StartupNorth

Category: You should meet…

  • 7 avoidable capital raising mistakes

    Mark McQueen, the guy behind Wellington Financial is quickly becoming a blog rockstar, and his latest post is no exception.

    Mark deals in the Venture Debt business, a similar product to that of Silicon Valley Bank and a few others. He is the kind of guy you might end up talking to down the road when you need some growth capital. Who knows. All I know is that when I have asked Private Equity guys about Mark and Wellington, they have always gotten a little scrappy, so I take it as a good sign.

    Here is his post, 7 avoidable capital raising mistakes. It is worthwhile advice for anyone pitching to VCs, angels or potential business partners.

    In this first attempt to stick to the script, we?ll address seven of the more obvious mistakes that entrepreneurs make when trying to raise capital (this is not to sound patronizing, but to help make the capital-raising process a success):

    1. False Sense of Urgency

    Imagine the excitement when the email comes in: ?Can I see you tomorrow to discuss a new deal?? As a firm that prides itself in operating in real time, the natural desire is to say ?yes?. Drop everything and see what the fuss is about. Our natural request is for a corporate overview or something similar – gives us a chance to learn about the business prior to the session. Unfortunately, not everyone is as prepared for the request. If you don?t have the powerpoint / business plan ready to share, you shouldn?t be booking meetings for the next day.

    Worse, if you aren?t currently looking to raise capital, there?s no need to try to get on a VC?s dance card for 24 hours from now.

    2. Hurry Up and Wait

    The ugly sister of #1 above. When you book a meeting with a capital provider, you have to assume that they?ll like the story as much as you do. Why else are you pitching the story? Which means they will invariably ask for detailed financial information. Like the financial model that formed the backbone of the powerpoint presentation. Far too often, the response is: it?ll be a couple of weeks. Why the rush for the 1st meeting if the financials weren?t ready?

    We always wonder about that. What will take a couple of weeks? Did you not have a forecast when you presented the business plan? Or are the forecasts not yet sexy enough for sharing?

    The other mistake is the: let?s get the NDA signed up right now. But 10 days sometimes goes by before the first volley of information is sent. Any hint of disorganization is a bad first impression.

    3. ?Not Board Approved?

    Then there are the financial models that ?haven?t yet been approved by the Board?. Having had the meeting, and received the financial forecasts, VCs are often told that the budget they?ve been given hasn?t yet received the sign off of the company?s Board of Directors. But you should still value/analyze the business on the basis that this is the working forecast.

    Which begs the question: if the financial budget that is being shared with would-be capital providers isn?t Board-approved, what is it? Management-approved? Does the Board even know you are talking to potential outside investors? And how does this budget compare to the one that is currently ?Board approved?? Is it better or worse?

    4. The Five Alarm Fire

    Unlike #1 above, this meeting truly is incredibly urgent. The problem is, no one comes clean about just how urgent it is until the meeting is underway.

    Imagine the scenario. Company (or Agent) requests a meeting. It goes well. Good story and strong management. The problem is, they ?need to close? the financing in less than two weeks. Huh? Whatever it is, acquisition, deposit, customer order fulfillment, etc. The timeline is critical. Assuming it is a new story to the firm, and not a follow-on, I can?t think of any institutional firm in the country that can do the primary due diligence, negotiate the deal, draft legals, and cut a cheque in 8 or 10 business days.

    Serious case of lunch bag letdown. Having spent two hours on an interesting meeting, it turns out there is no way to do the deal.

    5. Cell Phone Conference Call Pitch (aka persons of no fixed address)

    This is a personal favourite. The virtual powerpoint presentation. They usually come via a known referral, who is less concerned about you wasting your time than you might be.

    The scheduled one hour pitch comes from someone you?ve never met, and they sound as though they are lying down the entire time. They are relaxed alright, almost too calm. It can be disconcerting.

    As the pitch continues, your mind wanders and you ask yourself – do they even have an office? How do they oversee the staff if they?re always elsewhere? What city are they calling us from right now? And why are they looking for money from us, residents of a foreign country? How do we due dili the deal if there?s no office? Etc.

    just think of how it looks in a police report on television: the assailant had no fixed address (i.e., no job, can?t cover the rent, parents kicked them out of the basement long ago). Has a certain aura to it.

    6. Thanks For Nothing

    It may strike you as hard to believe, but this happens from time to time. A meeting is booked. The story is told. It goes well. Due diligence is done, and a term sheet is issued for a potential financing. Then, radio silence from the person who was looking for the capital. Perhaps they found the money elsewhere. Perhaps they changed their mind. Perhaps an existing investor did the deal instead.

