Is money the root of our problems?

The Business of Sofware by Michael Cusumano

Mark Evans is making a call for a Peter Theil in Canada. More investing in early-stage technology and media companies in Canada will definitely help entrepreneurs and attract others to entrepreneuring. But I’m not convinced that access to cash is the biggest problem facing Canadian web entrepreneurs. Additional funding will definitely increase the profile of startups. It will also increase the number of startups and entrepreneurs that get a chance to do it right.

“If you had a start-up fund with, let's say, $50-million, you could easily finance 25 companies – provided you could syndicate your post-seed deals. While Thiel takes a hands-off approach, a smart start-up fund should probably offer value-added resources such as infrastructure, human resources, legal services, strategic advisors, etc. given there isn't a large base of successful Canadian entrepreneurs who have been there and done that.”

Using a 2% management fee model this leaves about $1M/year to operate. I think Mark has the right numbers. I’m still not convinced that money is the root of our problems. As Heri points out, we’re doing a better job bring entrepreneurs, designers, and developers together. We probably need to work on bringing the money folks out to participate. Jevon and Jonas are doing a great job with StartupNorth and StartupCamp. The question can or should a VC be providing “value-added resources” such as “infrastructure, human resources, [and] legal services”. Is this possible on $1M/year. The challenge is that providing these services is either a lot of work, or very expensive if you outsource.

How many of the companies that you’ve seen at DemoCampToronto would you invest in?

Jevon and I have talked a lot about how startups are not an exclusive focus of DemoCampToronto (which explains why there is a huge need for StartupCamp). I keep wondering how we inspire and educate entrepreneurs to emulate Leila and Idee or Michael and Freshbooks. I think we need to teach some fundamentals. Rick Segal did a great job at DemoCampToronto15 providing an 5 minute presentation about venture funding for entrepreneurs. This is where seedcamp, YCombinator’s StartupSchool and StartupCamp have done a great job helping educate and connect technologists and entrepreneurs.

14 thoughts on “Is money the root of our problems?”

  1. <p>Greg,</p><br />
    <br />
    <p>I think that the <a href="http://www.marsdd.com/mars/Events/Event-Calendar/Ent101.html&quot; target="_blank">Entrepreneurship 101</a> is a great program but it's a lengthy one, i.e., starting in November ending in May. I was thinking about something more easily digestible. Maybe this is the one piece that is missing from <a href="http://barcamp.org/DemoCampToronto&quot; target="_blank">DemoCampToronto</a>. a short presentation that mirrors the Entrepreneurship 101 schedule.</p><br />
    <br />
    &lt;ul&gt;<br />
    &lt;li&gt;Finding an idea&lt;/li&gt;<br />
    &lt;li&gt;Finding a business model&lt;/li&gt;<br />
    &lt;li&gt;Finding a market&lt;/li&gt;<br />
    &lt;li&gt;Bootstrapping&lt;/li&gt;<br />
    &lt;li&gt;Building and hiring a team&lt;/li&gt;<br />
    &lt;li&gt;How to market a product/service?&lt;/li&gt;<br />
    &lt;li&gt;Legal issues&lt;/li&gt;<br />
    &lt;li&gt;Pitchfest&lt;/li&gt;<br />
    &lt;/ul&gt;<br />
    <br />
    <p>At &quot;DemoCampToronto2&quot;:<a href="http://barcamp.org/DemoCampToronto2 " target="_blank"><a href="http://barcamp.org/DemoCampToronto2&quot; target="_blank">http://barcamp.org/DemoCampToronto2</a&gt; </a>we had Wayne Bradley from Development Associates present about the &quot;SR&amp;ED&quot;:<a href="http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.html " target="_blank"><a href="http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.ht…</a>tax" target="_blank">http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.ht…</a>tax</a> credit. The presentation was too long, but it's an interesting opportunity for Canadian startups to benefit from government programs. It's very similar to the great Ignite presentation about <a href="http://oce-ontario.org/&quot; target="_blank">OCE</a>'s <a href="http://www.oce-ontario.org/Pages/Home.aspx&quot; target="_blank">Investment Accelerator Fund</a>.</p>

