and our sense of addressable market.

    First, a bit about myself to give you a perspective on where I am coming from. I started my career in Ottawa, one of Canada’s tech capitals. My first startup had customers around the world, initially most were in Europe, over time the US represented our largest base of customers. While the Canadian government was the reference customer for my next startup, American customers soon drove over 80% of our revenues. The story is similar for every startup I have been part of.

    So, I wonder “why” when I speak with Canadian entrepreneurs and hear that they are chasing a domestic market and have no foreign competitors in their sights. Canadians are very talented, but sometimes we tend to not “think big” enough – it is an unspoken reason why our startups don’t get funded.

    One would think that Canadian entrepreneurs aspire to enter larger markets in the United States and across the pond in Europe and Asia. But what I keep hearing is “our target market is… the 5 big financial buildings in downtown Toronto, or the large insurance companies in Toronto and Montreal, or the federal government in Ottawa…”

    GlobeSure, land your first customer on home turf – Toronto, for example, is a hotbed of financial, insurance, mining, and advertising companies. Call up all of the people that you know at these Canadian institutions to get that pilot account – but as soon as you have refined the product and pitch, start looking beyond Canada’s borders for customers.

    That slide in your funding presentation with addressable market numbers for the US mean nothing if you don’t spend any marketing dollars generating leads and time on the road landing new prospects south of the 49th parallel.

    Canada represents just a small fraction of the market opportunity for your startup. Drive sales abroad, then even if Canadian investors don’t step up, with a global customer base and growing revenues, you will attract the attention of foreign investors.

    Build locally, market globally.

    This guest post was contributed by Roy Pereira. Roy is the founder of Shiny Ads, a self serve advertising platform for long-tail advertisers. You can follow Shiny Ads on Twitter: @ShinyAds

  • More seed funding for Canada – Founder Fuel gets their first commitment

    I first met John Stokes a few years ago when he landed on to the Canadian startup scene and started talking about his new fund Montreal Start-up. In March 2008 they raised a small initial fund which they quickly deployed in to some nice deals in Montreal including Status.net and Whatsnexx.

    John and the team, which includes Austin Hill, announced today that they will be taking commitments from the Quebec Government (through Investissement Quebec) at $50 milion, Solidarity Fund QFL, which is investing $33 million, and by FIER Partners, which plans to invest $17 million.

    The fund still needs to raise over $8million directly from LPs, which Investissement Quebec seems to think will be a snap and done in 4 months, but I am not so sure. I hope I am proven wrong.

    In case any potential LPs are reading this right now, here is my advice: Do this one. Do it because this team is going to do more than just pass the time humming over deals — you will get hustle, an aggressive attitude and a group that understands that Canada needs more hustle and less of the same old.

    John and the team are connected and tuned in to the community. Early stage entrepreneurs trust this team and they are the kind of guys who can get your money in to some great opportunities.

    Congrats and good luck.

  • Mantella Venture Partners Launches

    Mantella VP & Basecamp Labs

    Mantella Venture Partners launched today. It’s a $20MM early stage technology fund based in Toronto.

    “Unlike most venture funds that are supported by institutional investors, this one is backed by Mantella Corporation, a family owned commercial and residential real estate developer who has been entrenched in the GTA market since 1946. The fund is also focused on the concept of ‘hands-on capital’, ensuring that early-stage entrepreneurs get the hands-on support they need at every stage of a company’s creation and growth to help facilitate”

    The main investment partners are Robin Axon and Duncan Hill. Robin is ex-Ventures West and Ducan was an EiR at Ventures West and previously had founded Think Dynamics (acquired by IBM back in 2003). They also run Basecamp Partners/Labs where they have been incubating PushLife, Chango and a couple of other startups.

    It’s interesting to see an emerging breed of Canadian incubators and small funds like Mantella VP, Extreme VP/Xtreme Labs, Bootup Labs, Flow Ventures, Montreal Startup, Wesley Clover, LeadtoWin, and others. All of these have very different models and motivations. But they exhibit the need many startups have in both getting to Product/Market Fit and then the business development and go-to-market efforts. Both of these efforts require capital, and it’s great to see VCs that traditionally don’t get their hands dirty with operational details down in the weeds.

