StartupNorth

Tag: incubators

  • What is the problem accelerators are solving?

    There is currently a preoccupation with accelerators in the entrepreneur world resulting in a large increase in programs.  Arguably, the result of this frenzied growth is that ‘entrepreneurship’ is as commoditized as college. Unlike college, it is extremely hard to know which programs are adding value and which ones are wasting everyone’s time. This doesn’t mean investors aren’t in the know and they are favouring the programs they like – example, YC or TechStars.

    It could become (or has already become) virtually meaningless to be an accelerator born internet entrepreneur so why would you give up 6-12% of your company to do it? For investors it is really hard to cut through the noise. I think this is because few people actually know why accelerators exist at all. In some cases I fear that the people that are creating new ones aren’t likely clear on why they are creating these programs either.

    How does anyone know which ones work? What problem are they solving? What metrics should they be tracking in order to get better at what they are doing?

    Defining the problem(s) accelerators solve.

    There are three problems I think accelerators are trying to solve:

    1. Investors need to identify talent.
    2. Talent needs to find the right investors and coaches.
    3. Education system failure.

    The first is a relatively easy problem to solve. It is hard for investors to identify talent at an early stage, accelerator programs offer a filtering tool for investors as they can take the top talent that applies and narrow it down to those that have the highest potential based the criteria of the particular program. If an investor trusts the filtering job done by the accelerator than that accelerator is providing value.

    A suggested metric for this: measure how many alumni of a program receive funding, from what type of investor, and in what time span?

    The second problem that talented people and teams have is finding the *right* investors and coaches. By the right investor I mean someone that will give you enough money and coaching that you can slowly de-risk your startup a little more and build momentum as you grow towards being a sustainable business. Founders need coaches to apprentice under while they build their company. The right investor is someone who will put in enough of their own money and time and they can help you get your business through the major milestones it faces. This likely means that party rounds are bad. What I think should be the goal are 4-6 investors and/or an individual (not a VC) has a 1/2 to 1/3 of the total round.

    This should result in the person(s) who put in significant capital also have a board seat and have their sleeves rolled up ready/able to help.

    A suggested metric: track who put in the most personal money in the round and are they on the board of directors or some other significant role in the company? How much time a week/month do they spend with the founders?

    The failure in education is a much harder problem to solve. Is it the traditional silos that are limiting education or is it the expectation that you go to school to be trained for a job or a bit of both or something else? Is the failure the education system (K-12) or is it the students or both? In higher education you have environments that are designed to encourage independent thought that is backed by facts and thinking. You should be exploring and developing your networks.

    At no other point in your life will you be surrounding with that much leading edge research and thinking. Just because a school doesn’t hand you your first startup with funding and office space does not mean the education system is failing entrepreneurs!

    There is also already a process for very smart people to apprentice under others that have already developed their ability to take massive amounts of information and focus it on an outcome. It also happens to come with a filtering mechanism built right in that improves the likelihood that the person that finishes is relatively in the top few percent. It’s graduate school. The process is not perfect but it is a process that works.

    Educating people is hard. Coaching people is harder still. If an accelerator is going to solve the failure of the education system in educating entrepreneurs it should take that part very seriously and not dismiss the education system as having nothing to offer.

    A suggested metric: Does the accelerator have qualified educators and coaches that put in a significant amount of time (more than 1 hr a week) with each entrepreneur? Are there measurable outcomes expected on the entrepreneur? Are there consequences for not meeting expectations?

    Accelerators should be more than marketing to the entrepreneur and placing them in a zoo for the public to see them in action. Education is serious business and it is about people’s future. Entrepreneurs need to have realistic expectations and enter with a clear idea of what they want out of the opportunity.

    Everyone around accelerators is still learning about how to make them work and figure out for whom do they exist. It is an exciting time in education — just be sure to track stuff that matters while you run the experiments!

  • A Perspective on Investor/Mentor Whiplash

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    The other day Fred Wilson posted an opinion and some tips on Investor/Mentor Whiplash. He took the position that that is a big problem for accelerators as well as early stage and seed environments. Brad Feld took this as a bit of a misunderstanding on accelerators, he insists that TechStars creates an environment where early stage companies can learn to manage the whiplash. Brad Feld states:

    I disagree with Fred. It’s not a big problem. It’s the essence of one of things an accelerator program is trying to teach the entrepreneurs going through it. Specifically, building muscle around processing data and feedback, and making your own decisions.

    On the surface this seems correct. A problem (one of many) new founders face is the overwhelming barrage of mentorship (good and bad) and information mixed with the inability to filter. An accelerator should be able to provide the environment where a strong group of peers with some guidance can help to build the “muscle around processing data and feedback.” In the last 6 years I have noticed that is a common problem founders face and their ability to manage it is important to their success. It wasn’t until I experienced the whiplash myself a 2nd and 3rd time that I fully appreciated the damage it can do even if you are prepared for it.

    Generally what I tell early stage founders:

    • Only talk to customers once you have something to show them — but that shouldn’t take you a long time, don’t go heads down for months. Asking people what they want and not focusing on something specific they can touch/feel is a path to busy work and infinite sadness.
    • Avoid the mentor parties/socialization. Find two (or three) good people with opposing views and bounce specific data off them but only when you have done something that requires fresh eyes to advise you how to interpret the results.
    • Focus on what isn’t working when getting feedback from mentors. Founders need to be positive but you need to focus on the bad things when talking to your close mentors that have been through it already. If they can’t help you with the tough stuff why are you spending a lot of time with them?
    • Don’t expect a direct answer. Experienced mentors know you are the best person to run your company, not them, and they have developed a way of not telling you what or how to do things but instead challenge you to figure it out in a positive way.

