StartupNorth

  • Week in Review

  • 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.

  • Week in Review

  • Be the next Bumptop

    Too bad Bumptop wasn’t actually an ExtremeU company. However, the recent acquisition of Bumptop should help raise the profile of the 2010 Extreme University.

    If you’re a student, a founder or just thinking about starting something you should apply to Extreme University. This is a world-class program, from an up-and-coming venture capital firm in Canada. They have a track record of selling companies to big players (Bumptop to Google, J2Play to EA). The Extreme Ventures, XtremeLabs, and Extreme University programs are building into a fantastic training and breading ground for a new generation of mobile and Internet startups. It feels like something big is happening inside the walls of Extreme Ventures.

    Extreme University 2010

    Who?

    We are looking for four smart and fast moving teams to participate. Typically all members of the two-three person team will be deep technically, but at least one of the founders should have a technical background.

    What?

    • Get an initial $5000 + $5,000 (US) per founder in exchange for a 10% ownership stake in your company
    • Move your team to our shared ExtremeU office space at Yonge & King (downtown Toronto)
    • Have weekly mentoring sessions by industry experts in technology, funding, legal, PR, marketing and HR
    • Meet a who’s who of experts at our weekly socials and have an opportunity to practice your pitch and demo your in-progress prototype
    • Have access to local shared resources to accelerate product development (mentors, servers)

    When?

    Applications are due by June 4th, 2010. The program starts Monday June 14th, 2010 to Thursday September 10th, 2010 at the ExtremeU offices in Toronto at Yonge and King. The final demo day will be Tuesday September 16th, 2010 at DemoCamp

    How?

    It’s a great program located in downtown Toronto for early-stage entrepreneurs and founders. The Xtreme Labs has a great track record. If you’re interested, make sure you apply before the June 4, 2010 deadline.

    Alumni – The Class of 2009

    UkenUken Games
    Uken Games makes highly addictive games for social and mobile platforms.

    Uken Games was born in March of 2009 when two normal guys decided they wanted to have super powers. Given real world limitation, they turned to the virtual world to make their dreams a reality. They built Superheroes Alliance, their first game, which eventually grew to over 150,000 monthly active users. Since then, they’ve launched 2 other games: Villains and Twisted Treasure have amassed over 300,000 total users. Going forward, they are committed to building a strong community around each of their games, expanding across other both social (Facebook) and mobile (iPhone, Blackberry) platforms. Uken Games has received a follow on investment and are driving hard towards this goal.

    AssetizeAssetize
    Assetize is a Twitter ad network that enables publishers to monetize their social content. Publishers within the Assetize network range from large news and media organizations to individual users. The company has also partnered with a premiere sports agency to launch FanWaves – a Twitter monetization network exclusively for the sports world. The growing list of FanWaves publishers includes the NHL, NY Knicks, Phoenix Suns, Washington Capitals, as well as several professional athletes.

    Next, the company plans to extend their monetization solution to other social networks, as well as other links stemming from media websites and blogs. Given the nascency of this space and lack of history, one of the challenges Assetize has faced is partnering with advertisers willing to market through social channels – a difficulty that is expected to decrease as brands realize the immense potential of social networks. Following Extreme University, Assetize is generating revenue and has secured a seed round of financing. The company is also currently in the process of syndicating a larger round from local and US-based VCs.

    LocationaryLocationary
    Locationary is changing the way that data on local businesses and other places is collected and verified.

    This data is fundamental to the local search and local advertising markets which have revenues approaching $50 billion a year. Google and other local search engines currently buy the bulk of their local business data from aggregators that have employees copy the printed yellow page directories. The current process can’t scale and results in expensive, stale and outdated information typically 1 to 2 years old. Locationary has created a patent-pending, crowd-sourced solution to collect and verify this information across the globe.

    Locationary is growing quickly and now has users in over 70 countries. They’ve collected data on over 20 million places and are now updating over 100,000 places a day. In this business, the fresher the data, the more valuable it is; and that’s what makes them special. Locationary has raised a Series-A investment through the connections made at ExtremeU.

    Extreme Labs has a history of bringing great mentors and presenters to interact and engage with ExtremeU participants. In 2009, participants met some of the best lawyers, founders, VCs and others in Canada.

    Albert Lai Kontagent Startup Lifecycle
    Ali Asaria Well.ca How to get funding
    Colin Ground Cassels Brock & Blackwell Setting up a VC friendly structure
    Dan Debow Rypple Sales & Marketing
    Leila Boujnane Idee Business Development
    Mike McDerment Freshbooks Product Management
    Rick Segal JLA Why do a startup now?
    Rick Yazwinski Tucows Agile Development
    Sal Rocco Stonewood Group How to hire superstars

    The list of already confirmed speakers in 2010 is amazing:

  • 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

  • Week in Review

  • Week in Review

  • Bootup 2.0 – Now with less Boris

    We kept pretty mum about the recent mess at Bootup Labs that culminated with a Techcrunch piece and a “I’m Sorry” post from Danny Robinson, one of Bootup’s founders.

    I was ready to get some nails and start sealing the coffin of Bootup. The whole scenario has been a huge credibility killer for Bootup and I am sure it has been tough on the community in Vancouver.

    Before I started hammering away at those nails however, I decided to reach out to Boris Wertz. Boris Wertz is a bit of a sage and I figured he would have a sense of what was going on. It was then that I found out that Boris W would be joining the board of Bootup and would be helping to back it.

    Danny Robinson posted yesterday that the other Boris, one of the original founders, would be leaving Bootup. I’m not going to speculate on what caused this, but it does seem like everyone at Bootup have committed to doing whatever it takes to get this thing back on the rails.

