StartupNorth

  • 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!

  • JobLoft makes an exit

    JobLoft2JobLoft, the Toronto-based company at the center of the Dragon’s Den soap opera last year has finally been paid their due. In a move that both shows how much you do not want investment from the Dragon’s Den, and which shows how a little hard work pays off, JobLoft is being acquired by OnTargetJobs.

    OnTargetJobs runs a network of job boards including Hcareers, which caters to the hospitality industry. Our guess is that JobLoft’s map functionality will be brought to Hcareers. OnTargetJobs is backed by Warburg Pincus. No word yet on the acquisition details, but we’ll try and scoop TechCrunch.

    Congrats to the JobLoft crew on a successful exit.

  • Angel financing – What angels look for in a company: Product and pain point (part 1 of 6)

    In the next series of articles, I will walk through the main areas that angels evaluate when assessing a company for investment. As discussed in a previous article, there are distinct phases you will need to go through as you work through the funding process. However, the same evaluation areas will be used at each stage of the process – the only difference is in the level of detail. The areas I will cover are:

    • Product / pain point
    • Market potential / revenue model
    • Competition / barriers to entry
    • Management
    • Execution strategy
    • Investment potential

    So lets start with product / pain point. In order to engage investors in the funding process, you will need to clearly explain what your company does and what problem or pain point its product/service is addressing. This sounds simple to do but you would be surprised how many applications or pitches I have gone through and at the end have walked away without having a clear idea what the company does.

    In describing your company, it often helps to describe the problem you are trying to address. As an example, lets say you are starting a company to make cases for iPods. In this case, you would want to portray the pain point along the lines of:

    • Apple is renowned for making products that have great industrial design and part of the reason people buy them is how they look
    • iPods are made to be carried around so can take a lot of abuse
    • The casing on iPods is prone to scratching
    • Higher end iPods are expensive

      We therefore feel there is a market to provide people with an external case system for iPods that protects the iPod from scratching yet does not detract from the overall look

    Having described the pain point, you now must clearly explain how your company is addressing the pain point. With the example above, how many different ideas can you come up with to build a company to address the pain point? For example, maybe you try to develop a revolutionary ‘micro film’ that can cover the iPod and give it greater scratch resistance. Or maybe you look to hire well known artists and have them come up with very fashionable cases and sell them at high prices as limited numbered editions. Or maybe you will develop low cost cases made of 100% recycled materials that look plain but do the job of protecting the iPod in an environmentally friendly manner.

    Each business model has its own unique challenges so this is why its important to clearly define what your company is doing so investors know what they are investing in. Most investors will use this as a high level filter. If they do not think the idea is viable or marketable, they will probably not pursue things further. i.e. why would anybody want to invest in something they do not understand or do not believe is a good idea.

    One other tip is to keep things very focused. With any company there are probably opportunities for adjunct products, different revenue streams, etc. If your company is just starting out & looking for its first financing, resist the urge to try jam all of this into your company description thinking it will impress investors more to see how broad your company can be. With a start up with limited resources it is going to be hard enough to launch the initial product. Trying to do multiple things at the same time will probably not be feasible and will end up confusing investors as to what your company is.

    In my next article I will cover the next and closely related evaluation area which is how you show the market potential and revenue model for your company’s product/service. As always, if you have any questions, comments, or suggestions for future articles feel free to contact me: craig at mapleleafangels.com

  • Delusions of Facebook – Should you be a Facebook Startup?

    You can’t deny it: Facebook Applications have been a hot topic from the day the Facebook API was announced 5 months ago. Early success stories spread quickly, and the app-installation-fever that most users went through was overwhelming. Invitations to install this app and that one, we all had flooded inboxes.

    Here in Toronto, FaceBookCamp 1 and FacebookCamp 2 were wild successes with over 300 people in attendance at each. There are no surprises when Facebook takes over any conversation, and certainly not one about startups. StartupWeekend here in Toronto is now Facebook Weekend.

    I am a fan of Facebook, and have written my own predictions on how successful they will be.

    So, should you consider building your startup as a facebook app. Or is that, should you consider building a facebook app as a startup?

    I think there are a few fundamental problems with trying to do so, and I will try to explore those here. As a disclaimer: I have not tried to start a business on Facebook, I have just been an observer. I am also aware that there are some facebook apps which are doing quite well, and time will tell if they truly manage to cash-out.

