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By David Crow

The brain drain. Canadian actors in Hollywood. This was a common thread for  Canadian media outlets. But there is something new going on in tech north of the border. International corporations have been snapping up Canadian startups and talent. Foreign investors (think US Venture Capitalists) are looking north of the 49th parallel to actively deploy capital in high growth, scalable companies. Just look at the recent track record of activity in the past 9 months.

Recent Exits

  • Layerboom acquired by Joyent.
  • Plan9 acquired by Apple.
  • Sysomos acquired by MarketWire.
  • SmallThought acquired by Twitter.
  • Opalis acquired by Microsoft.
  • Bumptop acquired by Google.
  • Sitemasher was acquired by Salesforce.
  • CoverItLive was acquired by Demand Media.

Recent Foreign-led Investments

  • Highland Capital Partners invests in Montreal-based Beyond the Rack.
  • Bridgescale Venture Partners invests in Toronto-based Dayforce.
  • Bridgescale Venture Partners invests in Toronto-based Bluecat Networks.
  • FTV Capital invests $35M in Toronto-based Varicent.
  • Altos Ventures invests $4.5M in Toronto & SF-based Kontagent.
  • Metamorphic Ventures invests $1.5M in Toronto-based Chango.
  • Grandbanks Capital invests in Toronto-based iLoveRewards.
  • Grandbanks Capital invests in Toronto-based xkoto.
  • Panorama Capital invests $8M in Calgary-based Tynt.

So just what is going on. Why the sudden interest and opportunity?

  1. A History Lower Valuations, Less Capital & More Traction
    When you look at the historical news archive from the Canadian Venture Capital Association (CVCA) about the state of venture capital in Canada you begin to see a common thread. Canadian companies generally raise less money than their US counterparts at each stage of growth. This leads to lower valuations and more traction from local investors and has created a generation of Canadian entrepreneurs that are used to funding growth from profits. In 2009, the US market saw US$18 billion invested through venture capital. Canada startups only raised approximately US$1 billion representing 5.5% of the US number (source: Wellington Fund blog). The challenge is that the Canadian economy is approximately 12.5% of the US economy and this leaves a significant gap in the amount of potential capital being deployed to Canadian startups. There is a gap in the level of investment and the overall economic performance in Canada. This leaves a huge opportunity for other funding sources.
  2. Strong Local Communities
    When you look across Canada entrepreneurs are using the web, events and models developed locally and internationally to connect each other, share information and build successful startups. There are examples ranging from government-funded initiatives like the Accelerator Centre in Waterloo, WavefrontAC in Vancouver, the RIC Centre, MaRS, Lead to Win in Ottawa, and Communitech (there are a ton more). There are grassroots movements like DemoCamp, MontrealNewTech, StartupCamp and LaunchParty happening across the country. There are an emerging set of incubators and early investors like BootupLabs, Extreme Ventures, Montreal StartUp/Founder Fuel, and Mantella VP. These communities provide entrepreneurs opportunities to connect with other entrepreneurs and seed investors to share methods, pursue informed development and find mentorship and funding.
  3. Close Proximity
    As soon as you decide to get on a plane, the game has changed. It’s not about can I drive to a board meeting in less than 45 minutes. It’s about can I make return travel in the same day. Flights to Vancouver from San Francisco are only minutes longer than flights to Seattle. If you’re leaving the comforts of Silicon Valley to travel to Seattle, Boulder, or other destinations than you should consider Vancouver. Toronto and Montreal in the same geographical proximity to Boston, New York and Chicago. The decision for most investors has less to do with travel and more to do with finding great companies whose growth can be accelerated. Having an international border throws a couple of new complications (see the next section Taxation Reforms) into the mix but it should not prevent investment or acquisition. There might be taxation and immigration impact on
  4. Taxation Reforms
    Charley Lax at Grandbanks Capital was a vocal critic of Section 116 of the Canada Tax Act. However, on March 4, 2010 Finance Minister Jim Flaherty announced amendments to the Act that excluded shares of Canadian private companies. Basically, this removed a major tax barrier to foreign investment opportunities. A few of the deals listed above were completed before the changes to Section 116, significantly more seed and early-stage deals involving capital from US investors can be seen.