  2. <p>David,</p><br />
    <br />
    <p>depends on what school of thought you're from. Some folks believe only that VCs are only money and are happy enough with that. Others are really looking for a business advisor/psuedo CFO/CEO/COO. </p><br />
    <br />
    <p>Take a look at the VCs who are part of CVCA. Painting with a broad brush, the vast majority are from a pure finance background. Yes they've worked with startups but it isn't the same. I've flown on a lot of planes but that doesn't make me a pilot.</p><br />
    <br />
    <p>Yes there are some entrepreneurs, operators and success stories that have gone on to become Canadian VCs-Rick Segal at JLA, Derek Smyth at Edgestone, Tim Jackson at TechCapital, to name a few but it isn't the norm in my opinion and that's where I think the problem lies. </p><br />
    <br />
    <p>So as you point, out those management fees don't support an armada of support staff. To make matters worse, that tiny armada will want 'carry' if they're decent talent which means not just looking for a salary. There's only so many slices of the pie and so..</p><br />
    <br />
    <p>Should VCs provide value-add? Like all things in life, it depends both on the company they're investing in (ie what's the past experience of the team) and the quality of the services.</p><br />
    <br />
    <p>j</p>

  3. Greg,

    I think that the Entrepreneurship 101 is a great program but it's a lengthy one, i.e., starting in November ending in May. I was thinking about something more easily digestible. Maybe this is the one piece that is missing from DemoCampToronto. a short presentation that mirrors the Entrepreneurship 101 schedule.

    • Finding an idea
    • Finding a business model
    • Finding a market
    • Bootstrapping
    • Building and hiring a team
    • How to market a product/service?
    • Legal issues
    • Pitchfest

    At “DemoCampToronto2”:http://barcamp.org/DemoCampToronto2 we had Wayne Bradley from Development Associates present about the “SR&ED”:http://www.cra-arc.gc.ca/taxcredit/sred/menu-e.html tax credit. The presentation was too long, but it’s an interesting opportunity for Canadian startups to benefit from government programs. It’s very similar to the great Ignite presentation about OCE‘s Investment Accelerator Fund.

  4. David,

    depends on what school of thought you're from. Some folks believe only that VCs are only money and are happy enough with that. Others are really looking for a business advisor/psuedo CFO/CEO/COO.

    Take a look at the VCs who are part of CVCA. Painting with a broad brush, the vast majority are from a pure finance background. Yes they've worked with startups but it isn't the same. I've flown on a lot of planes but that doesn't make me a pilot.

    Yes there are some entrepreneurs, operators and success stories that have gone on to become Canadian VCs-Rick Segal at JLA, Derek Smyth at Edgestone, Tim Jackson at TechCapital, to name a few but it isn't the norm in my opinion and that's where I think the problem lies.

    So as you point, out those management fees don't support an armada of support staff. To make matters worse, that tiny armada will want 'carry' if they're decent talent which means not just looking for a salary. There's only so many slices of the pie and so..

    Should VCs provide value-add? Like all things in life, it depends both on the company they're investing in (ie what's the past experience of the team) and the quality of the services.

    j

  5. <p>I didn't eveb know there was a problem. I mean the fact that we're talking about DemoCamp17, StartupCamps in both Toronto, Waterloo, etc etc, shows that there is an incredibly vibrant community here. It's really amazing how things have taken off over the past year.</p><br />
    <br />
    <p>Would a flood of money in the region help or hinder this gestation of ideas? Honestly, I think the harshness of the conditions makes for stronger companies in general. We have to be smarter, more flexible, and more innovative. And I actually think that is happening. And that's a Good thing.</p>

  6. I didn't eveb know there was a problem. I mean the fact that we're talking about DemoCamp17, StartupCamps in both Toronto, Waterloo, etc etc, shows that there is an incredibly vibrant community here. It's really amazing how things have taken off over the past year.

    Would a flood of money in the region help or hinder this gestation of ideas? Honestly, I think the harshness of the conditions makes for stronger companies in general. We have to be smarter, more flexible, and more innovative. And I actually think that is happening. And that's a Good thing.

  7. <p>David,</p><br />
    <br />
    <p>There are two approaches you can take to offering value-added services.</p><br />
    <br />
    <p>1. The VC(s) provide the services as part of their investment in start-ups.</p><br />
    <br />
    <p>or (and I think this is the more attractive option)</p><br />
    <br />
    <p>2. VCs offer their start-up companies access to services on a pay-as-you-go basis. The benefit is the start-ups woudl receive volume discounts because they would be the VCs' preferred suppliers.</p>