    That is generally just fine by us, as we look at 500 opportunities a year and understand that just as we can?t give every company money, not every company utilize our services.

    But to have gone through the process to size up an opportunity and issue a term sheet, just think of how easy it would be to pen a two sentence email saying: ?thanks, but we are going a different direction?. The VC market is small, and while folks keep confidential business information to themselves, a reputation for rudeness is worth avoiding. It is so easy to say ?thanks but no thanks?.

    7. ?These Forecasts Are Ultra Conservative?

    I?m sure you are surprised that people would use the phrase ?conservative?, particularly at a time when 80% of private companies are missing their forecasts. But, you?d be wrong if you didn?t think it happened every week. At some point during the pitch, someone from the company says ?these forecasts are conservative?. Sometimes you?ll get the ?ultra? modifier as well.

    This is certainly the ?#1 guaranteed to generate a laugh? line in the business. It is almost as good as the follow-up ?I know everyone says their forecasts are conservative, but these really are.? Just like you would never say ?I?m really good in bed? on a first date, just hide the conservative nature of the forecasts for the due diligence period. Some VCs won?t take a second meeting if they hear that line in the first go ?round; they assume, fairly or not, that you?re wet behind the ears.

    If the entire pipleine is already contracted, have the VC figure that out during due dili and say ?wow, are these ever conservative forecasts!? You?ll catch a lot more fish that way.

  • Canada does YCombinator – An Interview with Christopher Golda and Michael Montano

    The Y Combinator session that is currently underway has two different groups of Canadians participating.   Previously I interviewed Michael Parkatti & Michael Marrone a team from Calgary attending Y Combinator.   This interview is with Christopher Golda and Michael Montano, another team of Canadians working on a Y Combinator backed startup.

    I met Christopher & Michael at Mesh 08 where they impressed me with a discussion about their previous startup iPartee and their plans having been accepted at Y Combinator.

    I’m very excited to see them launch their product later this fall.


    Chris & Mike Y Combinator

    1) Mike & Chris, tell us about each of your startup & educational backgrounds before you applied to Y Combinator.

    Chris: We?re both electrical engineering graduates from the University of Toronto. We?ve known each other since the beginning of high school and we roomed together in university. Our first startup, IPartee, was based on an idea we had in second year which we didn?t end up working on until two years later. I?ve been building websites from a young age, but IPartee was the first serious web application I?d ever been involved with. Before IPartee, I started a design and development company called, UrbanTwelve, but I don?t consider that to be a start-up.

    Mike: When we started IPartee, I was doing a co-op at RIM in Waterloo between my third and fourth years. Chris continued at UofT and when he finished, we started working on it in Waterloo and then in Toronto when I returned for fourth year.

    2) What did you guys learn from your previous startup experience?

    Mike: Almost immediately after our launch, we knew we needed to iterate, focus on distribution and differentiate. Basically, our first release wasn?t something people wanted. After three major iterations of our product?two of which were featured on TechCrunch?we ended up being more of a widget provider than a social-network for events. We learned how important it is to build something that people want and that building something that?s useful right away is a huge advantage. We were trying to solve a problem in a very complex and convoluted way that would have only really worked at scale. After the many changes we made after launch, it became more and more difficult to explain our product?that?s what happens when you release a complicated, feature heavy product to begin with. I think that?s why we?ve developed such a strong appreciation for products like Twitter. We?re still learning and we plan on applying all of the lessons from IPartee; I think we?ve been very fortunate to have some great mentors and peers help us along the way.

    3) What are the big differences you are finding between your experience doing IPartee and YCombinator so far?

    Mike: YC is an incredible experience; it?s a network of hundreds of entrepreneurs. It opens a lot of doors and the name lends you a lot of credibility. At the end of the summer, we get the opportunity to meet and present to literally every active venture capitalist investing in consumer Internet. YC is a huge opportunity for us and we?re very excited to be a part of it. As far as working on our start-up, we?ve received incredibly helpful feedback from the partners, founders and speakers at YC. Aside from that, I think it?s very much the same experience we had with IPartee. We?re working just as hard, if not harder. It?s difficult not to work when everyone you know is a plane ride away.

    4) How big did your previous startup experience (although failed) play in getting your spot at YCombinator and making it through the screening & interview process?

    Chris: I believe it played a huge role in our acceptance. If you?re able to get an interview in person, you only have ten minutes to sell yourself. I don?t think we really made a lasting impression until we showed them what we spent the last year working on. Y Combinator sees thousands of ideas a year. The best way to set yourself apart from other applicants is to show that you can and will execute.

