Reachli is a startup to watch. I saw the former Pinerly present at Plug & Play in Sunnyvale last August, and met the founders, when our UBC FOM student, Jonas Fung, hosted a Canadian startup event at Plug & Play. Reachli came out of U of Toronto.. Needless to say, I was impressed… The business model at the time was a blend of Web analytics and viral marketing, with a tag line about “turning browsers into buyers,” which has been the bane of social media marketing efforts. The conversion rate is abysmal. I “got it” immediately,and I am pleased to see them moving forward.. Good luck Reachli!
Category: Canadian venture capital
“Parking” : The Crucial Venture Capital Skill No One Wants to Talk About
John Doerr, Parking Attendant, Senior Partner at Kleiner Perkins Caufield Byers, and former Intel executive
What is parking? It’s finding a good acquisition for a startup that didn’t do as well as you expected.
A local Okanagan company has recently been “parked,” with great fanfare as if it were a major success, but also to obfuscate the reality of the situation. This reality needs to be openly discussed, but it is unlikely that it ever will be. It is more important locally to loudly tout the company’s exit, primarily because there really has not been much else to celebrate here over the last few years. Locally, there has also been naivete’ about multinational corporate investment in a local startup.. Nobody wants to talk much about that either, but the stark facts are there.
Canadian Business has just published an excellent story about Ryan Holmes and Hootsuite, BC’s most recent “gazelle” startup, and current wild speculation about a $1 Billion valuation for Hootsuite. More importantly, the CB article confronts the deeply imbedded challenges and problems with Canadian innovation, investment, and the hope that somehow Hootsuite might avoid the sorry long history of Canadian high tech companies.
Is HootSuite Canada’s Next Billion Dollar Tech Titan?
Ryan Holmes, CEO of Hootsuite
Read more: http://www.canadianbusiness.com/technology-news/is-hootsuite-canadas-next-tech-titan/
Venture capital is described as a “hits business” and that’s true enough: a few exits produces the majority of the returns. 80% of VC profits comes from 2% of deals, a top European VC told the Business Insider. Others have told me the same story.
But that’s only part of the story. A rule of thumb is that to be considered a good performer, a VC fund has to return three times its capital. But in many a VC fund, while 2X will come from the big hits, the third piece w ill come from smaller “long tail” exits, which individually might not make a big difference to the fund, but when added up can make or break it. It is classic “marginal cost” thinking. Said another way, better to come as close as possible to breaking even than to go bust.
So “parking well” is a very important VC skill. And it comes down to the VC to park a company that hasn’t been performing as well as expected, because most often they’re the ones who have the industry relationships and the M&A experience, not the entrepreneurs. Cisco Systems has historically been the parking place for many unsuccessful startups. More recently, Google has enthusiastically joined the party, and their “parking” acquisitions have been labeled “acqui-hires.” For Google, it has been a simple calculation. Acquiring the target company, and tying up the key employees with a variety of incentives, versus the cost of an external hiring campaign, bonuses, relocation, and perhaps most importantly, excessive delays which negatively impact the acquirer’s competitive advantage.
VCs don’t like to talk about parking because they’d much rather talk about helping startups grow into huge blockbusters than mitigating losses on underperforming investments.
And Kleiner Perkins is known in the industry for being great at parking.
In a talk at Stanford, when talking about how VCs need to be good at finding exits for their companies, straight-talking VC Mark Suster phrased it thus: “Are you Kleiner? Can you get $400 million for ngmoco when it probably wasn’t worth it?,” adding jokingly: “Oh, maybe it was worth it.”
The point here isn’t to diss mobile gaming company ngmoco (your writer enjoyed many wasted hours on Rolando, one of their hit games), but it pivoted several times in search of a business model and when the acquisition happened, many eyebrows were raised at both the price and the acquirer, DeNA, a big Japanese gaming company that had done practically no US acquisitions to date.
In the case of Pelago, it probably works out for everyone. Groupon gets a great team who understands mobile, one of its big growth areas. The entrepreneurs get pre-IPO stock options into one of the hottest companies on Earth, and maybe even some cold hard cash if they weren’t too diluted and/or didn’t have too harsh liquidation preferences. Kleiner gets a small but valuable notch on its belt and helps talented entrepreneurs get a good save, who probably won’t forget that the next time they go raise money.