  8. <p>While the complaint is always that there aren't enough smart investors and funds in Canada, I think us entrepreneurs have to take some of the blame for not getting their businesses into a fundable state. There are plenty of high net worth individuals in Calgary, Vancouver, Toronto, everywhere, who make angel investments and would readily make more; they just don't see the deal flow they need to create a thriving funding climate for Canadian start-ups.</p><br />
    <br />
    <p>I also can't understand Mark's comment that entrepreneurs will quit their regular jobs once investors buy in to their big idea. It just doesn't work that way; the entrepreneurs have to take the first step and spade fund the idea with sweat and / or money. If they're not fully committed to it in practice not just in principle, no investor will be either.</p><br />
    <br />
    <p>I regularly attend DemoCamp in Vancouver, and it's great. Good community, fun interaction, etc. But frankly the businesses that present are generally far too early for outside funding. In addition, the discussion and questions are always far too soft and uncritical, with the audience reluctant to ask tough questions about the viability of the business model.</p><br />
    <br />
    <p>Finally, the Founders Fund is a popular topic, but let's not forget that many of their investments directly involve the fund's partners, or other members of the PayPal mafia. For example, <a href="http://slide.com/&quot; target="_blank">Slide.com</a> is Max Lechvin's deal, and Sean Parker was instrumental in the early stages of running Facebook. That profile of fund is simply not going to invest in 'interesting ideas' that are at the purely conceptual phase and don't have full-time founders.</p>

  9. David,

    There are two approaches you can take to offering value-added services.

    1. The VC(s) provide the services as part of their investment in start-ups.

    or (and I think this is the more attractive option)

    2. VCs offer their start-up companies access to services on a pay-as-you-go basis. The benefit is the start-ups woudl receive volume discounts because they would be the VCs' preferred suppliers.

  10. While the complaint is always that there aren't enough smart investors and funds in Canada, I think us entrepreneurs have to take some of the blame for not getting their businesses into a fundable state. There are plenty of high net worth individuals in Calgary, Vancouver, Toronto, everywhere, who make angel investments and would readily make more; they just don't see the deal flow they need to create a thriving funding climate for Canadian start-ups.

    I also can't understand Mark's comment that entrepreneurs will quit their regular jobs once investors buy in to their big idea. It just doesn't work that way; the entrepreneurs have to take the first step and spade fund the idea with sweat and / or money. If they're not fully committed to it in practice not just in principle, no investor will be either.

    I regularly attend DemoCamp in Vancouver, and it's great. Good community, fun interaction, etc. But frankly the businesses that present are generally far too early for outside funding. In addition, the discussion and questions are always far too soft and uncritical, with the audience reluctant to ask tough questions about the viability of the business model.

    Finally, the Founders Fund is a popular topic, but let's not forget that many of their investments directly involve the fund's partners, or other members of the PayPal mafia. For example, Slide.com is Max Lechvin's deal, and Sean Parker was instrumental in the early stages of running Facebook. That profile of fund is simply not going to invest in 'interesting ideas' that are at the purely conceptual phase and don't have full-time founders.

  11. <p>Hey David. Good topic and certainly not an easy one to answer. Here's what I can throw into the mix having just recently completed a good sized financing for our <a href="http://www.startupnorth.ca/2007/12/14/communitylend-raises-25m/&quot; target="_blank">Canadian company</a>. I agree with Daniel that sometimes the delay in getting funding is partly due to the entrepreneur not aiming right. Most VC's have a particular formula for investing which works for them. If you're the type of company that easily falls into that formula and you can do a relatively reasonable job of selling it & there is a good chance there will be money available here (terms based on how many other VC's want your deal). If you don't match the formula and you're not interested in changing your company to try to match it (which I wouldn't recommend), then you have to refocus your aim and go after capital elsewhere. For us, the right formula was to widen our search outside of Canada and to look for Angel investors who had a passion for our particular business. It certainly wasn't easy but we were successful in getting the capital we needed and a group of folks with essential domain knowledge and passion for our business.</p>

  12. Hey David. Good topic and certainly not an easy one to answer. Here's what I can throw into the mix having just recently completed a good sized financing for our Canadian company. I agree with Daniel that sometimes the delay in getting funding is partly due to the entrepreneur not aiming right. Most VC's have a particular formula for investing which works for them. If you're the type of company that easily falls into that formula and you can do a relatively reasonable job of selling it & there is a good chance there will be money available here (terms based on how many other VC's want your deal). If you don't match the formula and you're not interested in changing your company to try to match it (which I wouldn't recommend), then you have to refocus your aim and go after capital elsewhere. For us, the right formula was to widen our search outside of Canada and to look for Angel investors who had a passion for our particular business. It certainly wasn't easy but we were successful in getting the capital we needed and a group of folks with essential domain knowledge and passion for our business.

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