The times are a changin’

Grow 2010

Conspiracy theories of Canadians infiltrating American companies are mostly true. But the brain drain is a thing of the past. Silicon Valley is heading north to find new deals, new talent, and new opportunities. Grow Conference in Vancouver is a prime example of the exploration north of the border. Elite investors like Rob Hayes of First Round Capital, Dave McClure of FoundersFund, Jeff Clavier of SoftTech VC are heading across the border to engage with Canadian entrepreneurs and startups. The Canadian Tech Mafia, sorry the C100, continues to show a strong presence with Rob Chaplinsky from Bridgescale, Chris Albinson of Panorama and others.

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

I was reading Eric Reis’ Lessons Learned blog and he talked about The Entrepreneur’s Guide to Customer Development. I begrudgingly read Steve Blank‘s Four Steps to the Epiphany, which is a must read for any entrepreneur (begrudgingly read because it is not the easiest reading). It is a great book, but it’s tough reading.

“And Steve is the first to admit that it’s a “turgid” read, without a great deal of narrative flow. It’s part workbook, part war story compendium, part theoretical treatise, and part manifesto. It’s trying to do way too many things at once. On the plus side, that means it’s a great deal. On the minus side, that has made it a wee bit hard to understand.” Eric Reis

I bought a copy yesterday based on Eric’s recommendation. It is a phenomenal resource for learning Customer Development. Patrick and Brant have done a great job writing an understanable how-to guide for using Customer Development and Agile Development in a Lean Startup. The book includes a shout out to our friends Dan Martell at Flowtown and Sean Ellis at 12in6.

The book incorporates the wisdom and experience of real world practitioners of Customer Development in the 5 years since the inital publication of The Four Steps. For the first time a lot of entrepreneurs will hopefully begin to understand a technology adoption lifecycle and the marketing of products/services. I wrote a chapter in Cost-Justifying Usability back in 2005 where I had first encountered Steve’s Customer Development Methodology from his course notes in 2004 at Stanford (yeah, I know that’s crazy). In the chapter, titled “Valuing Usability for Startups”, I argued that getting out talking to customers and testing your hypotheses were key to success. However, I proposed using the Bell/Mason Diagnostic for evaluating the stage of corporate development in order to calculate Return-on-Investment of usability. In hindsight, I probably should have instructed entrepreneurs and usability professionals to look at processes like Customer Development to search for a “repeatable and scalable business model”.

The Entrepreneur’s Guide to Customer Development is a short mandatory introduction to using customer and agile development to search for a  repeatable and scalable business model.

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

Photo by ecstaticist

OMERS and ABP announced the launch of INKEF Capital, a € 200 million venture fund that is focused on deploying € 100 million in Canada in 5 years.

“In the first five years, € 100 million is anticipated to be invested in start-ups in each of the territories, the Netherlands and Canada. The initial portfolio will naturally be weighted towards early stage companies which will mature over the fifteen year term. Deal flow will come from various sources, including technology transfer offices of universities, informal investors, regional funds and from spin-offs of new technologies by existing companies.”

This is great. It’s nice to see new capital getting ready to be deployed to Canadian entrepreneurs. What’s interesting is the reason that INKEF believes it is differentiated than other capital:

“INKEF Capital distinguishes itself from other investors by its long term investment horizon and active mentoring of the start-ups.”

Makes me wonder what the other firms have been doing? Passive mentoring? It will be interesting to gather more details as content becomes available (Currently http://inkefcapital.com/ is not active and the WHOIS record returns a registrar and intellectual property firm in the Netherlands). This looks it is a direct investment vehicle for OMERS & ABP,  ”programs for direct investment as a promising new strategic option”.  I can’t wait to hear Mark McQueen’s take on this, but given we’re in Day 14 of his hunger strike I suspect that you’re stuck with my limited insight.

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

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

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

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

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

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

The State of a Nation

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

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

  • The number of investors will continue to decrease
  • Valuations will continue to decrease
  • Customer uptake will be slower
  • Need to become cash flow positive
  • Acquiring entities will favour profitable companies

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

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

A New Hope

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

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

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

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

It has been crazy lately 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.

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

There are bound to be more US-led foreign investment firms making their way across the border with the elimination of the long dreaded Section 116.  There have been a number of US firms that were making investment in Canada prior to the removal of this taxation law including: Rho Ventures, GrandBanks Capital and Bridgescale Partners. Bridgescale is an interesting firm. They are focused on the later stage deals but realize that these deals are part of a larger ecosystem.