    You cannot build a business on someone else’s platform when they don’t see you as a partner.
    This is the single biggest obstacle. Facebook does not see application developers as partners in any way. In fact, they forbid you from calling yourself a partner.

    The implications of this might not seem so bad up front. You are still getting access to a great API, lots of community-based support and most of all, you have access to Facebook’s 40-50 million users.

    The reality is more harsh however. You are putting yourself at the mercy of an organization that is growing at a phenomenal rate, you do not know what sort of value they prescribe to your, or any other, application and there are no guarantees about how long the platform will be as accessible as it is today.

    To make money, you need to have your own customers.
    To make real money, you need to have customers, even just users will do, but you have to have something.

    When you are building your business on Facebook, you won’t get either one. You get visits. Brief interactions with someone else’s users, and you have no control.

    Being able to move people from being visitors in to being customers is critical to building any sort of sustainable business. In order to generate any sort of sustained revenue, you need to be able to deliver ongoing value to your customer, so they can continue to either pay you, or click on your ads.

    If they don’t innovate, you die.
    You may or may not remember Compuserve, BBSs, AOL, and countless other internet beomouths. In their day, they were all the big thing, the had tens of millions of customers, doing billion dollar deals and they were bringing new customers in faster than you or I could count.

    The one common theme between all their stories? They have all gone away slowly and painfully.

    You may be able to build the most popular Facebook application there is, and you may be able to generate some cash through advertising or sponsorships, but one thing you won’t be able to do, when the time comes, is take your customers with you.

    When Facebook’s day does come, and it will come at some point, it will be your last day too. You won’t have a hope in hell in getting contact information or any other sort of data about your customers, because they were never your customers in the first place.

    This road has been travelled before.

    Your business is their feature
    The name Facebook Applications is misleading. You are building Facebook Features. Slideshows, Maps, Sticky Notes, all of it, they are all features.

    I don’t have to tell you that a feature is not a business, because you already know that. Don’t you?

    You have two options: Change or Die
    You are building your, *ahem* business *ahem* under the Facebook Terms of Service. While they may be relaxed and manageable now, Facebook can change them at any time.

    When that happens, you will have two options. You can do what they say and change your application, possibly removing things like advertisements, or you can go away and die. (And no, you can’t take your users with you).

    Treat your own customers well, and they reward you. Treat someone else’s customer well, and they are rewarded
    We have already established that you don’t have your own customers or users when building a Facebook Application. The kicker here is that you now have no incentive to enhance your ‘application’. The better job that you do, the more Facebook will benefit.

    You may being saying “aha, that means what you said above is invalid”. Well, almost. You see, at some point you begin to provide a diminishing return to Facebook. Their users are spending too much time in your application. At this point, Facebook has more to gain by making sure that you are no longer the flavor of the month, and they gain by having their customers go to other applications. The more people move around in Facebook, the more they benefit.

    Use Facebook as a conduit to your real business
    Facebook has almost 50 million users. You can’t argue with those sorts of numbers. This level of access to so many entrenched users is unusual.

    The opportunity is for you to extract a feature from your real business, and provide that feature as a Facebook Application. You can then try to link users through to your real website. If you are building something worthwhile, they will come there with you and you can focus on turning them in to real customers.

    The fact is, as a startup you should be focused on building something that is useful on its own. You need to create value that people are willing to pay you for, either with their attention or their own money. Until you can do that, you do not have a sustainable business. You have an experiment, a feature, an idea.

  • StartupCamp Waterloo – This is just getting started

    1732730724_69769af3d0_m.jpgJonas Brandon, David Crow and I made the trip from Toronto to Waterloo last night to attend StartupCamp Waterloo. Despite over 2 hours in traffic on the way there, we were happy that we went. What a great evening.

    The room wasn’t packed, but there were just the right number of people there. Things were kicked off with Ali Asara from Well.ca who took us through the ups and downs of his search for funding for his startup. Ali was incredibly compelling and more than made up for the fact that Albert Lai couldn’t make it in time. Ali, who Toronto recently lost to Guelph, is quickly becoming one of my favorite guys in the startup scene around here.