Parking is crucial for VCs, and Kleiner shows how it’s done.
Read more: http://www.businessinsider.com/whrrl-pelago-kleiner-perkins-2011-4#ixzz2HYMLaQUe
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Too Much Foam. Too Little Guinness: Accelerator Shakeout On The Horizon?
http://pandodaily.com/2012/12/03/we-know-accelerators-are-headed-for-a-shakeout-but-do-they/
I have an ominous feeling of deja vu. But it may not be all bad. The “accelerator” business appears to be at a strategic inflection point. The indicators are increasingly pointing to the need for a rethink.
In 1849, thousands of aspiring gold miners arrived by ship at San Francisco. Very quickly, enterprising citizens in San Francisco set about selling premium priced shovels and mining pans to the fortune hunters, as they set off for the Sierra foothills. Even the crews jumped ship and headed for the hills, leaving their ships to rot into San Francisco Bay, until 150 years later the San Francisco Giants spectacular new AT&T Park was built on top of the old shipwrecks. Very few of those original “49’ers” hit pay dirt. Most lost their shirts.
Having been in the entrepreneurship business for many years in Silicon Valley, the current entrepreneurship industry environment feels more like the 49’ers bubble than did the 2001 Internet bubble. In that period, I was bemused by all the “dumb money,” and the experience of breakfast at Buck’s in Woodside, or Il Fornaio in downtown Palo Alto, both packed with VC‘s and wannabe entrepreneur’s. The voices were muted to avoid being overheard, and the wine flowed freely. This time it is worse. There is no Il Fornaio. There is no money. It is more like an industrial ghetto out there. Erin Griffiths’ PandoDaily December 3rd post (URL above) “We know accelerators are headed for a shakeout-but do they?,” adds additional evidence to my earlier November 18th post on the depressing state of the app development industry and the dearth of Big Ideas. The new “49’er ” is the Web entrepreneur.
This does not appear to be specific to any particular location or geography. It’s happening in New York, Boulder, Austin, as well as here at home. It’s everywhere. Investors’ are openly bemoaning that there are too many accelerators cranking out too many mediocre ideas. It used to be that bad ideas died quick deaths in the Colosseum of competition. Erin’s description of a typical company’s “demo day” fiasco was painful to read, but so dead on the mark. I have seen it a hundred times. Some of the problem stems from the lack of meaningful accelerator performance metrics. Some of it stems from a lack of will to enforce “up or out” rules.
So seeing the writing on the wall, Y Combinator, most often ahead of the curve, is scaling back significantly without prompting from any source or market force.
There may be a silver lining in some hopeful signs. Communities that are focusing like a laser on their local economic environment, and working to enhance their core competencies, encouraging entrepreneurs in those niches, are winning. Those lost in the froth of trying to reinvent Silicon Valley are increasingly losing.
Too much foam. Too little Guinness.
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Very impressed with HootSuite After Playing Around For A Couple of Hours
Very impressed with HootSuite after playing around for a couple of hours. I like pretty much everything about, most importantly the working business model. No need to say more. http://ow.ly/fyYSt
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App Development Boom’s Depressing Underbelly: What Ever Happened To Big Ideas?
This morning’s New York Times published an article on the frothy boom in “app development” for Apple IOS and Google Android devices. The four page in-depth analysis of the “app industry,” paints a very depressing picture. For all of the hoopla about this area, the statistics suggest that it is little more than a bubble about to burst. More depressing it adds to the chorus of concern from leading thinkers on entrepreneurship, innovation and technology: ” Where Have All The Big Ideas Gone?” We have lost our way with innovation and the need to solve big problems. Angry Birds is not solving any big problem, and leading people like the couple in this article, to chase the ephemeral rainbow. This morning’s story will likely ignite a vigorous online debate, as it should.
The Washington Post published an article last year with the title, “Moral Decline and the End of Big Ideas.” http://www.washingtonpost.com/national/on-innovations/moral-decline-and-the-end-of-big-ideas/2011/09/14/gIQAQntJwK_story.html The author’s point is that it is a sense of moral duty to make the world a better place that drives someone to change the World. Or at least it should be..