    Full press release below.

    TORONTO—March 2, 2010—Mantella Venture Partners announced today the formation and launch of a $20M investment fund to support early stage technology ventures in Ontario. Mantella Venture Partners is a collaboration between Basecamp Labs, a private early stage technology accelerator, and Mantella Corporation, an established family-owned commercial and residential real estate developer in the Greater Toronto Area.

    Mantella Venture Partners will invest in entrepreneurs who are building early stage mobile and Internet software companies, helping them to get their ideas from conception to market. Through the Basecamp Labs accelerator, Mantella Venture Partners will provide hands-on support at every stage of a company’s creation and growth – from business development and marketing to financing and team development – to help facilitate early market traction.

    Mantella Venture Partners is managed by Robin Axon and Duncan Hill, the founding partners of Basecamp Labs, experienced venture investors and company creators who have been involved in multiple successful venture exits to companies like IBM, Intel, Microsoft and Siemens.

    “For the past few years, we’ve seen a steady decline in Canadian venture capital deal flow, the number of VC-backed firms, and the average investment size,” says Axon.  “In fact, according to a recent CVCA report on the industry, investment levels in 2009 were the lowest they’ve been in 13 years.”

    “But innovation is still thriving,” says Hill. “With the venture market in such a state of flux, the timing could not be better for the launch of a new fund that is focused on both early-stage investing and providing the hands-on support entrepreneurs need to ensure market success.”

    The existing Basecamp Labs portfolio includes two companies: Chango, an ad buying platform for direct response advertisers; and Pushlife, a mobile entertainment platform for mobile operators.

    “The value of combining capital with guidance and support from a team with extensive experience building companies, can be seen in the progress of our first portfolio companies,” says Robert Mantella, president and CEO of Mantella Corporation. “Robin and Duncan are experienced investors and entrepreneurs who are passionate about technology and know what it takes for a start-up to succeed. Together we can breathe new life into a changing venture industry.”

    Duncan Hill was the Founder and Chief Technology Officer of Think Dynamics, a developer of data centre automation software that was acquired by IBM in May 2003. He spent two years at IBM driving strategy for early enterprise cloud computing. Most recently, Hill served as Entrepreneur in Residence at Ventures West; was an independent director for RapidMind (acq. by Intel August ’09); and was executive advisor to Opalis (acq. by Microsoft December ’09). He currently serves on the Chango board of directors and on executive advisory boards at Pushlife, ServiceMesh, Cirba, Embotics, and the Velocity program at the University of Waterloo.

    Prior to founding Basecamp Labs with Duncan Hill, Robin Axon was a partner at Ventures West on the IT and communications team. Before that, Axon was at MD Robotics (formerly Spar Aerospace) and the Canadian Space Agency, where he helped to prepare the Canadarm2 for installation onto the International Space Station. Axon has served on the boards of a number of technology companies including: QuickPlay Media, RapidMind (acq. by Intel August ’09), AudienceView, Fortiva (acq. by Proofpoint ‘08), Chantry Networks (acq. by Seimens ‘03), Belair Networks and Instrumar.

    About Mantella Venture Partners
    Mantella Venture Partners is a $20M early stage investment fund with a hands-on approach to building technology companies in high growth markets.  The fund invests in founders focused on creating market-altering mobile and Internet software businesses, and surrounds them with an ecosystem of passionate, experienced operators that drive early market engagement into sustainable business success. Mantella Venture Partners will invest up to $500k at inception with the ability to support subsequent rounds as required. It is managed by Robin Axon and Duncan Hill, experienced venture investors and company creators who’ve been involved in multiple successful venture exits to companies like IBM, Intel, Microsoft and Siemens. Additional information is available at http://mantellavp.com/.

  • Rogers Ventures

    rogers-logo So what’s the story with Rogers Ventures?

    Mic Berman announced StartupCampWaterloo(Serious Edition) happening on October 20, 2009 in Waterloo, ON. Jesse Rodgers provided a little more detail about the event on the BarCampWaterloo Google Group:

    “Rogers Ventures has started an early stage/seed round investment group. They are looking to make several investments before the end of this year and they have  a strong commitment to fund and support entrepreneurs or post doc researchers who have great ideas and/or innovative technology.