    I had intended to take notes on the evening, but I really just got too caught up in everything. After Ali’s presentation, it was time to have quick 2-minutes demos from a slew of startups, or potential startups. Despite some Facebook Delerium that was coursing around the room at times, which culminated in one startup being told to eschew any thought of making money and to just make a facebook app, there was a really genuine attempt to help each startup in thinking through their business plans and product development.

    The startups that presented, that I made note of, were

    • Village Toolbox ? Not yet launched. Wiki and social tools for actual, real-life, communities.
    • CastRoller
    • Zimride – A Facebook App
    • Purple ? Community managed band calendars
    • ContingencyWorks.com and his EpochBox idea.

    The startup that really got my attention was Village Toolbox. Simon Clark has built a social-software platform for his own community. While the product is in it’s infancy (it didn’t look very refined), and there are quite a few competitors in this space, I think Simon really kind of gets it. A lot of the competitive tools, which we use in my condo are ugly in their own way, and aren’t built with the community in mind. My guess is that there is a lot of room to innovate here, both with the product and with the localized revenue opportunities.

    1732730310_b8a7867ce5_m.jpgSimon’s question when he got up was: “should this stay as a hobby, or should I start taking it seriously”. My advice is: focus on the product, keep iterating it in your own community, and put it in a couple of others. Once you get it right, start spreading it out and then quit your day job when you can afford to, but no sooner.

    These startups were all very early stage, which will probably be the norm for events like this. There were a handful of more seasoned entrepreneurs in the audience however, and a lot of good advice flowed from them. It would be nice if startups would present some basic market research or target-audience information, because it can be hard to talk through problems without really understanding the end-user.

    This is just getting started
    By the time the evening was over, people were buzzing. The rapid-fire sessions, which nobody wanted to end, had us all excited. The entire event was very loosely planned, and it went off perfectly.

    Startups were invited, the number of attendees was kept low, and the organizers let the audience set the pace. We learned a lot of lessons. StartupCamp is unique from DemoCamp in that it isn’t about demoing cool technology just to show it off (a line that was very fine at times), but instead it is about demoing a startup or idea with the intention of taking feedback, and heckling, from the audience. The entire night reminded me a lot of the first DemoCamp here in Toronto.

    Keep the momentum going
    So, here is the deal. We are going to keep up our end of the bargain and we are going to be hosting StartupCampToronto1 (watch that page — too tired to fill it in now) using the same model.

    Now, the challenge we are sending out to all the other tech startup blogs: Run a StartupCamp in your city. Keep it simple and to the point. Let’s smoke out the entrepreneurs and see what, and who, is out there.

    StartupCongress planning continues to take place, but in the spirit of startups, let’s just do it.

  • Angel financing – Who are angels and what are their motivations (part 2)

    When you are making a pitch & ultimately getting angel investors on board with your company, its important to know who you are dealing with and what their motivations are. During a general pitch presentation to a room of angels, you will not be able to know much about who you are pitching to or what each person’s background is. So you will have to keep your pitch suitable for a broad audience. Don’t assume they will have knowledge of the industry your company operates in. As you work with angels interested in investing in your company, you will have the opportunity to get to know them better. This is important to do as you want to ensure their motivations & expectations are in line with what you have in mind.

    So at the risk of over-generalizing, here are some profiles of angels & their potential motivations.

    Cashed out entrepreneurs that have started & sold their own company. They know how to build and run a business. They may be looking for their next opportunity and want to get involved on the management team or board of directors.

    Professional service providers such as lawyers or consultants that provide services to companies. They may be looking for early stage companies to get involved with so they can grow with them and provide increased services once the company gets more mature.

    Doctors that may be interested in funding companies that are advancing technologies in their field.

    Business people interested in funding companies that help work towards a cause they are interested in such as environmental friendly sources of energy.

    Corporate executives looking for early stage companies that can provide a new product or service that can help the corporation they work for.

    At the end of the day, all angels are investing since they want a class of investment they can participate in that offers a chance at a high return (with the downside of high risk). However, there are wide ranges of preferences for what role angels see post investment. Some want to be actively involved in helping grow the company while some would rather be passive and be hands-off. It is also important to be on the same page in terms of expectations of exit and investment return. The main point is to ensure you understand your investors expectations and the role they want to play in your company post-investment so you can properly manage to it.