Another opinion piece in the New York Times by Neal Gabler, also last year, asks where are the Big Ideas? http://www.nytimes.com/2011/08/14/opinion/sunday/the-elusive-big-idea.html?pagewanted=all The Atlantic magazine had published a list of the ” 14 biggest ideas of the year,” the biggest of which, ironically was “The Rise of the Middle Class – Just Not Ours,” describing the rise of broad prosperity in the BRIC nations. The Atlantic list stimulated Gabler to predict a future of Big Data, but not Big Thought.. The implication I hear in Gabler’s editorial is that we are in a post Enlightenment time, a period of anti-intellectualism. I hope not, but I fear it may be true.
The list of luminaries who bemoan this situation keeps growing. It includes Max Marmer, founder of Startup Genome, whose Harvard Business Review blog post, “Reversing the Decline of Big Ideas,” has probably been reblogged and emailed around the World hundreds of times, and has stimulated millions of comments. http://blogs.hbr.org/cs/2012/07/reversing_the_decline_in_big_i.html. No less than Marc Andreesen, founder of Netscape and now a venture capitalist himself, Vinod Khosla, founder of Sun Microsystems, and John Doerr, my former Intel colleague, have also spoken out forcefully on the need for a deep rethink on the state of innovation in America. They are already on record that they aren’t interested in the next iPhone app.
We need more Big Thought on Big Ideas like the problem of heat dissipation and energy loss, being addressed by startups like Trajectory Design Automation, and water conservation technology, an area where Israel is the world leader. We need to regain our lead in the World of innovation by refusing to accept mediocrity and greed as the drivers of our economy.
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Entrepreneurship Event – UBC Faculty of Management
MARK YOUR CALENDARS AND SHARE IN YOUR CLASSES PLEASE!
Wednesday, November 14
2-3PM
EME 0050 (Lecture Theatre), UBC Okanagan
All students and faculty members are invited to learn more about how University of British Columbia and various partnering agencies, Alacrity Foundation, and Entrepreneurship@UBC are working to provide members of the UBC community (people with great ideas) with resources, advice, mentorship, funding, and even office space. Learn about the Mock Pitch Competition being planned for our students and hear Peter van der Gracht from Alacrity Foundation explain their program, and the opportunities for new graduates to join an entrepreneurial team
.
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How Many Next Silicon Valleys Are There?
We have a great opportunity in the Central Okanagan to build this economy, if only we could seize it.
http://www.slate.com/articles/technology/future_tense/2012/10
/next_silicon_valley_map_of_emerging_technology_centers_.html
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Kelowna Not Yet Middle Earth
I parachuted into Kelowna after years of working in Silicon Valley traveling the globe for some of the best companies and VC‘s, and most recently running a high tech incubator in Silicon Valley for the government of New Zealand. What struck me immediately about Kelowna was the aura of unreality of many locals about the situation here. Club Penguin only made the unreality worse. There were a number of reasons for this. First, apparently, as I understand it, was the failure of the Okanagan Partnership in 2003, well before I arrived. It was a well-intentioned , but excessively ambitious effort that ultimately failed.
We have not realistically come to terms with the area’s “resources and capabilities,” or with our competitive opportunities. Until we do so, we are doomed to repeat our failures. The view of some that we should focus on creating another Club Penguin is complete nonsense. Many other communities near us in both Canada, and in Washington state have done a much better job of dealing with their reality. Dare I mention Penticton or Walla Walla, Washington?
I have the deja vu of already doing this for New Zealand. NZ has a lot to teach us about our local economy. In fact, the Okanagan economy is in many ways a mirror image of New Zealand’s (horticulture, forestry, tourism and wine). New Zealand has done a much better job at addressing their situation than we have with ours. The rise of Peter Jackson and the production of LOTR in New Zealand, has led the country to focus on its setting for film production, as did Vancouver and Toronto. It also spawned WETA, an animation studio in Wellington, among other spin offs. More importantly, the government has also focused on marketing itself and technologies based on its inherent traditional expertise.
NZ gave up on being Middle Earth Silicon Valley a long time ago. The Okanagan needs to do the same: realistically focus on local resources and capabilities and exploiting them.
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Canadian Startups Look to Reverse Their “Sellout” Trend
UPDATE: It is worth noting that this 2012 case study on a company in British Columbia, Mobile Data International, and its CEO Barkley Isherwood, attracted the ire of followers of Werner Erhard, prominent San Francisco New Age cult leader, with similarities to L. Ron Hubbard, founder of Scientology. It is a lens into New Age cults at that time. In the same way that Scientology reacts to attacks on itself. Erhard’s followers attacked this post in a frenzy of irrational hatred.