    Whiplash from mentors doesn’t just happen in startups, it happens everywhere people are giving you advice or have something to gain by influencing the decisions you are about to make or the opinion you develop on something.

    Being prepared and learning to manage the whiplash isn’t just the essence of accelerator programs, it is the essence of education that culminates in the top level you can achieve to filter information – a phd program. At the phd level the filter muscle is almost too strong but that is a topic of a whole other blog post.

    The scary thing for entrepreneurs is that accelerator programs are too often run by people that don’t know how to effectively educate people and/or they have something to gain financially by the decisions founders make.

    I think this *is* a big problem in accelerators. I wonder if the ability to teach that skill to founders (or select founders that already have that skill) is the difference between a successful accelerator (which is really only TechStars and YC) and one that isn’t (pretty much everyone else)?

    [Editor’s note: This post was originally posted on Jesse Rodgers’ Who You Calling a Jesse blog on July 31, 2013.]

  • Startup “ecosystems” in Canada are doing well but…

    Editor’s note: This is a guest post by Jesse Rodgers. Follow Jesse on Twitter . This post was originally published on November 21, 2012 on WhoYouCallingAJesse.com.

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    The Startup Genome released another report mapping top startup cities but this time a bit more specific than it’s heat map from April of this year. Canada did well depending on how you interpret it with Toronto at #8, Vancouver at #9, and Waterloo at #16. In its previous report, Startup Genome ranked Toronto at #4, Vancouver at #16, and Montreal made the list at #25. Oddly Waterloo wasn’t listed in the previous ranking but made it into the top 20 in the new report while Montreal remained outside of it.

    Focusing on my Ontario centric nitpick – the separation of the Toronto and Waterloo “ecosystems” when they are anything but separate is not going to give an accurate picture of Canada’s awesome startup communities. They are unique communities but their strength comes from how they work together in the same ecosystem. The emotional energy (and money) burned in defining how they are different is holding Canada back from an even better and sustainable growth curve. That energy is in the report.

    In the report:

    “Toronto competes for startups with regional competitors such as NYC, Boston and nearby Waterloo.”

    Then in the Waterloo profile:

    “In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.”

    Would you say that about Palto Alto sucking talent to San Francisco and vice versa? No. It’s the valley. A huge area that is far more developed but very similar to the Toronto – Hamilton – Waterloo. The problem, I think, is that at some point in the past when local economic development groups were competing on a similar scale for tax dollars (and manufacturing plants) they narrowly defined regions (Golden Triangle, Golden Horseshoe, etc) where everything above the escarpment is barbarians and the urban modern folk live below next to the cold blue lake.

    There can be (and there are) distinct communities inside the larger Toronto – Hamilton – Waterloo ecosystem. Each community has its strength. Each success in the larger ecosystem helps the entire ecosystem.

    The big problem the ecosystem faces (in Toronto):

    Startups in Toronto receive 71% less funding than SV startups. The capital deficiency exists both before and after product market fit. Toronto startups receive 70% less capital in Stage 2 (Validation) and 65% in Stage 4 (Scale).

    The ecosystem most likely lacks a sufficient quantity of all kinds of startup capital sources: angels, super angels, accelerators, micro VCs, VCs etc. As a result Toronto startups rely more on self-funding, or rounds from family/friends.

    The other big problem (in Waterloo):

    Waterloo has a funding gap (96% less in the second stage) for early stage startups before product market fit, probably due to a lack of super angels and micro VCs. There are high numbers of accelerators and much lower numbers of super angels and VCs than SV.

    Solving the funding problem in Toronto also solves the problem in Waterloo, more companies that able to find the money and the talent to scale in either or both communities helps both or am I missing something?

    Building a strong economy, community, and ecosystem isn’t a zero sum game.

  • 7 Ways To Rock a Startup Accelerator Mentor Day

    Editor’s note: This is a guest post by serial entrepreneur and marketing executive April Dunford who is currently the head of Enterprise Market Strategy for Huawei. April specializes in brining new products to market including messaging, positioning, market strategy, go-to-market planning and lead generation. She is one of the leading B2B/enterprise marketers in the world and we’re really lucky to be able to share here content with you. Follow her on Twitter  or RocketWatcher.com. This post was originally published in August 31, 2012 on RocketWatcher.com.

    I spent the day yesterday at FounderFuel for their Mentor Day. If you aren’t familiar with FounderFuel they are a very successful startup accelerator based in Montreal. And what a day it was – 8 startups pitched and then did roundtable breakout sessions with over 50 mentors including VC’s, angel investors, entrepreneurs and senior executives. Here’s my mentor’s perspective on how a startup can really get the most out of a day like that:

    1/ Pick your Target Mentors Ahead of Time: 50 mentors is a lot and they represented a wide cross section of folks that have deep experience in different consumer and business markets, and have a range of skills from technical expertise to sales, marketing, finance, and legal experience. Selecting a subset of the mentors with experience relevant to your business will help you target your discussions.A handful of the teams that needed marketing help reached out to me by email before the day and that helped to make sure that we connected at the session which I thought was pretty smart.