    In my next series of articles I will talk about the main areas angels look at when evaluating a company. As always, if you have any questions, comments, or suggestions for future articles feel free to contact me: craig at mapleleafangels.com

  • Super-enterpreneur: Anthony Carbone, MadWhips

    Anthony Carbone, MadWhipsBy day, Anthony Carbone is an engineer at DuPont Canada. But from 6pm to 2am, he’s his own man. Not only does he travel back to his old university town, Guelph, to grow his property management firm, but he also moonlights as a web designer for hire with his partner Vinay Menon.

    It’s in his soul. He has to be busy. “I?ve always been an entrepreneur, ever since high school; cutting lawns, doing landscaping, selling my time as a web programmer and developer back in university.”

    Sure, there’s the extra money. But it’s more than that. Rattling around the back of his head are a huge number of unexpressed ideas that he feels compelled to act on. In fact, there is one idea in particular Anthony and Vinay have been driving towards since they met in undergrad.

    Mad Whips

    As Anthony tells it, “I met my partner outside of the engineering building at the University of Guelph in my second year and the topic was cars, money and the Internet. It was just at the time when everything was peaking and the Internet bubble was at its prime.” They decided since to moonlight as web designers to raise enough cash to launch their true passion, a car spotting online community called MadWhips.

    Taking photos of whips? Well, I had to ask too…
    Anthony: Obviously the ‘whips’ is referring to the new slang term for your ride.
    Sunir: Is it really?
    Anthony: Yeah, well, like your crib is your house, your whip is your pimped-out ride, right?
    Sunir: I feel old now. Thank you very much.

    Hitting the road

    But isn’t moonlighting a problem for DuPont? Anthony says, “I have a really good relationship with my boss and he knows that I?m not really interested in going anywhere for the next two, three, four years and I still enjoy that corporate education that I?m getting by being at DuPont and interacting with all the different business units. That kind of corporate experience to me is more important than venturing off on my own right now.”

    They’ve been striving to achieve their dream for years, working hard on the side. But it’s on the side, and their day jobs rule their schedule. The question Anthony left me with was: “When do we take on that certain level of clientele and when can we afford to say, ‘Okay, one of us can quit our jobs’?”

    Contact: Anthony Carbone

    This is part of a series of entrepreneur trading cards by Sunir Shah of FreshBooks.

  • Clay Tablet Technologies – Translation Middleware

    Clay Tablet Technologies, a Toronto, Ontario company made a few interesting announcements today. The first is that they are partnering with SDL as a partner to allow SDL clients to glue their translation technologies in to content management systems.

    Clay Tablet has an interesting position in the market. They sit between large content-focused systems, like a document management system or content management platform, and outside providers of translation services. Clay Tablet automatically manages the routing of content by connecting directly with content management systems, allowing for the immediate and automatic sending of content out for translation.

    What I love about this approach is that once they are deployed, Clay Tablet then plays a vital role in the relationship between the two additional vendors. This means that they can continue to build revenues while having to spend an order less of effort in servicing the customer.

    Their client list is growing impressively, and with today’s partnership announcement, we will undoubtedly be seeing a lot of new customers coming on board.

    Their second announcement today was that they are releasing version 2.0 of their product, which is a significant improvement over their previous versions.

    The long-term opportunity for Clay Tablet is significant. I don’t have to tell you how big the translation business is, or how much it is growing year over year. There is not a company in the world that doesn’t require translation services at some point, and by acting as an easily integrated middle-man, Clay Tablet can profit handsomely from that need.

    Contact Robinson Kelly, CEO

  • SlashID – Federated Identity Management

    Slash ID LogoSlashID launched today. The Toronto, Ontario based company is entering a market that has slain giants such as Microsoft, Sun Microsystems, and IBM among others. This is also the same general market that Vancouver-based SXIP is competing in, although they have a primarily enterprise-focused business model (where they compete with companies such as Australian Atlassian with its Crowd product).

    The most successful effort to date in the federated-credentials market has been OpenID, which has seen a lot of acceptance in the developer and service provider world, but still flounders in obscurity for the average internet user. So, the big question really is: is there a federated credentials business to be made at all? Or is this just a big dream?

    The benefit to the end user seems obvious: I have one login name and password to remember and no matter which site I go to, I can log in without going through signup hassles or having to reset a long-forgotten password. This has been the promise of every federated credential system to date, and it continues to be a major dream of companies such as Google and Microsoft, who feel that the credential and it’s attached identity are the keys to being the number one destination for web users.

