StartupNorth

Tag: acquisition

  • The Upside Of Canada’s Startup Buying Binge

    Editor’s note: This is a cross post from StartupCFO written by Mark MacLeod, it is a response to Mark Evans’ post The Downside of Canada’s Startup Buying Binge. Mark MacLeod is a Partner at Real Ventures, Canada’s largest seed VC fund. He is also an advisor to some of Canada’s leading startups including Shopify and others. Follow him on Twitter @startupcfo or StartupCFO.ca. This post was originally published on September 14, 2011 on StartupCFO.ca.

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    Mark Evans posted recently about the downside of Canada’s recent startup buying binge. Year-to-date, we have had 22 exits in Canada. But save for outliers like Radian6 and Algorithmics, most have been relatively small. Mark correctly argues that there are long term negative implications to these early exits: losing talent to the US and not building mid to large scale companies that can really bolster our tech scene.

    Can’t argue with that and I have posted in the past about the importance of large tech companies to our ecosystem. But, exits are like pizza, even when they’re bad (small) they’re good. Why?

    Returns to LPs: Returns in the Canadian venture industry since inception are negative. Some funds have delivered returns, but the industry as a whole has not. That won’t work if we want to attract non-government LPs who are motivated by returns vs. policy, job creation. So, any exit that contributes towards fund performance is good.

    Generating repeat entrepreneurs: The reason (I believe) why many of our exits are relatively small is that the founders behind those companies have not had a positive exit before. As an investor, you should not bet against human nature. And I think it’s perfectly natural for an entrepreneur that has the opportunity to sell early and pocket a few million to do that. The trick is to keep that entrepreneur in the system and working on the next company. The next time, that same entrepreneur will set his or her sights much higher.

    Eliminating borders: It used to be an uphill battle to convince US investors to come up here. Now with the elimination of witholding taxes on exit and with our companies doing great things US investors are coming up here more often and earlier in the startup lifecycle.

    So when you think about what’s happening now, my hope is that we are setting the stage for long term success and the creation of some tech giants right here in Canada. To enable that, investors need to do more of the following:

    Give Canadian Startups more capital: This might be ironic coming from a guy at a seed fund, but it’s a well known fact that Canadian startups raise less than their US counterparts. I think it’s fine to operate with small $ before product/ market fit but as soon as you are ready for goto market acceleration you need serious fuel. Canadian investors and entrepreneurs need to continue building strong syndicates that include US investors that can write big cheques.

    We did that at Shopify. The investor group there includes two large tier 1 funds that can help Shopify become a giant in its industry.

    Enable founders to take cash off the table: As a founder you’re more likely to “go for it” if you can sell some shares and not have to worry about cash. This is common practice in the US. We need to do it more up here. It does not make sense early on but series B and up, I think it makes sense.

    Surround our CEOs with mentorship: When you look at the truly giant tech companies, they are almost always founder-led. So that tells me that we have to surround our founders with peers, mentors, coaches, advisors to help them make that transition from founder to CEO.

    We also need tech companies going public here in Canada, but that’s another topic for another time. So, I say bring on these early exits and realize they are setting the stage for great things to come.

    Editor’s note: This is a cross post from StartupCFO written by Mark MacLeod, it is a response to Mark Evans’ post The Downside of Canada’s Startup Buying Binge. Mark MacLeod is a Partner at Real Ventures, Canada’s largest seed VC fund. He is also an advisor to some of Canada’s leading startups including Shopify and others. Follow him on Twitter @startupcfo or StartupCFO.ca. This post was originally published on September 14, 2011 on StartupCFO.ca.

  • The Downside of Canada’s Start-up Buying Binge

    Editor’s note: This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting. Follow him on Twitter @markevans or MarkEvansTech.com. This post was originally published in September 12, 2011 on MarkEvansTech.com.

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    There has been a lot of euphoria and happy dances recently about the flurry of Canadian start-ups being acquired. The list includes Zite (CNN), Five Mobile (Zynga), PostRank (Google), PushLife (Google) and BackType (Twitter).

    The positive news is that the flurry of deals (22 and counting, according to TechVibes) provide a huge boost to Canada’s start-up ecosystem, which needs all the support it can get. Acquisitions reward start-up founders, encourage venture capitalists and angel investors, embolden entrepreneurs, and provide a healthier landscape for people like myself who provide services to start-ups.