    7 Ways Rock a Startup Accelerator Mentor Day2/ Ask for Feedback on your Pitch: The mentors are both experienced pitch artists, and listen to pitches a lot. What better folks to give feedback on what worked and what didn’t work with the pitch you just gave? In this case the companies are all still in the early stages of the accelerator program so it’s a great time to get feedback that will improve the ultimate pitch you give on demo day. The feedback will also give you a feel for the differences in what an Angel investor might be looking for over what the more traditional VC’s are looking for in a pitch. “Tell me one thing that would have made my pitch better” or “What was missing from my pitch?” would both be great ways to start that discussion.

    3/ Ask for Specific Help: The mentors are ready and willing to help but they can’t guess what you need. Coming with a set of specific requests helps shape the discussion in a way that is most helpful to you. Don’t be afraid to ask for specific introductions – even if the folks in the room don’t have the answers you need, chances are they know someone who does.

    4/ Listen, Ask Questions (and Filter later): – The mentors yesterday came from really different backgrounds and had worked in a broad range of industries (consumer, gaming, retail, enterprise, financial services). Sure we’re all smart folks but you wouldn’t believe how different our opinons were about questions the startups were asking. For example, at my session with Openera – a tool for automatically organizing files and attachments –  we got into a discussion about selling to consumers versus enterprises as a starting point. I ALWAYS tilt toward enterprises when people ask me that because I know/love enterprise sales. The mentor beside me, Yona Shtern, the CEO from Beyond the Rack on the other hand thought selling B2C (or B2C2B) was just fine. Only Openera can decide who’s got smarter advice for their business (yeah OK, in this case it’s probably the smarty-pants Beyond the Rack guy but hey you get what I’m trying to say here). Another example – in the discussion with InfoActive (a very cool tool that lets you easily create beautiful interactive data visualizations), I immediately saw the applicability to creating interactive marketing materials. I’m a marketer, that’s the obvious use case for someone like me.  The mentor beside me (James Duncan, CTO at Inktank) on the other hand saw the value in selling to IT departments that needed a way to easily create good looking dashboards to help IT communicate to the business side of the house. That’s a great use case that a marketing person like me would be unlikely to immediately think of. Both ideas might be worth investigating but only InfoActive can really decide that. Avoiding “mentor whiplash”, as the FounderFuel gang refers to it, is a critical skill for startups in accelerators that have deep rosters of active mentors. Remember too that time is limited so you don’t want to waste it having a long debate with a single mentor over a specific point. Listen, probe a bit if you need to, and then move on. You can always schedule follow-on time with a specific mentor to explore an idea later.

    5/ Take Notes:  You put a couple of CEO’s a VC, a senior exec and a CTO at a table together and guess what happens? We talk. A lot. Not only that but the conversation moves very quickly from one point of view to the next. Some teams were recording the sessions but the room was loud (did I mention we talk a lot?) and figuring out who said what later might be a challenge by voice alone. Having someone taking notes is a good idea to make sure that you’re capturing ideas as they are flowing.

    6/ Work the Edge Time: By far the best way to get 1 on 1 time with a mentor yesterday was to do it over the break or over lunch. That also gives the mentor a chance to ask questions they might not get a chance to in a round table session.

    7/ Don’t Forget Everyone’s a Potential Investor : The VC’s are easy to spot (and there were a lot of them there) but most of the mentors I talked to are also doing a bit of angel investing as well. For companies at this stage anyone that’s willing to invest time with your company might also be likely to invest cash as well.

    So there’s my advice. I’m sure the other mentors all have different opinions – yep, we’re funny that way.

  • Thoughts about accelerators

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    Most people love to just give advice as if it’s set in stone. These thoughts cannot be applied to every startup, use your own judgement and do you own due diligence.

    Rewind to 2009, we had a stellar year. We had created Tether.com from a simple idea to millions of dollars in revenue. I evaluated various aspects of this success and realized we were paid huge dividends because we made a significant difference in the way people were able to work. At the young age of 21, I faced two options:

    • Retire
    • Continue creating disruptive products and change the world

    Luckily (or unfortunately) I took the second option, creating products that would hopefully disrupt markets. I decided the market I wanted to disrupt was computer programming.

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    Being from Nova Scotia, a small province not really known for its stellar technology, I was faced with two options:

    1. Fund my own startup out of pocket, or
    2. try to raise money.

    We’re known for lobsters, which is a far stretch from computer programming.  Raising cash locally was a stretch, particularly given the very early stage of the business. And while it feels like a feeding frenzy in the Bay area, most US-based investors wouldn’t know where Nova Scotia is on the map (while Jevon [LinkedIn, @jevon] is trying to change that, outside of Boston many might still have a hard time finding us) and putting capital into an early company in a location they don’t know felt very unlikely.

    The best option was to self-fund Compilr with the expection to go from initial idea through to revenue much like we had previously done with Tether.com. We had an idea,  we had a team that was capable of building, we had users signing up to use the service (our user base had grown 13x in a 3 month period), but we had no revenue. And we were running out of cash. Getting people to pay turned out to be very challenging. More challenging than it was with Tether.com.

    At some point, I realized that I needed help. The help probably wasn’t cash. Raising millions of dollars in funding, wouldn’t solve our problem. The money could extend our runway, give us more time to increase our output on features, bug fixes, but if no one would pay for the product – it didn’t matter.