    If are looking for funding and would like to pitch the Rogers’ team (Mike Lee, Nyla Ahmad or Jason Zan) and a few other local funders such as Tech Capital.”

    We’ve worked with Mike Lee to host DemoCamp Toronto 21 & 22 (an Evening with Yossi Vardi). Rogers Ventures has already demonstrated their ability and willingness to engage with the community. Rogers Ventures continues to reach out and engage with entrepreneurs across the country.

    Press Release

    Rogers Ventures publically launches on October 15, 2009. Here are the details provided by the consultants and public relations individuals helping Rogers Ventures engage the development community. 

    What is Rogers Ventures?

    Rogers Ventures is a new source of early stage seed level investment for technology start-ups. We find great talent with powerful ideas and we invest in their business success. We invest our money, leverage, experience and other strategic contributions to get our portfolio companies on the path of accelerated development and market growth.  Another part of the Rogers Ventures’ mandate is supporting the innovation ecosystem by providing direct funding to community programs that help create innovation momentum in this country. 

    Is Rogers Ventures a venture capital firm?

    We operate a venture-style funding mechanism (we approve investments on a case-by-case basis) but that’s where the similarities end. Our long-term objective is to develop a portfolio of high potential companies that capture the value created through wireline and wireless broadband networks. 

    Why was Rogers Ventures created?

    We’re living at a time when technology innovation, new online services and shifts in consumer behaviour are being adopted faster than any other time in history. We want to be part of this innovation and the opportunity presenting themselves but realize that we cannot achieve success, as effectively, on our own. Rogers Ventures is our way of looking beyond the walls of Rogers for outside talent and ideas to fund. We believe that this will broaden our innovation horizons and keep us closer to the forefront of next-generation technology. 

    How will Rogers Ventures support the high-tech community?

    While we see a significant amount of energy and activity within the Canadian innovation landscape, we feel that there are opportunities for support for the Canadian ecosystem to accelerate momentum. We have been working to identify community-level programs or initiatives that require support – either money, a space large enough to hold events, someone to pay for pizza, participation in mentorship, contribution as a speaker, whatever – and we try to make that support happen. We know that our effort is not the total solution. We are contributing our part to build the necessary momentum and are committed to engage.

    Who runs Rogers Ventures?

    Melinda Rogers, senior vice-president, strategy and development with Rogers Communications, is the executive in charge of Rogers Ventures. On a day-to-day basis, the portfolio is run by Mike Lee, vice-president with Rogers Ventures, and Nyla Ahmad, vice-president, Rogers Ventures Operations.

    What are Rogers Ventures portfolio companies?

    There are currently three companies within the Rogers Ventures portfolio: Zoocasa,  a vertical search product focused on real estate; Thoora, a next generation news discovery service; and GridCentric, a solution for grid computing. We don’t discuss publically investment levels.

    Is Rogers Ventures a part of Rogers Communications?

    Rogers Ventures falls within Rogers’ corporate strategy and development group and it is legally part of Rogers Communications Inc. However, it operates as a separate entity on a day-to-day basis.

    Additional Team Details

    So who are Mike Lee, Nyla Ahmad and Jason Zan and others. We can start to piece together the players from web searches, management profiles of their portfolio companies, and social media tools.

    “Mike Lee, Chief Strategy Officer, Rogers Communications Inc.

    Michael (Mike) Lee is Chief Strategy Officer for Rogers Communications Inc. Mike is responsible for strategy development, new venture development, and strategic partner management for the Rogers Communications’ group of companies which include Rogers Cable, Rogers Wireless and Rogers Media. Previously, he held the role of Vice President, Strategy and Development for Rogers Cable.” Cable Congress 2009

    “Nyla Ahmad, Senior Director, Strategic Partners for Rogers Communications Inc.