Bridgescale is led by Rob Chaplinsky. Chaplinsky is a Mechanical Engineering grad from the University of Waterloo (with an MBA from Harvard). He cut his chops as a general partner doing early-stage deals at Mohr Davidow Ventures. He’s a little old school, investor in Bluecat Networks, and a little new schook, he’s an investor in lean startup ninja Eric Reis’ IMVU.

There is also Howard Gwin. Howard’s located in Canada. He’s on the ground helping companies, serving on boards, and generally helping companies grow. Currently he serves on the boards of Coveo, dna13, Kinaxis and others. He’s on the ground and focused on helping Canadian companies. He was on the board of Taleo which has a market cap of >$1B. Not a bad guy to have on your board.

The interesting part is the desire to build connection and community. It’s similar to the efforts that the C100, which aim to help Canadian startups connect with senior level talent and connections in Silicon Valley. The Bridgescale team has created Digital Puck. Apparently all Canadian startup CEOs and founders are hockey fanatics (well, that’s not far off from the truth). Digital Puck is an opportunity for Canadian startup leadership teams to connect with each other and other key players. The goal is to help bootstrap the next generation of companies, and if I’m not a rocket scientist to help educate and grow companies that Bridgescale can invest in. The goal is to build the connections. It is through the connections that value is transferred. It may not always be a direct transfer, and the Bridgescale team seems to understand the need for individuals to be connected across Canada.

Mentor Monday is a mentoring forum for private company CEOs that will take place in the afternoon of the last Monday of every month. There will be three CEOs at each event – a mix of early and later stage companies. On hand will be several very experienced Digital Puck board members – current or past CEOs, CIOs, COOs, and other VP level technology backgrounds. The CEOs will get a great forum to test your business strategy, explore growth plans, look for contacts, board members, advisory board members or just discuss things on your mind. If you are interested in attending, please RSVP on the “Events” section of DigitalPuck.

Whether this is a Silicon Valley firm looking for better valuations on mid-to-late stage deals in Canada or a set of Canadian expatriates looking to make investments in their country of origin, it’s all good for Canadian startups. I participated in the inaugural Mentor Monday session that saw 3 companies present today including:

It will be interesting to see this event evolve, but I think the session was incredibly valuable for each of the startups. It was most valuable as an participant when the founder introduced their business and then described the business problem they needed advice solving. It was very similar to a board meeting with a lot of outside connections. Where else do you get feedback from CEOs, technologists, funders, lawyers, accountants, etc. There is some evolution that needs to happen to the format, but it was a great session. Definitely a great forum for companies that are looking for go-to-market strategies, sales channel discussions, and other growth questions.

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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By David Crow

Our friends at the C100 are hosting 20 Canadian companies on May 18-20, 2010 in Silicon Valley. Interesting tradeoff, accepted startups will need to weigh participation in the C100 with participation at OCE Discovery, MeshU and Mesh (assuming you don’t win the GOAP ticket from StartupCamp Montreal). It shouldn’t be a huge debate, because the opportunity to engage with Canadian mentors in Silicon Valley should be pretty straightforward for most startups.

This is a variant of TechStars for Canadians. You get the chance to connect with the most connected Canadians in Silicon Valley. You can the opportunity to pitch, receive mentorship, and gain access to business development resources. This is a great opportunity for local startups to gain access to markets, companies, and decision makers in Silicon Valley.

“These customers and markets don’t need to be located in Canada. In fact, Canada can often serve as a providing ground, an incubator, for a variety of market segments. We need to leverage the unique attributes of a diverse population of immigrants for the creative tension of differing viewpoints, and to help forge connections with remote markets.” Creating a Venture Culture, The Mark News

It is an opportunity for a Canadian startup to build locally and market globally.

Requirements

To qualify, companies must:

  • Be substantially Canadian in leadership, employees or location
  • Have a product/service with users/customers
  • Be in a position to expand its business in the U.S. and internationally
  • Be willing to cover its own expenses (flights, hotel, some meals)
  • Be endorsed by a C100 Charter Member or a C100 Seed Partner
  • Apply online

Reposted from StartUp North

David Crow is an emerging technology and start-up advocate/evangelist. At Microsoft Canada, he is responsible for helping Canadian start-ups gain access to software, support and visibility in the Microsoft ecosystem through programs like BizSpark (details at microsoft.com/bizspark). David blogs at http://davidcrow.ca/ and http://startupnorth.ca/ or follow him on Twitter @davidcrow

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