    In short, Canada’s start-up ecosystem is on a roll and, hopefully, these deals will make things even better and more active.

    But there is a downside to these start-ups being snapped up. Many of them are early-stage companies with interesting technology but perhaps not a lot of customers or revenue. Rather than a business being acquired, it is the ideas, intellectual capital and, as important, the people that are being purchased. Many acquisitions are fuelled by the need to add strong talent to jump-start the growth of a business or service. Zynga, for example, was looking to boost its mobile development capabilities so buying Five Mobile was a quick way to do it.

    The problems with many of these deals are two-fold:

    1. Many start-ups are snapped up before they get a chance to gain real traction and evolve into small or medium-size businesses that employ dozens or hundreds of employees. It means the loss of an opportunity to build a high-tech community that features a “middle-class” between start-ups and large players (most of them U.S.-owned) such as Microsoft and IBM. In an ideal world, some of these start-ups would grow into an Open Text or, heck, a RIM.
    2. Many of these deals involve some or all of the start-ups’ employees moving out of Canada. PostRank’s employees, for example, moved to the Mountain View, CA. after the Waterloo-based company was acquired by Google. It’s an M&A-driven brain drain when the best and bright entrepreneurs, developers, etc. get sucked south of the border. Granted, many of them will likely return to Canada with more experience and some dollars in their jeans but, in the short-term, it’s a loss for Canada’s high-tech and start-up community.

    I recognize that, in the scheme of things, these are nice “problems” to have. After all, it is better that start-ups are being acquired and investors rewarded as opposed to no M&A activity, which afflicted the start-up landscape for far too long. My point is it is also important to recognize there is a downside, even though it is something we can happily accept.

  • PostRank acquired by Google

    Ilya has confirmed today that PostRank has been acquired by Google.

    The launch of AideRSS, the precursor to PostRank, was one of the first things we covered here on Startupnorth, so we are happy to see such a great outcome for the team.

    Google acquires Postrank

    We are extremely excited to join Google. We believe there is simply no better company on the web today that both understands the value of the engagement data we have been focusing on, and has the platform and reach to bring its benefits to the untold millions of daily, active Internet users. Stay tuned, we’ll be sure to share details on our progress in the coming months!

    Of course, we wouldn’t be where we are today if it wasn’t for all the help, feedback, and support we’ve received from our community over the past four years—thank you all, you know who you are, and we truly couldn’t have done it without you!

    Ilya also notes that the team will be moving to Mountain View as part of this acquisition.

  • RIM acquires Tungle

    Congratulations to Marc and the Tungle team. Tungle announced their acquisition by RIM. Tungle had previously raised $1.5M from JLA, Desjardin, and angels and $5M from Commonweatlth. This is a great addition for the RIM team to continue to build out an application suite for the mobile office. Mark MacLeod (@startupcfo) provides additional thoughts and comments on the acquisition:

    Clear Problem

    Tungle just made sense. Finding a time to meet is a huge pain. This may not be the sexiest, flashiest market, but it is huge. Every business person feels the pain.

    Pivots

    We didn’t have this term back in the early days, but Tungle sure went through some pivots. When I joined it was a peer to peer client a la Skype. And it was S-L-O-W.  The service today bears little resemblance to that early product.

    Data-driven

    All startups but especially SaaS startups should be data driven. Tungle was no exception to this. We even built our own custom system (known as Knudderforce) and tracked daily, weekly and monthly stats. Those stats triggered many actions, automated outreaches, etc.

    Luck

    All good outcomes have an element of luck. I am sure there are many examples in Tungle’s case, but the one that stands out for me is closing our Series A funding in September 2008 just as Lehman Brothers crashed and the markets started tanking. If we had been only a few weeks later we might have had a much tougher time closing the round.

    Focus, focus, focus

    I’ve seen many teams get distracted as they grow. The CEO is off attending conferences, the company moves from market to market, etc. Tungle was laser focused on solving its’ users’ scheduling needs. At one point we were doing usability sessions every day. We reached out to every new user. We just stayed focused.

    Platform

    When we first were getting started, investors wondered if this was a feature vs. a product. Fast forward a few years and it is on its way to being a full fledged scheduling platform with APIs for other companies to use.

    Strategic engagement

    An ideal startup for me is one that can develop conversations with potential strategic partners as a natural part of its goto market strategy. This presumes you are building something that is important to the big players and assumes that you have a CEO capable of establishing and building those relationships. This was definitely the case with Tungle and this announcement is just a logical outcome of this reality.