    Nyla Ahmad is responsible for overseeing and managing key cross-company relationships. This includes managing the Rogers Yahoo! strategic alliance across the entire Rogers group of companies. Previously within Rogers, Ms. Ahmad held roles within Rogers Cable and the Internet division of Rogers Media. As Senior Director of Electronic Channels for Rogers Cable Communications Inc. she was responsible for the product development, online services strategy and customer experience for Rogers Yahoo! Hi-Speed Internet. As Vice President of Excite Canada, she oversaw the development of consumer online content and services across broadband, narrowband and wireless platforms.” 3rd Annual C-COR Global IP Summit – Executive Interviews

    “Jason Zan, Co-founder and adviser

    Jason was a Sr. Director of Business Development at Rogers Communications Inc. (NYSE:RG), the largest wireless carrier in Canada. Prior to that Jason was Director of Venture Investments at Rogers where he was responsible for managing the company’s private equity investment portfolio. Jason has a HBA from Ivey Business School, University of Western Ontario, Canada.” Tokia > About Management

    The team at Rogers also includes for former PlanetEye CEO Butch Langlois, who announced in Jun3 2009 that he was joining Rogers Ventures. Butch has a strong histo

    ry with Rogers serving as VP, Finance and Corporate Development in the old Rogers New Media group.

    The team has a very strong Rogers flavour. It will be interesting to see if they are able to break free from the corporate culture that tends to lead to “The Innovator’s Dilemma” to identify opportunities. Their current investments in Zoocasa, Thoora and GridCentric show a desire to commercialize research efforts, both Thoora and GridCentric are commercialized out of the University of Toronto projects and teams. Rogers Ventures seems to be making an effort to move beyond their traditional boundaries. 

  • The sky is falling

    “we have a structural problem and this means Canada’s ability to drive innovation will weaken and we will see the overall economy suffer.” – Gregory Smith, President of the CVCA

    The CVCA has released their Q2 2009 Venture Investment data.

    • Venture investment down 42% from 2008. $179M in 2009 compared to $309 at the same point in 2008. This includes a $50M placement from OMERS for PublicMobile, which when removed makes the numbers even worse.
    • Average deal size decreased to $1.9M from $2.9M, this means that Canadian companies have less available resources than US competitors. 

    So it’s bad. Really bad. This is not the first time. It probably won’t be the last time we hear about the troubles of Canadian VCs. Anybody really surprised?

    The VC industry in Canada has been in turmoil for a long period of time. There are regulatory and structural hurdles, which the CVCA is actively lobbying politicians for the support. This includes lobbying for support to SR&ED tax credit programs, offset agreements, incentives for investment, etc. I’m not sure that “establishing a blue chip, limited-life panel comprised of company executives, university presidents and venture capitalists with the express mandate to devise a road map for Canada’s technology industries” will provide the solutions necessary to Canadian entrepreneurs. And while I think that VCs are an important part of the ecosystem to support and nurture entrepreneurs, they are only part of solution. It is the entrepreneurs and startups that will save venture capital in Canada. 

    What does all of this mean?

    • Number of investors will continue to decrease
    • Valuations will continue to decrease
    • Customer uptake will be slower
    • Need to become cash flow positive
    • Acquiring entities will favour profitable companies

    Does this sound familiar? It’s pretty much verbatim out of Sequoia Capital’s R.I.P. Good Times presentation or Ron Conway’s email to his portfolio. This is not new or news to Canadian companies. Raising money has been difficult for a while in Canada. Our investors have preferred later stage investments, in the H1 2009 just over 60% of all of the capital when to later stage deals (Series B and later). We’ve seen a need for companies to be able to demonstrate a product, customers and market potential just to raise early funding.  

    There are Canadian ventures that are growing and successfully operating on revenues. Along with a set of emerging technology ventures that have closed non-traditional funding rounds. Well.ca raised $1.1M from angels. J2Play was acquired by Electronic Arts. It’s possible to raise money, to get acquired, to operate successfully during tough times. You just have to execute better than your competitors.

    So what is an entrepreneur supposed to do?

    1. Read How Startups will save Venture Capital in Canada.
    2. Read R.I.P. Good Times. and Ron Conway’s email to his portfolio.
    3. Stop worrying about the state of Venture Capital in Canada.
    4. Start building real businesses with real customers driving real revenues (if you need to raise money there are other sources of capital).
    5. Look for growth in markets outside of Canada (while this includes the US, it should not be limited to US only growth).
    6. Execute, execute, execute. You’re only as good as your last deal. So find customers, keep them happy, and keep innovating.