    If money alone wasn’t the answer, maybe it was accelerators that could help (I hear there might be an incubator/accelerator bubble or something). I applied to Y-Combinator with a video from my beautiful rented apartment in Dominican Republic, but ultimately was turned down. I applied to a local entrepreneur competition, Compilr placed 3rd  but sadly there was no financial benefit. At this stage the product went to the back-burner, the development team focused on other projects, the question was: what to do next?

    “You miss 100% of the shots you don’t take” – Wayne Gretzky

    SeedCamp logoAn angel investor introduced me to Seedcamp. And while Seedcamp was Europe focused, they had a strong portfolio of very early stage software companies. Long story short: I applied, invited to pitch in New York, and was accepted to the program. Going to an incubator was a big decision. I was getting mixed advice from my mentors, with some mentors telling me “you are an idiot for valuing your company so low” and others saying “Seedcamp had over-valued the company given the traction”.

    It’s a hard decision, but ultimately I decided that the small percentage I was giving up Seedcamp was a good fit for Compilr and me. Seedcamp was providing value to help Compilr, and if I was successful we could return the favor so they can invest in other entrepreneurs. It felt good, like a fair trade.

    I’ve determined that startup accelerators can provide returns even beyond the bottom line (or the post-money valuations). Here is what entrepreneurs should expect from an incubator:

    Validation
    When an accelerator says, we like your idea and your team and want to give you a small bit of cash, this is significant validation. I think this is the death row for most startups. If your team doesn’t get any validation, will it just become a “back-burner” project. Accelerators can help provide entrepreneurs early, meaningful validation.
    Exposure
    Always insure that your accelerator is able to provide you with adequate exposure. Every time we were involved in a Seeedcamp event we saw about a 30% increase in traffic, which was easily identifiable from those particular events. Accelerators are press whores, they want just as much exposure as you. Weasel your way into anything that could be related to you.
    Accountability/Focus
    Being a single-founder with a crazy idea, accountability sometimes goes on the back-burner. As a founder/CEO sometimes you have ideas that are completely inaccurate and have no foundation. Having a team that can slap you around a bit, when you decide you want to pivot from an online IDE to an online garden center is a great asset.
    They don’t solve your problems.
    My reason for joining an accelerator was simply, if I get enough smart people looking at my business, I’d get to revenue faster. The fact is you could have the most brilliant advisers or mentors helping you, but they still can’t solve your problems. They just aren’t connected into the industry like you.  In the end you need to make strategic decisions on where you want to go.
    Competitiveness
    Joining an accelerator, is always competitive. Being apart of an accelerator provides a degree of competitiveness. When your teammate just raised $910k from top US investors and you haven’t done shit, you instantly feel like you want to go out and raise $2m.
    Prepare to insult everyone
    The worse part of having really great mentors, is when you are in a rut, they’ll tell you “they told you so”. If you didn’t follow a mentor’s advice they may shun you, they may refuse to give you advice on the “basis that you don’t follow it”. The biggest problem if you take one mentors advice, you will insult another.

    Can I help? If you think I can help, shoot me an email: [email protected]

  • An incubator for grownups…

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    David Crow and others (Huffington Post, TechCrunch) have suggested we’re experiencing an incubator bubble?

    Incubators are built for the young. Students exiting school are already living the ramen lifestyle. That means they’re cheap, they have no kids, no meaningful obligations and there’s a good chance they’ll work close to 24/7. It sounds dreamy, if you’re an investor.

    I’m old. I have kids. I’m not moving to Boulder or California for 12 weeks. I don’t play games in the office or do busy work. Why aren’t there incubators for me? I look at the incubators like 500Startups, YCombinator and TechStars and that is what I want. I just can’t participate. I can’t do the work and change my family life the way they’ve structured it.

    What I need from a incubator is…

    To Pay My Own Way

    While new graduates come cheap, grownups are capable of paying their own way. I’d rather work with someone who has some skin in the game over so-called low-cost labour. I’m willing to make an investment in a startup as a career choice.

    While most incubators offer low, bordering on zero, salaries that barely cover living expenses for someone living on the ramen diet. This doesn’t work for me. I need to be able plan for my family and my kids. What I need is something closer to an executive MBA program or a sabbatical. Continuing education programs are interesting because current employers and banks will let you borrow against your assets to get started. It requires larger savings or a working spouse to be able to fund my family during the initial startup experience. I’m willing to buy in to make this happen.

    Hunger, Drive

    Many new graduates will compare working in a startup with a plain old job. This startup thing is cool and all but it’s a ton of work and my buddy working at AcmeTech is already done work for the day and playing XBox online. Building a business offers you freedom. Freedom from what? Corporate politics, busy work, crappy work, basically the standard boredom of the 9 to 5. How can you value that if you’ve never had a shitty boss?

    I work for more than myself. My family and their future is what drives me forward everyday. I work hard when I’m working. When I’m not, I’m with my family and friends, I’m taking my kids to hockey, piano etc. What I’m not doing is placating my boss with more busy work.

    I want to build a successful business for me.

    Access to Mentors

    Tell me if you’ve seen this. You’re sitting around a table discussing your projects and companies. Someone leaves the table early. One of the people remaining at the table proceeds to lay out in detail why that guys venture is going to fail. Why didn’t you tell him that when he was here?

    The solution is for the guy who left early to get a cheque from the remaining person. As soon as she writes that cheque, she’ll sit that guy down and tear him apart and he’ll be better for it. Startups can drown themselves in mentors and advisors. I want to be at the table everyday with people truly invested in my project. Failure for no reason is not an option.