    So here is my endorsement for the new Bootup. Vancouver needs Bootup as much as Bootup needs Vancouver, and with these recent changes I hope that the Vancouver community can get behind Bootup 2.0 as well. I expect that it will take a while, and Bootup will suffer greatly for it, but time will hopefully heal all wounds.

    Vancouver is truly one of the best cities in the world, and I know that the startup community there will continue to live up to that reputation. It is a unique place, with a unique startup community and set apart in Canada. Vancouver is a lynchpin of change and I hope a city that leads the charge in rebuilding the definition of what it means to be a startup in Canada.

  • dna13 acquired by CNW Group

    dna13 acquired by CNW

    This was a crazy weekend for Canadian startup acquisitions.

    First there was Bumptop announced their acquisition by Google. There is StandOutJobs.com being acquired by an unnamed company. Now Ottawa-based dna13 has been acquired by CNW Group. Read the Social Media Release for more details

    “This acquisition reinvents the newswire and we’re terribly excited about it. It’s of benefit to our clients because we’re taking dna13’s technology platform, which is best-in-class, and marrying it with CNW’s suite of offerings. For the first time we’ll be providing an end-to-end solution that will really allow communicators to manage every facet of the communications process. Everything from creating content; targeting your message; distributing your news and information; understanding how that information is being received by your audience to further refining your message and developing metrics. That will all be available to CNW clients in one, single platform.”
    – Carolyn McGill-Davidson, President and CEO, CNW Group

    This makes a lot of sense since CNW Group is a reseller of the dna13 platform under the MediaVantage brand. No details about the purchase price have been disclosed. 

    Looking at the cached Board of Directors page we find:

    We can hope that this was another 10 banger for a Canadian startup.

  • From out of the ashes

    Lenin Square, view from Hotel Polissya in the ghost city of Pripyat near Chernobyl
    Photo by Timm Suess

    Is there any questions that the Canadian venture captial industry is in turmoil? There is a change that is happening, it might just not be happeing as fast as it could. Mark McQueen talks about the the creative destruction of the VC industry in Canada.

    “There’s no robust “new class” of VC firms coming in behind the current oligarchy, with a similar amount of capital to deploy as those they are planning to replace. We are witnessing the destruction piece of the equation, for sure, but not the rebirth that is the essence of “creative destruction” if it is to succeed.” – Mark McQueen, Wellington Fund

    While there are a few new players entering the market (I’m looking at you ExtremeVP and Mantella VP), we’re seeing a lot of roadkill. There are firms that are not able to raise their next fund, partners that are on life support, startups that are left to wonder what happen to their partners in raising additional capital. However, many that remain are digging in and fighting for their way of life. They are lobbying for support to “manufacture an environment that is hospitable to their investment style”. Adam Adamou at Caseridge Capital Corporation argues that the existing venture players, the Canadian VC oligarchy, has successfully lobbied for restrictions that have kept out new players including the public/private venture capital that was used to fund RIM.

    “The traditional venture capitalists see themelves as the founders of a “Silicon Valley North” and they follow the US trends, which unfortunately do not apply to our Canadian market. They seem to see themselves as avant garde investors in tomorrow’s technology companies, however, they behave more like bankerss[sic] – preferring security and downside protection over opportunity”

    Yikes, that’s a damning review of the Canadian venture industry. However, I’m not sure that the suggested alternatives including Capital Pool Companies and the TSX-V are really better choices for Canadian entrepreneurs (or investors). (I’m not an expert on CPCs or TSX-V but when my friends and trusted advisors like Mark McLeod provide commentary, I listen). What I took away from The Adamou Rant is that many of the funds have a vested interest in the maintaining something akin to the current system. Governments should look critically at the numbers being presented and who is presenting them.

    The State of a Nation

    Is the sky falling? What is the state of venture capital in Canada? Is it really this bad? And why does it matter to early-stage entrepreneurs? Should we all just move to Silicon Valley, New York City, Boston or somewhere else?

    The Canadian VC environment has been challenging for a lot of entrepreneurs. As entrepreneurs, you need to understand the environment that you will start, fund, and grow your company. Canada has a strong track record of access to capital, a stable economic policy and should be a great spot for entrepreneurs. It’s also unique. Canadian companies tend to be at a later stage of corporate development and raise less money than their US counterparts. I’ve written about the impact of the state of the funding environment has on startups. And what entrepreneurs can contintue to expect to see, includes:

    • The 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

    Mark McQueen provides the best summary of state of the Canadian Venture Capital landscape I’ve seen in a while:

    • VC investments in Canadian firms hit a 14 year low in 2009
    • US venture market saw US$18 billion invested in 2009, Canada saw only $1 billion (5.5%) our economy is approximately 12.5% the size of the US economy
    • Up to half of current Canadian VC funds will not be able to raise their next fund
    • Ontario government has sunset the $1 billion Retail Venture Capital Industry
    • “Section 116” was fixed in the 2010 Federal Budget, however, this is not a silver bullet
    • 117 disclosed cross board investments since January 2008 (this includes Canadian investments in US companies)
    • Canadian Fund of Funds have lots of capital to invest in foreign led funds: EDC ($1.2 billion); Teralys ($700 million); OVCF ($205 million)

    A New Hope

    We need to hope that from out of the ashes will emerge a better funding environment for Canadian entrepreneurs. Whether this is led by new funds, angel investors, US funds, or the existing players learning from their mistakes, it doesn’t matter.

    We’re starting to see a strong set of the big players making acquisitions across Canada:

     Our startups need real capital to continue to compete on the world stage. But They can’t survive on SR&ED credits alone. We need to hope that this creative destruction happens quickly, so that something can rise from the ashes and we can witness the rebirth of the Canadian tech startup.