    Mike: During the screening process, we spoke with some YC alumni about our idea. That turned out to be really helpful, both for our interview preparations and especially for our idea and pitch in general.

    5) Your new company (I know you can?t disclose the details) ? how has it benefited in its focus & ideation from your previous startup experience. What do you feel is the difference in your idea & approach this time.

    Chris: We?re trying to release a simple product that will create value almost immediately. After IPartee, we became very conscious of the fact that you have to build something that?s innovative, not incremental. Our new start-up lets people do something that hasn?t been possible before?we think it?s a big opportunity and we?re excited to see how people will react.

    6) Have you noticed any big differences between your experience in Toronto and your YCombinator experience.

    Chris: Toronto has an active community of entrepreneurs, but you have to put forth a lot of effort to really become a part of it. Nevertheless, attending events like StartupCamp, DemoCamp and especially Founders & Funders gives you the opportunity to interact with very successful Canadian entrepreneurs that you can learn a lot from. We?ve had great conversations with Leila Boujnane, Albert Lai and yourself. The biggest difference is that at Y Combinator, you?re lucky enough to meet successful entrepreneurs on a very frequent and regular basis.

    7) The YCombinator funding is not a lot of money when you look at other startup funding. ($5k + $5k per founder) ? do you find it hard to ship a product for under $15k?

    Mike: Some people criticize YC for amount they invest, but like any good investor they aren?t just giving you money. They?re advisors to your company at a very early stage?their experience and feedback is invaluable. On top of that, you gain the credibility and network of YC. In any case, I think $15k is more than enough to ship a web-based product. We spent a fraction of that on IPartee.

    8) In my own experience I?ve seen a lack of startup culture in our Universities and engineering/ComputerScience programs. As two recent grads who did a startup while in school and are pursuing startups out of school what has your experience with this been. How does it compare to what you are seeing among the other YCombinator teams?

    Chris: There are some initiatives by the University of Waterloo that I read about on Startup North that sound great?we definitely need more of that at Canadian universities. The University of Toronto doesn?t foster or promote entrepreneurship at all really. They have clubs that occasionally bring in speakers and they have a couple of entrepreneurship classes, but teaching you how to write a business plan isn?t really relevant. Engineers and Computer Scientists should be building things.

    Mike: I get the impression that other universities are much more accommodating. For example, there are some YC founders who are taking time off school to work on their start-up?UofT wouldn?t make that easy.

    9) Any words of advice for other entrepreneurs in Canada looking to do startups?

    Mike: Find out what?s wrong with the industries that interest you and start working on a solution. Don?t focus on business models until you?ve successfully created something people want. The best thing an entrepreneur can do is solve a big problem and get a lot of traction. There are benefits to starting a company in Canada (government programs, etc) and some active investors, but I still think it?s better for entrepreneurs to move to the valley. They love risk takers and they embrace failure?there are countless reasons why it?s an advantage to be there.

    Thanks to Mike & Chistopher for taking the time to respond to these questions.   We’ll be doing a follow up with them after their launch.

    Austin Hill is the CEO of Akoha and a guest contributor to Startup North.

  • Ten Web Startups to Watch

    Technology Review has published a list of Ten Web Startups to Watch.

    1. Pinger
    2. Pownce
    3. Qik
    4. Dash Navigation
    5. Ushahidi.com
    6. QTech
    7. 33Across
    8. Peer39
    9. Mashery
    10. Anagran

    Interesting list of companies. There is a mix from social networking platforms to packet filtering. It started me wondering who were the top ten web startups in Canada. Who were the companies that were building businesses around market opportunities and technologies that should succeed. And in true Nigel Tufnel logic my top ten list goes to eleven. None of these companies are listed on the Fast 50, yet. And the list doesn?t include non-Web companies like Rapid Mind or xkoto. But they are an outstanding group of Canadian ventures.

    1. Idée Inc.
    2. Crowd Science
    3. Octopz
    4. FreshBooks
    5. ConceptShare
    6. Viigo
    7. NowPublic
    8. Acquisio
    9. Agoracom
    10. radian6
    11. LearnHub 

  • The Who, What, Where, When & Why of Y-Combinator. An Interview with Michael Parkatti & Michael Marrone

    Jevon and Jonas recently offered me the opportunity to interview two teams of Canadians currently attending Y Combinator for Startup North.

    Y Combinator is a seed-stage funding firm that combines money, advice and connections with a 3 month program that operates in Cambridge & Mountain View. It has been responsible for a number of high profile successes and captured the attention of many investors and entrepreneurs with its innovative funding & advisory model.