    Learning The Right Skills

    If you have a job today in technology and aspire to be an entrepreneur, typically the first step is to quityour crappy day job. You don’t have a team and project for your new business so you start consulting to pay the bills. You’ll be a great consultant, you’ll learn how to sell your hours, how to find clients, how to deliver services well. Skills that have almost nothing to do with taking a product to market. Once you head down this path, the likely destination is lamenting over some pints how “I was going to do product back when I left my job”.

    Startupify Me

    STartupify.me

    Startupify certainly wasn’t conceived as an incubator for grown ups, however, it does fill a lot of these gaps. While it likely constitutes a pay cut, we pay you to work on startup projects learning new technologies and the startup game. We partner you with established businesses who have a proven track record of creating sustainable businesses that deliver value to their customers. Everyone at the table has skin in the game. We go into our client companies, find and develop opportunities to build differentiated software to grow the stand alone value of their business.

    If you have work experience as software developer and are ready to join the entrepreneurial revolution, we should talk.

     

  • Trying to understand incubator math

    Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

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    Incubators are not a new addition to the financing and support for startups and entrepreneurs. On the surface, incubators and accelerators seem like a low cost way for VCs and government support organizations to cluster entrepreneurs and determine the top-notch talent out the accepted cohort. The opportunity to investing in real estate and services that enable companies where the winners are chosen by the merits of the businesses being built. It feels like a straight-forward, relatively safe bet to ensure a crop of companies that are set to require additional growth capital where part of the products and personalities have been derisked through process.

    However, its not as simple as putting small amounts of investment into a high potential company. An incubator is a business and it’s sole purpose should be to make money.

    What are the basics of an incubator?

    The basic variables in setting up an incubator business are:

    • Cost of the expertise, facilities, services and other overhead
    • Amount of $ to be invested/deployed
    • Number of startups
    • Equity being given in exchange for cash
    • Return on the total investment

    There are cost of operations: real estate, connectivity, marketing, programs and services for the entrepreneurs, and the salaries of the individuals to find the startups, provide the services and build successes. These costs are often covered by governments, in exchange for the impact in job creation and taxation base. We’ve seen a rise in incubators that are funded on an investment thesis, where an individual or a set of “limited partners” provide the initial investment in exchange for an investment in the companies being incubated.

    How much do incubators cost?

    The goal is to efficiently deploy capital to produce successful investments. I’m going to explore how incubators make money by making a few assumptions based on the incubator/accelerator models we’ve seen in Toronto, Montreal, Palo Alto and New York.

    Basic assumptions:

    • Capital Investments: 10 startups x 20k = 200k invested with an assumed ‘post-money valuation’ of $2.2MM
      • This means you now own 9.1% in 10 startups each with a post-money valuation of $220k
    • Support Costs: 10 startups x $10k = $100k
      • This is the cost of real estate, furniture, telecommunications, internet connectivity, etc.

    Alright, we’re planning to deploy $200k and it need to provide approximately $100k in services just to provide the basics for the startups. We’ve spent $300k for the first cohort and and that is before you pay any salaries, host an event, etc.

    Additional costs:

    • People:
      • $100k per year salary for one person to rule them all. Call them executive director or dean or something.
      • Assuming you’re not doing this to deploy your own capital, the person or people in charge probably need to collect a salary to pay their mortgages, food, etc.
    • Events – Following the model set forth by YCombinator or TechStars we have 2 main types of events. Mentoring events where the cohort is exposed to the mentors and other industry luminaries to help them make connections and learn from the experience of others. The other event is a Demo Day, designed to bring outside investors and press together to drive investment and attention in the current cohort, plus attract the next cohort of startups.
      • Mentoring event: $1k for food costs with 25 founders
      • Demo Day: approximately $5k
      • Assumption: 10 mentoring events plus a demo day per cohort adds $40k.

    The estimated costs are approximately $340,000/cohort. Assuming 2 cohorts/year plus the staffing salary costs, an incubator is looking at $780,000 that includes 40 investments and a total of $4.4MM post-money valuation. If we assume that I’m a little off on the total capital outlay, and we build in a 30% margin of error this brings the annual budget to appromimately $1MM/year to operate.

    How do incubators make money?

    Incubators make money when the startups they take an equity stake in get big and successful. The best exits for an incubator come when one of their startups is acquired. Why acquired? Because the path to getting acquired path is shorter than the path to going public which would also allow the incubator to divest of their investment.

    Let’s do the math. If your running an incubator hoping to get respectable returns on the $1,000,000 you’ve laid out above, let’s say it’s not the mythical 10 bagger but a more conservative 3x, the incubator needs one of the companies to exit at near $30,000,000. It can be one at $30MM or any combination smaller than that totalling $30MM. This needs to happen before any dilution and follow-on funding for your cadre of companies. You have to assuming that they can make it to acquisition on the $10,000 and services you’ve provided. For more on incubator math, check out there’s an incubator bubble and it will pop.

    The bad news is that it isn’t as simple as that. Startups are not just something that exist in a vacum. There are a lot of unknown variables that can make or break an incubator.

    • percentage of startups that fail (or turn into zombies) in the first two years after investment
    • time frame return is expected
    • how many startups currently produce that kind of return annually
    • total number of startups that receive investment in any given year
    • total number of acquisitions in any given year
    • avg. number of years a startup takes to get to acquisition (because they aren’t going public)
    • avg. price a startup sells for (I bet those talent acquisitions drag the average way down)
    • what do VC’s currently spend on their deal pipeline?