I can only hope that this is a serious effort to reverse this national problem of short-term thinking.
I have seen the problems with Canadian investors first hand, and have the following case study to share here.
Many light years ago, I worked for a pioneering wireless data company, Mobile Data International, in Richmond, BC. I thought this company was so promising, I came from the UK to join it. Regrettably, the Board of Directors and the Canadian investors were more interested in making a quick profit than in building the company to potentially be the company that established itself as a global leader in wireless data. The CEO of MDI, Barclay Isherwood, was an avid follower of California new-age guru, Werner Erhard aka Jack Rosenberg, of erhard seminars training, better known as “est”. Erhard’s career has been marked by allegations, controversy, and legal disputes. Leading academics have raised serious questions about Erhard’s qualifications, his businesses, and the highly authoritarian style of his organizations.
Finding that MDI was influenced by Erhard was a supreme irony. Years before, while in university in the San Francisco Bay Area, my housemate also became infatuated with Erhard. My housemate eventually quit university and joined “est” as one of Erhard’s trusted senior lieutenants. I got to see “est” up close and very personally. I was browbeaten by my friend, who tried to convince me how important it was to take “the training” as they called it, at a price I could not afford. I was disturbed enough by what I saw from outside the cult, that nothing altered my view that est was extremely dangerous. Since that time, Erhard has run from his critics, and reincarnated himself and “est” into a new group called “The Forum.”
Isherwood was spending company money to have Erhard’s people “hang out” at MDI, and he kept his girlfriend, Evi Truu on the payroll, supposedly reporting to me, but via “pillow talk” apparently also reporting to Isherwood himself. The Board took no action, employees were asking questions among themselves, and morale was suffering. I invited Intel’s legendary Marketing VP, Bill Davidow to MDI for a speaking engagement. I was flabbergasted to be told that no one liked Davidow, as he was too “arrogant.” Ironically, their description of Davidow was exactly backward. The company was floated on the Toronto exchange much too early, and as a consequence, MDI was eventually sold for a relative pittance to Motorola Canada in a hostile takeover. Isherwood has tried to take credit for selling out to Motorola as if it were a victory for him, but the truth is that he snatched defeat from the jaws of victory.
The investors made a modest return, but Canadian investors don’t seem to think like Silicon Valley. In a strikingly similar startup situation in Silicon Valley, the CEO, actually an Intel sales organization alumni, had become infatuated with the alleged “supernatural powers of crystals” and his belief system became part of the company culture. The investors quickly became deeply concerned about their investment and their fiduciary duty. The question was, “How could this have happened?” and “We need to move to fix this immediately or face consequences.” My former Intel boss, Barry Cox, was brought in by the Board of Directors to fire the CEO, take drastic action and turn the company around. Obviously, nothing like this happened with MDI.
In the years since I have also seen offers in California in the hundreds of millions turned down flat, and million dollar cheques were thrown back across the table. The MDI employees were mostly laid off and MDI’s doors were eventually shuttered. The MDI building, an excessively elegant structure that would have raised eyebrows in California, sat idle in Richmond for 20 years, until it was finally leased again as the security headquarters, ringed in barbed wire, for the 2010 Olympics.
Let’s hope that this new realization of the need to build innovation in Canada strikes a chord and that Canada doesn’t repeat the mistakes that occurred at Mobile Data International.
http://www.techvibes.com/global/category/start-up
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Jumpstarting Canadian Venture Capital: Is Harper the Man To Do It?
We are waiting to see how Harper‘s $400M very modest gesture to Canadian innovation will be invested, by whom, and how. We have had so many years stealing from Canada’s future, that one could easily claim that it is a moral travesty, depriving Canada of its future. The obvious problem is that Harper is not Vinod Khosla. Harper is a closet climate change denier. Harper’s vision is parochial and anti-democratic. While we have such a fragmented provincial political focus, we can only expect Harper to boost Alberta tar sands at the expense of the Canadian national economy and innovation.
This Techvibes article suggests that they may follow the Israeli government model, but the author is Israeli, has been there, done that, so she has some interesting insights.
mayo615 