  • J2Play Acquired by Electronic Arts

    J2PlayThat was fast! Earlier today Electronic Arts announced the acquisition of J2Play in their latest quarterly report. Congratulations to Rob and the entire J2Play team!

    Waterloo based J2Play was founded by Rob Balahura in 2006 to create the world’s first mobile multiplayer game and SDK. The product that ultimately emerged was a “social wrapper” for online games, the first incarnation, a Facebook App that enabled games to be embedded within the social network and extended with chat and leaderboards.

    While the J2Play powered games themselves garnered limited user interest, Facebook having reined in on Apps in a catastrophic way for most, the team was hard at work establishing relationships with industry leaders who wanted in on some social network pixie dust.

    extremevpJ2Play was funded by Toronto’s Extreme Venture Partners. Running with the new fund was a smart move on Balahura’s part, they were instrumental in getting the company in front of fbFund and helping secure an additional $250,000 in follow on grant funding. Worth note, ExtremeVP has also since been able to secure follow on funding for Kontagent.

    The terms of the acquisition were not released, but ExtremeVP’s LPs have to be pleased. This early exit bodes very well and has demonstrated some savvy investing by partners, Amar Varma and Sundeep Madra.

  • I Love Rewards raises $6.9M Series B

    i-love-rewardsI Love Rewards, based in Toronto, has secured $6.9M in Series B funding from JLA Ventures, Laurence Capital, and GrandBanks Capital to fuel continued growth. This brings the total raised to $11.7M.

    The company, founded by Razor Suleman, offers a web based rewards program used by businesses to motivate their employees. Rewards are tied to performance metrics, everything from sales quotas to reduced absenteeism. Revenue has doubled year over year with keynote customers adopting the solution including: Microsoft, Marriott, ConAgra, and Bell.

    Ryan Moore, General Partner of GrandBanks Capital had this to say: “The I Love Rewards vision of becoming the global leader aligns with our desire to invest in the best growth companies in Canada. I Love Rewards offers a compelling value proposition with its innovative proprietary Software-as-a-Service technology that provides immense value to human resource and sales professionals across North America.”

    GrandBanks Capital’s participation is notable. You might recall that this Boston based fund sent out an open letter soliciting pitches from Canadian startups. It would be fair to say GrandBanks is putting their money where their mouth is, which is great to see!

    Congrats to Razor and the I Love Rewards team.

  • Hustle ventures

    I’ve been thinking that we need to create a local incubator, and I’ve started to wonder where this fits in Jevon’s vision of saving VCs in Canada. And it’s an easily understood way to go about deploying small amounts of capital and managing the risks associated with the investments. There are folks beginning to do this in Vancouver, and Montreal. They provide entrepreneurs with capital, education, mentorship, promotion mechanism, market development, among other offerings. They are angels, VCs, and others hustling to find deals, to help their portfolio grow and be successful. Most of all we need to lead by example. We need to build real companies like Well.ca, FreshBooks, DayForce, Rypple, PlentyOfFish, ElasticPath, Idee, and others. The focus needs to be, not on raising money, but on finding customers and solving problems for the marketplace. There is money is available to help companies once they’ve found a customer, when they need to do marketing, additional product development, etc.

    The gap that is identified is at the very earliest stage of the investment pipeline. There are less entrepreneurs starting fundable companies. This is because there have been less successful startups that spinout human capital, culture and ideas. The lack of Fairchildren means there are less successful individuals that have earned their pedigree and training at a successful startup. Basically, there is a bunch of stuff that can be best learned by doing it for another startup (success or failure). It’s not only about technology, it’s about finding customers, raising money, building products, doing business development, developing personal and professional networks, learning how to do sales, etc.

    But we’ve had a dearth of these startups? Maybe not, but there has definitely been a dearth of Fairchildren from these companies. Definitely not enough to create a viable, self-sustaining ecosystem of entrepreneurs and angel investors in the technology space. And this has left a gap in the very early-stage entrepreneurs and funding creating early-stage technology ventures. This gap may have longer term repercussions, the most easily identifiable is in the declining number of early stage investment in Ontario.

    Who is motivated to create an environment with early stage deals, educated entrepreneurs and culture of educated risk taking? Who is going to do the hustling to make these ventures happen?