    It is the unknowns that are where the gamble exists. You can tweak the numbers all you would like but assume startups have a no better fail rate then any small business. The common thinking on that is 25% of businesses fail in the first year, 70% in the  first five years? If just more than half of those companies are alive in one year you are doing well. If one out of those 20 is acquired in 5 years and you get 3x return do you succeed? Do you have to run the incubator for the 5 years at $1MM/year to be able to play the odds?

    Maybe this is why so many incubators focus on office space, it’s easy to show LPs what they are getting for their $5MM for 5 year investment, plus an impressive number of “new” startups that have been touched by the program (often without an exit, you know the way incubators make money).

    What am I missing?

    Editor’s note: This is a guest post by Jesse Rodgers who is currently the Director of Student Innovation at the University of Waterloo responsible for the VeloCity Residence & he is also the cofounder of TribeHR. Jesse specializes in product design, web application development and emerging web technologies in higher education. He has been a key member of the Waterloo startup community hosting StartupCampWaterloo and other events to bring together and engage local entrepreneurs. Follow him on Twitter @jrodgers or WhoYouCallingAJesse.com.

  • Baby Steps

    Baby Steps By San Diego Shooter

    Once upon a time @jevon wrote a vision on how to rebuild the startup scene in Canada (below). Its relatively amazing how spot-on Jevon proved to be in hindsight, and how much the Canadian eco-system moved in that direction – more smaller funds with a incubator/accelerator look and feel, and lots more community.

    How Startups will save Canadian Venture Capital

    View more presentations from jevon

    For instance, check out David’s post on the explosion of incubators in Incubators, Incubators Everywhere. 18 new ones!

    But, anecdotaly, despite some great new sources of funding, we aren’t quite there yet. When I get asked about the latest, greatest startups in Toronto (here or abroad) I end up pointing at a lot of companies that are yesterday’s news, 1-2 year old companies now. Partly my fault as I need to get out and network a bit more, but regardless – we need more. More companies being founded. I know some great folks who are still sitting on their asses getting underpaid at their shit job full of bad office politics. Well the time is NOW. You gots to do what the late Michael Ignatieff told you to do – RISE UP:

    Great – you are motivated. Watching Michael Ignatieff will do that to you. So now what? How do you approach the super early days of starting a company?

    I’d like to pass on a framework that I picked up from founders I’ve worked with over the years. Its not quite as thorough as anything Steve Blank has written on the topic. But it also doesn’t need a 2 hour lecture and/or a $50 purchase of his (very good) book – Four Steps To the Epiphany.

    Basically divide your idea into 4 big areas – product, people, market, financing. Each of these has a burden of proof for you to iteratively solve as the founder. You keep iterating, from baby steps, through to giant steps. Ta da – that is it, the whole framework in two sentences! Taking that framework, the below is how I’d start to tackle the first 90 days of my brand new idea.

    The Baby Steps – Day 1 through 90

    Things will feel messy, you won’t even have realized that you took the heroic step to do a startup. If you’re a coder, you’ll start hacking away at something new at night. If you are not, you’re probably talking to folks and sussing out how to get it done. The biggest goal here is taking the big emotional leap of “doing a startup”. You have to start telling people you are doing a startup, even if you haven’t quite left your current job. And you need to get yourself personally ready for the leap.

    In the four areas I mentioned above, here is what you need to get done:

    1. (Finance/Product/Market) Start putting a pitch deck together – principally put together three things:
    -The Problem Statement: what is the problem you are trying to solve?
    -The Customer: who has this problem and needs it solved?
    -The Market Size: try and take an approximate guess at the size of the market you are chasing.

    2. (Product) Start on a very raw prototype. For a web app I’d usually get the single core feature done + some lightweight graphic design. For hardware, I’d buy a MakerBot and get a 3D printing done. NOTE – if you are a not a technical co-founder, pay somebody to build the prototype. You don’t need to have a full engineering team in place to get a prototype built.

    3. (Finance) Figure out if you need financing, how much financing you need to get to a certain stage ($50k to build a prototype, $400k to launch for instance), and then list who can finance this idea. Light manufacturing & SaaS web businesses are going to have very different funders. Figure out that list, do some deep digging and find out who the angels are for a given category.

    4. (Finance) Get your personal financial situation under wraps. Most of your initial costs are going to be the cost of your own time, so make that time cheap. Also, make sure you have ample time. If you are getting married, renovating a house, planning to climb Everest… you probably shouldn’t do a startup.

    5. (Market) Think about who your customer will be and talk to some of them. Email them a survey and get some quantative feedback. Hang out with them and ask them to use your newly awesome prototype (which probably sucks, but don’t worry, get them to use it anyways). Ask them how they solve “problem x” and get some qualitative feedback/notes.

    6. (Market) Do some really quick tests of the idea in the market. This is called Minimum Viable Product. Setup a Google Adwords and a landing page website. See how much click through you get for a given idea/wording and see how many get to some sort of “commitment form”. You could go as far as letting folks sign up for beta access for your product.

    7. (PEOPLE) THIS IS THE MOST IMPORTANT ONE – network, network, network. Email anybody at startupnorth, we have good networks, especially David Crow, (@davidcrow). Go to every startup event possible in your area. If you live in Moose Jaw and there is no Startup Drinks event, create one. You may have to drink alone for a few weeks, but drinking alone is GREAT PRACTICE for your upcoming startup.