    Taking a small break to play W-Five correspondent (in my weak Lloyd Robertson impression) I asked Mike Marrone and Michael Parkatti to answer some questions about their Y Combinator experience. The interview is about their experience of joining Y Combinator and their soon to launch startup WildStabMedia (which they are not able to discuss in detail yet). Mike and Michael are also writing a column on the Globe and Mail detailing their experience.

    Mike&MikeYCombinator

    1) What was your previous startup experience before deciding to apply to YCombinator?

    Parkatti: Mike and I met while working at Cambrian House in Calgary. I left a comfortable career specifically because I wanted to find out what it was like to be involved with a startup. CH was the right kind of place to get that first startup experience with, because of the energy and passion everyone brought to work with them everyday. It felt like I was constantly meeting people who felt the same way I did about what constitutes a normal ‘career’ path. As great as that experience was, however, working at a startup can only show you what starting a company can be like… it doesn’t necessarily show you how to start one of your own. After leaving, we wanted to start something, but really had no idea where to start or how to raise funding. Eventually, we both had to get regular jobs and bide some time. After half a year of doing that, we applied to YC.

    Marrone: Working at CH was awesome. It completely rejuvenated me about working in the tech industry. Before accepting employment with CH, which was my first startup, I was seriously contemplating switching professions. The experience at CH was a real eye-opener, where I got to work on exciting projects in an exciting atmosphere and met a ton of great people. Afterwards I couldn’t see ever going back to a regular job.

    2) Tell us about the interview process for Y Combinator? What was it like, how was the competition and what about your interview & background do you feel gave you guys your chance to join the Y Combinator class over other applicants?

    Parkatti: You apply to YC using a simple web form, answering each question succinctly. We’d spent a lot of time brainstorming new business ideas, and actually kept a long document of them all. In my opinion, coming up with good ideas generally begets coming up with better ideas. We were thinking of YC as kind of a long-shot… working normal jobs were wearing on us, and we both knew we had to do something entrepreneurial or something was going to give.
    Finding out that we got the interview was one of the biggest thrills, because that’s the major bottleneck in the process to get into yc. They flew around 5 dozen teams to Silicon Valley and interviewed all of them in 3 days. Each team gets 10 minutes. We prepared for the interview a lot, and knew that the pitch was going to be compelling enough, as long as we were able to communicate it properly.

    Basically, they just need to a) hear that you’ve got an innovative idea, and b) have confidence that you can actually build it. Mike and I had both put built and launched compelling side projects in the months prior to the YC applications, which I think let them know that we were capable of both.

    Marrone: Basically went into the YC interview with the mindset that we were about to get a chance to get feedback from some of the people I respected the most. Anything on top of that was icing on the cake. I wasn’t worried about getting in or not. When they offered us investment we didn’t even have to think it over, the answer was obvious.

    3) Beyond the limited funding Y Combinator provides there is a strong social & learning component of the program. Can you tell us so far what that has been like?

    Parkatti: Y Combinator usually provides $5000 + $5000 per founder. The money affords time to work on the product… but the actual value in YC is the network of people you’re around and have access to every day. Our peer founders are all extremely intelligent people and give us fantastic insights at every turn.

    You don’t learn about how to build your product — with only three months to make something that people want, there isn’t any time for that. What you learn is how to build a company. It’s a process that’s fairly ambiguous to outsiders, and gaining the confidence to know that it’s possible is a huge deal.

    Marrone: So far the biggest thing we have gained is the extreme focus on defining our product. The chance to talk to PG and crew pays off in minutes what you couldn’t get elsewhere in hours. Literally talking to them for a few minutes, and listening to them speak at the dinners completely focuses you on getting your product out the door.

    4) Soon you will be graduating from Y Combinator and presenting your startup to the world, is your goal to raise funds & stay in the Valley?

    Parkatti: It’s hard to say what our next move is. Basically, whatever we need to do to make our startup a success, we’ll do. I’m sure we’ll raise funding at some point… but right now we’re concentrated almost exclusively on making a good product. Our goal is to create a successful company, and without a good product that’s literally impossible.

    Marrone: My goal is to do whatever is needed to keep moving forward. If that means we want funding at some point then so be it, but that remains to be seen.

    5) I know you can’t discuss your actual project – but can you discuss a bit how you selected the area, triaged your ideas and focused on one that you felt had legs? So many people have ideas but have a hard time assessing if they are ‘worth much’ – you guys have gone right to the ‘execute on the idea’ phase, any big changes you’ve made once you started?