    For website owners, the deal gets a little more complicated. Above all else, site owners feel like they are being asked to give up control for the sake of user convenience. The fact is though, there is very little evidence that tells site owners that users will bypass their site or application in favor of a competitor because they do not allow users to use an external authentication system. While the level of control being given up in reality is minimal, if any at all, perception remains the biggest enemy of federated credential systems.

    Will SlashID make a break for it? A strong endorsement on Mashable is a great start, and their focus on providing up-to-date and useful developer tools is smart. If SlashID can provide incentives to site owners to include them as a login option, then they could emerge as a clear leader.

    Contact: Colin Smillie

  • Angel financing – How to work the pitch process (part 1)

    In my next two articles, I will talk about pitching for investment money. In this article I will talk about the stages in the pitch process. When pitching to angels through an organized angel group, there is a multi-step process you need to go through. Your end goal is obviously to close a round of financing. However depending on what stage you are at in the process your goals for that step will be different. The best analogy is thinking about the process you go through to apply for a job at a large corporation. So to illustrate, lets walk through the steps for both:

    1) Initial application

    Job search – you see an ad for a job in an on-line job board or in the paper. You write up a cover letter and a 2 page resume to summarize your experience and why you feel you are a good fit for the job. Somebody in the HR department reads through all the applicants and selects the ones they want to bring in for an interview.

    Angel financing – you fill out the angel group’s 2-3 page application for funding. The selection committee evaluates all applications and selects the 3 they want to have present at the group’s next investment meeting.

    In either example, your goal is not to get the job or get a cheque. It’s to stand out from the pack and get invited to meet in person. People often find it hard to distill their company & the investment opportunity into such a short application. However, resist the urge to try over complicate things by providing all sorts of detail & information at this stage. Your goal is to look interesting enough to be invited to the next stage where you can provide more information.

    2) First interview/pitch

    Job search – you meet with the HR resource who tells you about the company, reviews your work experience, asks questions and answers any questions you have. After they interview all selected candidates they determine the short list they will present to the hiring manager to interview.

    Angel financing – you pitch your company at the group’s investment meeting to 30-40 angels. You have about 15 minutes to do your pitch and 10 minutes to answer questions from the group. The 10 angels that are interested in your opportunity will sign-up and form a due diligence team to investigate your company further.

    Again, in both examples your goal is not to get the job or cheque. It is to come off as being a strong candidate / investment opportunity so you will get the chance to have a deeper dialog with the real decision makers. At this stage you will have the opportunity to provide more details, but not enough to comprehensively review all aspects of your company. This will all have to come out during due diligence before angels feel comfortable to invest, but don’t try cram all of this information into your pitch. You want to provide a broad overview of your company/investment opportunity that looks interesting enough that people will sign-up to take the time to investigate your company in more detail.

    3) Final interviews / due diligence

    Job search – you meet the position’s direct manager and go through a detailed interview to assess if you have the qualifications to do the job. If you are applying for a senior position there are probably multiple interviews with different people, technical tests, reference checks, etc. After the manager is comfortable they have all the details on all candidates, a hiring decision is made.

    Angel financing – you meet with the interested angels to review your company in detail. Through a period of weeks angels look at all aspects of your company, talk with other people in your compnay’s industry, talk with your customers, do reference checks on the management team, get legal advice, etc. When they feel comfortable with the investment opportunity the deal closes & you get your cheque.

    This is the stage where you need to provide all details and get the deal closed.

    The main take away is that during the early stages you need to properly manage your messaging so you are presenting a crisp, clear, broad summary of your investment opportunity. Yes you will be leaving out a lot of details, yes people reading your application/hearing your pitch will have unanswered questions. But your goal is to come off as a promising & interesting investment opportunity so that you will be invited to the next stage so people can ask their questions & get into the details. By trying to over cram too much information into the early stages thinking that you want to provide people with as much information as possible, you run a greater risk people will not understand what you are trying to get across and not be interested taking the time to learn more. The best early stage presentations are the ones that provide a broad overview of all important areas and get people interested to want to take the time to learn more in subsequent meetings.

    In my next article I will talk about the motivations of angels who you will be pitching to. As always, if you have any questions, comments, or suggestions for future articles feel free to contact me: craig at mapleleafangels.com