    8. (People) From the above, you need to build a solid list of mentors, advisors and folks you can talk to about building your own business. Meet with them as often as you need.

    This is the list. I’m not even telling you “go get a co-founder, go get $20k in funding, hire a great engineering team, etc”. No, start with baby steps. Get yourself motivated, get networked, prove to yourself that you can build something and meet influential people… these are the baby steps to get over the emotional hurdle.

    Let us know what your first steps were and how you got your business going.

    PS This note is doubly intended for all the RIM employees who just got laid off. Please go start something new, don’t join Manulife.

  • GrowLab & FounderFuel Launch

    The Blues Brothers Car
    Attribution Some rights reserved by Stig Nygaard

    Jake: Here’s the plan: we put the band back together, do some gigs, earn some bread, bang! We’ll have 5,000 bucks in no time.

    Seems like I’ve been talking a lot about incubators, accelerators, catalysts, spark plugs, igniters and other programs designed to engage, educate and enable early-stage, emerging technology entrepreneurs. In the past 7 days, we’ve now seen the launch of new incubator/accelerator programs in both Vancouver and Montreal. The are 2 new programs both focused on bringing together the best talent, access to mentors, capital and networks beyond what many founders are capable of doing on their own. (Full disclosure: I am a mentor for FounderFuel).

    Vancouver » GrowLab

    GrowLabGrowLab has risen out of the ashes of BootupLabs. It includes a spectacular founding team that includes a group of people many of whom I call a friend, and even more importantly they are a group I deeply respect. The group includes:

    The deadline to apply to the GrowLab program is June 15, 2011. Accepted startups and founders spend 3 months in Vancouver and 1 month in San Francisco with an intense mentorship program. The program also includes office space in both cities plus up to $25,000 in seed funding.

    Montreal » FounderFuel

    FounderFuelThe FounderFuel is a new accelerator program with support from the team who started Montreal Startup and Real Ventures. It is a accelerator program that has been seeded with Cdn$2MM and has put together a great mentorship group that includes 85 entrepreneurs, executives, VCs, angels (and me). Ian Jeffery is the General Manager and the Partner at Real Ventures responsible for making FounderFuel work. I first encountered Ian as a competitor to his startup TinyPictures (I was running product at Ambient Vector/Nakama back in 2006). Ian successfully raised a big chunk of money and then proceeded to execute and eventually sell Radar to Shutterfly. I agreed to be a mentor just to personally ensure I get access to the team of mentors. It is ridiculous! The list includes >84 phenomenal leaders, executives, investors, entrepreneurs and people from Montreal and around the world. A sample of the awesome mentors (sorry for every I am leaving out):

    The deadline to apply to FounderFuel is July 1, 2011. Instead of a 4 month program, the FounderFuel program is “12 intense weeks”. It is also a cohort based program that provides $10,000/startup + $5,000/founder in exchange for 6% equity. The program provide access to mentors, office space in Notman House, and access to a culture and ecosystem that has bred success in the past.

    One Observation

    My one observation about both of these programs is that Debbie Landa was the only female listed. It is a really difficult and sad state. There are great number of female tech founders and leaders in Canada. I am disappointed not to see:

    These programs need to do better on encouraging diversity and actively seeking out different viewpoints. The good news is that it is easily rectified.

    Consider Applying

    The deadlines for GrowLab and FounderFuel are approaching quickly. If you are interested in what hopefully is a world-class incubator/accelerator program you should definitely give careful consideration to these.

  • Incubators, incubators, every where

    Photo by Jurveston
    Attribution Some rights reserved by jurvetson

    Is there an incubator bubble? Perhaps it’s an incubator arms race. When I wrote Incubators, Accelerators, and Ignition in 2009 there were not a lot of Canadian based incubators (the now defunct BootupLabs was the only one listed in the ReadWriteWeb article).

    Incubator Index +18

    There has been a rise of support for early-stage entrepreneurs across the country. Yesterday’s announcement of GrowLabs in Vancouver along with the launch of Foundery, Multiplicity Accelerator in Toronto, FlightPath in Edmonton, YearOneLabs in Montreal. There are existing players including Extreme Venture Partners, Mantella Venture Partners, Wesley Clover, Innovacorp and Real Ventures/Notman House. The are university incubators like UW Velocity, MEIC, LeadToWin, Ryerson’s DMZ, Next36. There are Communitech, WavefrontAC, CoralCEA, MaRS, NBIF among others.

    There are companies like Jet Cooper, Teehan+Lax incubating people and ideas (Rocketr & TweetMag). There are new programs like the Under 20 Thiel Fellows that had 2 Canadian students: Gary Kurek (LinkedIn, @gskurek) & Eden Full (LinkedIn, @roseicollistech).

    There is competition from YCombinator, TechStars and 500Startups – Andrey Petrov YC10 (@shazow), BackType YC08 – Christopher Golda (LinkedIn, @golda) & Mike Montano (LinkedIn, @michaelmontano), Rewardli 500Startups- George Favvas (LinkedIn, @georgefavvas) & Jean-Sebastian Boulanger (LinkedIn, @jsboulanger); A Thinking Ape YCW07 – Eric Diep (LinkedIn, @ediep), Kenshi Arasaki  (LinkedIn, arasakik) & Wilkins Chung (LinkedIn), InPulse YCW11- Eric Migicovsky (LinkedIn, @ericmigi), Vanilla Forums TechStars09 – Mark O’Sullivan (@navvywavvy) and others.