    Parkatti: Coming up with good ideas is a bit of an art more than a science. First, you need to understand the Internet space and what sorts of things can get enough traction. That’s understanding your market. Second, you need to know your technical ability well enough to know what’s possible to build — that’s knowing your capability. Third, you need to know that your idea can actually make money at some point.

    And our idea has already changed quite a bit as we’ve built it. I think if an entrepreneur’s idea doesn’t change much from planning to implementation, that’s more of a bad sign than a good one. On the internet, building a simple product with an easily understood value proposition is key. You need to distill a product into its basic elements, and strip out all of the unnecessary details.

    6) Having worked in Canada in the startup & technology worlds – what’s the perception of doing startups in Canada among the other Y Combinator applicants and program leaders? Any thoughts of your own on the good & bad points of doing Internet startups in Canada from your perspectives?

    Parkatti: To be honest, the Canadian startup community seems to be almost entirely unknown here. There’s obviously smart Canadian entrepreneurs … but I think it’s harder to break into that ‘inner circle’ in Canada to gain credibility. In the States they understand that it’s the entrepreneurs that provide the lifeblood of the community with innovation. Without entrepreneurs, that ecosystem simply doesn’t exist.

    In Canada, I feel like the interpretation is different. Someone here mentioned the other day that you should never feel like investors are giving you the permission to start your business…. only you have that power. In Canada, it feels like you do need someone else’s permission. That’s not to say that Canadian startups can’t be successful, because they obviously can be … it’s just that the environment is different.

    7) One thing Y Combinator is known for is the speed & focus they create by constraining resources & dropping you into an environment that is 24/7 living & breathing your startup dreams. How has that pace & focus been for you guys?

    Parkatti: It’s been perfect for us. We execute quickly, so being able to concentrate on our product for 10 weeks affords us time to really perfect it. We’ve both built products in our spare time before, and most of the time you just feel exhausted. Right now, it feels invigorating being able to obsess about it and get it right.

    Marrone: You don’t realize how few days you have until you actually count them. After that you don’t really feel the pace of working all day because you are just focused on getting what you need done before your time runs out before Demo Day.

    8) Final Question – Any advice for other aspiring entrepreneurs in Canada who are thinking about Y Combinator or starting their own startup?

    Parkatti: Start building something — preferably something you’d like to use yourself. Learn how to code. If you don’t know how to code, find friends who can. The more ideas you have and the more ideas that you make into reality, the better you’ll be at both processes.

    YC is great for getting credibility — because you’ve already been pre-filtered by extremely intelligent people. But we were planning on making our product anyways, and that’s the mindset you should have. You’ll find that when you have no connections, or experience, or capital, the one thing that gives you any credibility at all is results. If you have a product with traction, you have printed your own golden ticket. And you don’t need anyone’s permission to do that except your own.

    Thanks to Mike & Michael for taking the time to do this interview. We’ll be following up with them after Y Combinator Demo Day.

    Next up from will be an interview with with Christopher Golda & Michael Montano two Canadian entrepreneurs who are also attending Y Combinator this semester.

    Austin Hill is the CEO of Akoha and a guest contributor to Startup North.

  • Investment Banking for Startups – Q1 Capital launches Private Investor Network

    Raising funds for a startup is a full time job. As Craig Hayashi of Maple Leaf Angels pointed out in his recent posts, it can easily take 6 months to raise an angel round. Fortunately, there are options for entrepreneurs who want to focus more of their attention on building the business and less of their precious time on the next financing.

    Golden KeyMeet Frances Fast of Q1 Capital. She specializes in getting startups funded… fast. There is such a thing as a startup investment banker. Frances recently joined Q1, to lead their Private Investor Network, but she is not new to the industry; Frances has been working with angel groups in Canada for nearly a decade, talk about a golden Rolodex.

    If your startup needs to raise over $750,000, you might want to consider the services of an investment bank. They’ll put together your pitch book and get you in front of an interested audience; of course you’ll still need to sell it.

    Investment banking for startups… sounds fancy, what’s the catch? Well, an investment bank’s services are not free. At the close of financing they get a 7% success fee and along the way charge a retainer to keep everyone’s eye on the ball and moving toward closing a deal.

    Sure you can do it yourself. Put together your own private placement memorandum, hunt down angels and vcs, try and get a meeting, etc. But if this is your first time down the startup financing road or you have more vital things to focus on, bringing on an experienced deal maker can keep everything on track and moving forward… fast.

    Contact: Frances Fast, Q1 Capital
    Tip: Be sure to sign up for the Q1 newsletter, it is chock full of need to know info!