    The icing on the cake for me is that this is an all-Canadian deal. The Tungle team will be staying in Canada and continuing to make things happen.

    Shared calendaring continues to be a difficult problem as you move to the edge of an organization. Just think about how difficult it is to see availability and schedules of people who are not on your GApps domain or your Exchange Server. Tungle gives RIM a leg up in having tooling like BBM and email and now calendaring that blurs the edge of the organization.

  • Cisco looking for Canadian innovation

    We understand that the good people at Cisco are poking around up North for some start-ups to play a role in the company’s expanded focus  into the datacenter, virtualization and smart grid markets.

    These are key new markets for Cisco and clearly they want to know what the most innovative start-ups are up to (isn’t the hunt for innovation why all leading companies come poking around here?)

    Cisco’s got a few criteria (big companies love their processes!) but it should be pretty easy. To summarize: :

    1)      Companies must be active in the datacenter, virtualization or smart grid markets

    2)      Must have existing VC investment

    3)      Ready/able to take their business to the next level

    4)      VC-pitch PowerPoint will be accepted only. (they can’t review websites, datasheets or whitepapers)

    The people doing the poking are Cisco’s Corporate Development team, who are responsible for investment, acquisition, strategy and partnerships for the company. So if any of these options sound appealing to you, forward your slides to Tab Borden of the Canadian Consulate < [email protected]>

  • 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.

  • Built to Exit

    Image by konstriktionIs a company that is built to exit the same as a company that is built to flip? Not in my opinion. Understanding how to build a company that is attractive to a potential acquirer can help entrepreneurs understand how to build product suites, acquire customers and pick technologies.

    Possible Exits

    Entrepreneur.com list five (5) possible exit strategies:

    1. The Modified Nike Maneuver: Just Take It (basically preferred shares that pay a huge dividend)
    2. The Liquidation
    3. Selling to a Friendly Buyer
    4. The Acquisition
    5. The IPO

    For me, #3 and #4 are almost identical. And #2 is not something you should aim for just staring out. Liquidation is something that happens at the end of your business. Whether it is something that happens in bankruptcy or other it is not a useful model when you are trying to grow a business. So if you merge #3 & #4 it leaves you 3 realistic exit strategies. This is not rocket science.

    • Operate profitably
    • Get acquired
    • Go public

    We know what the IPO market for tech companies looks like. That leaves companies with 2 choices. Build a profitable business or get acquired.

    When I talk to startups everyone seems to think that acquisitions are a dime a dozen. That even based in Toronto, Montreal, Ottawa, Waterloo that they are prime acquisition targets for Microsoft, Google, Oracle, Cisco and other Valley companies. Which surprises me! Sure all of these companies have done Canadian acquisitions, they are the exception and they are done for very specific reasons.

    Why acquire a startup?

    Benjamin Kuo talks about the takeaways looking at the acquisition deals done by Google, Microsoft and Yahoo. The other companies that have done a lot of acquisitions include Oracle and Cisco. Summarizing the 2007 Microsoft acquisitions including Multimap (mapping), Global Care Solutions (healthcare), Palarno (enterprise chat), AdECN (advertising network), aQuantive (public traded – advertising tech), TellMe Networks (mobile voice solutions), and Medstory (health search), he concludes:

    Key takeaways from this, at least if you want to be acquired by Microsoft: you really need to expect to be in business for at least seven to 10 years; you need a lot of traction and a product that people have been using for awhile; enterprise software is hot, consumer web services are not; and you need to have a fit to their strategic plans.

    Companies get bought for a variety of reason:

    • technology;
    • customers;
    • people/talent;
    • the scale for monetization offered by a corporate giant.

    It starts to make a very short list for entrepreneurs about what’s important regardless of the type of exit you’re looking for. You need to have technology, customers, the right talent and a path to monetization. Companies are looking for technologies that solve problems with shared customers and that round out their offerings (then there is a the whole question about do we build it or buy it). They are looking for great teams of engineers, sales people, designers, i.e., the talent. And often large public companies bring a scale and access to market and manufacturing that are just not available to startups without huge amounts of cash. 

    Does this all sound familiar? It’s pretty similar to investment criteria. There’s nothing wrong with building defensible technology that solves a problem for customers with a team of rockstars on a common technology platform.