    There has been an explosion of support for existing organizations, there has been a rise of a new breed of incubator/accelerator/catalyst.

    How does an entrepreneur evaluate an incubator?

    Photo by Chris Devers
    AttributionNoncommercialNo Derivative Works Some rights reserved by Chris Devers

    Do you pick the incubator? Or does the incubator pick you? This is a business decision. It’s somewhere between chosing an investor and a service provider and picking where to go to graduate school. There are implications for incubators about which startups they choose to help. Their reputation, alumni and talent pool are determined by the people they let in.

    There is no magic formula and rationalization or justification can make any decision sensible. But when I advise entrepreneurs, I want them to think about:

    Pedigree & Reputation
    What are the exits? Who are the alumni? What do others think about the program? One of the big reasons that YCombinator has become so successful is the success of it’s alumni. It has been reported that the YCombinator portfolio is worth almost $3B. They have an strong history of helping companies succeed like crazy. Think about this in terms of post secondary education. What is your opinion of a computer science graduate from: Carnegie Mellon University, MIT, Stanford, UWaterloo, Slippery Rock University? The quality of the education might not be any different. But you need to consider the external optics of an incubator program, just like you do in picking a school.
    Alumni, Mentors and Advisors
    Who do you have access to? Does the pedigree or alumni network change your access to people? Think about YCombinator grads, they get access to Yuri Milner and Ron Conway and $150,000. That’s something most of us don’t have access to. What doors and connections that aren’t available to you today can be enabled by attending an incubator. Who are the mentors what have they built? For example, look at the great talent behind GrowLab – Debbie Landa (Dealmaker Media), Boris Wertz (Abe Books), Michael Tippett (NowPublic), Leonard Brody (NowPublic) and Jason Bailey (SuperRewards). These are some people with impressive histories of building, promoting, operating and selling startups. You need to think about your vertical, your customers, the connections to potential acquirers, etc. Are the people connected with the incubator beneficial to me.
    Culture
    You need to make sure that the culture is something you can work in. I can only describe the culture of places I’ve seen, but I look at Extreme Venture Partners and Mantella Venture Partners in mentoring, motivating and growing entrepreneurs. What is important to you? I watched the Like A Little video on TechCrunch Cribs, and there is no way I could live through that again. There’s nothing wrong with the culture, it’s amazing (disturbing), but I could not do it because my stage in life just would not allow it. My advice is that you visit the incubator, meet the people that are in residence, ask questions, observe, form an opinion.
    Funding or equity stake
    What do you have to give up? Equity? A board seat? How does it compare to other incubators? How much will you benefit from the network and pedigree, from the connections and mentors? This is a decision about do you believe the costs match the benefits? Do you have to move? How long can you survive on the capital?
    Free stuff
    This is a funny thing. What do you get for participating? SwagBag? Press? Boardroom for customer meetings? Hosting? Design services? Legal services? Templated documents? Do you get to attend StartupSchool? Do you get press coverage at your demo day? Do you get coffee? Dinner every other week. You’re in it to get the best deal to help your startup grow.

    Do you need an incubator?

    I’m curious about the feelings and opinions about incubators from:

    • Scott Pelton (@spelton) – GrowthWorks has previously invested in BootupLabs. Scott has worked with companies from incubators including Bumptop. Does having an incubator change your opinion or evaluation of young companies?
    • John Philip Green (@johnphilipgreen) – John has started LearnHub, been part of the early or founding teams of companies in Silicon Valley and now the leadership team at CommunityLend.
    • Leila Boujnane (@leilaboujnane) – Leila is a pillar of the community. She is the founder of Idee & TinEye. She advises startups and hosts events like HackDays.
    • Ryan Holmes (@invoker) – Ryan is a founder of HootSuite, he is also an advisor at GrowLab. Wasn’t HootSuite incubated at Invoker? What is the role of the incubator or companies in organic growth of new ideas? How should entrepreneurs evaluate an incubator vs being an employee versus something else?
    • Evan Prodromou (@evanpro) – Evan is the founder of Status.net and has raised seed money from MontrealStartup and continued to build an amazing product. I’m curious about his opinion on starting in an incubator.
    • Patrick Lor – Patrick cohosts DemoCamp in Calgary. He is on the board at Fotolia. He is an active angel investor. To the best of my knowledge outside of his involvement in SIFE he is not affliated with an incubator.
    • April Dunford (@rocketwatcher) – April is the best B2B Marketer in the world! I just said it on the Internets so it must be true. April has worked with lots of startups including NexJ and Janna. I wonder what her advice to a startup considering an incubator would be.
    • Rob Lewis (@robertslewis) – A drunken rumor says that Rob is starting his own media incubator in Toronto (possibly with ExtremeVP). And since Rob is a W Media Ventures portfolio company, I don’t want to see any puff PR pieces on TechVibes about GrowLab companies.
    • Chris Arsenault (@chrisarsenault) – One of the Jacques’ Mafia and an incredible investor. He has portfolio companies like Chango that have been incubated at Mantella VP. Are incubated companies better?
    • Danny Robinson (@dannyrobinson) – Now running BCIC and I’m curious at his opinion about what is rising out of  the ashes of BootupLabs and his thoughts on the incubator business model.

    More importantly, what do you think about this new bumper crop of incubators?