Bootup Labs Blog

I was a having coffee with a VC colleague last week.  This is someone I respect, and hope will fund some companies graduating from Bootup Labs.  I have probably explained Bootup Labs and why our investment model works to this individual on at least 7 different occasions.  It turns out that it took 8 times to get the ‘ah-ha’ that I was so patiently waiting for.  Up until then, I just didn’t think he liked the idea.  I’m happy to say, he is now a believer.  But, as any good entrepreneur would do, I immediately reviewed the other 7 pitches in my head — searching for the flaws that made it so difficult to inject the concept into this guy’s brain cells.  Could it be that he isn’t staying up to date with the VC industry? Is he not reading the same blogs, following the same people on twitter that I am? Is he not talking to entrepreneurs at the seed stage, flying to meet the thought leaders in the space, or engaged in local startup community?  And if not, why isn’t he, or more importantly, why was I?  Perhaps I was the one missing something; Maybe there simply isn’t a return-on-time for those activities.  Who am I to judge?  Maybe the status quo is simply good enough?

The truth is that the status quo is good enough for bio-tech, clean-tech or any other capital intensive, high risk, high reward company, which is why you see many VCs move toward those sectors and away from investing in digital media companies.  Internet companies quickly have become low capital, lower risk, investments, but can still have some pretty big exits.  Basically, if the companies you invest in don’t need very much money, then you don’t need to raise large funds, so the 10-2-20 model is officially broken.  (10 year fund, 2% fee on capital under management per year, plus 20% of proceeds paid to management)  If you don’t have a large fund, the 2% management fee doesn’t add up to enough to pay for the fund’s expenses. Plain and simple.

I touched on the concept of a broken VC model over a year ago, and since the economic down turn, it’s been talked about by a plethora of notable industry insiders. But, since then, I’ve learned a lot about the inner workings of the venture capital world, and one thing is for sure: Investing in Digital Media companies (Consumer Internet, Enterprise Internet, Online Gaming, and Mobile Software) requires a new model.

It wasn’t until my 8th pitch to my VC friend, that I defined what “lower capital requirements” means in real life.  It means that some of these companies will never need to raise a series A and most will not need a series B.  On top of that, these companies are exiting within 2-5 years at a rate of 25 exits/month.  This formula has changed so much and so fast, it caught most of the industry off guard, and if they’re not paying attention, they’re paying the price.

The Bootup Labs model is unique, even among our well established peers.  There is TechStars, Seedcamp, Extreme University, Launchbox, YCombinator, etc who all invest around $20k in each group of founders and provide a great deal of support and connections for around 3 months.  Then there is Union Square, CRV, FirstRound, SoftTechVC, etc who typically invest $250k-$1M. We feel the sweet spot is a TechStars-like, mentorship driven program for founders, but instead of focusing on getting them seed funded, we invest $150k and give them 8 months to get their company to at least “ramen profitable“.  After that, they can choose to raise a larger round or continue to grow their business organically.  Their success does not rely on upstream VC support, but many will probably choose to take it anyway as a way to accelerate their growth.  If you happen to be a VC, don’t worry, there will still be plenty of deal flow coming your way.

View this Google Spreadsheet to see how the Bootup Labs Fund makes money, and if you’re an investor, please contact me.

Subscribe to these guys if you want to get caught up.  Their twitter addresses will be listed on their blog too.  Follow them (and us).  Use an RSS reader.  But better yet, start your own blog, comment on this post, and start tweeting out your thoughts.  We’re listening!

• http://crunchbase.com/acquisitions
• http://www.avc.com/
• http://www.startuplessonslearned.com/
• http://www.askthevc.com
• all these: http://firstround.com/blog.html
• http://ycombinator.posterous.com/
• http://blog.softtechvc.com/
• http://sethgodin.typepad.com/
• http://www.unionsquareventures.com/
• http://500hats.typepad.com/
• http://ricksegal.typepad.com/pmv/

The truth is that the evolution of this space is still evolving at an enormous rate.  More on my predictions in a subsequent post.

Peerflix is a company I founded back in 2004 with Billy McNair.  I’m happy to announce that LiveUniverse, started by MySpace founder Brad Greenspan, has acquired Peerflix.com.  Terms of the deal will not be disclosed.

Peerflix started as a peer-to-peer version Netflix where users traded the DVDs they own with each other for $0.99 each.  Later Peerflix morphed into a much more lucrative business called the Peerflix Media Ad Network.  Kind of an ad network in the movie industry vertical.  In the process, Peerflix acquired TheMovieBlog which helped to achieve critical mass.

Great job to Billy and the team!

Techvibes did a good job stirring up some controversy last night/today with their post entitled Please Hammer, Don’t Hurt ‘Em.  But they hit a hot button for me, so I had to comment on it.

Ian also did a post with his thoughts: What’s Broken About the Vancouver Startup Scene?

The problem is that it’s too easy to pick on us Vancouverites.  We’ve just now found our way.  If you look at how far we’ve come over the past year you’d agree.

All startups endure their share of criticism regardless of if their eventual success or failure.  But, man, it sure is easy to predict a startup’s failure; After all, you’d be right 9 times out of 10.  The really impressive thing is to predict the ones who succeed.  If you do that, you have my ultimate respect, if you do the latter you have my ultimate disgust.

About 6 weeks ago I posted Venture Capital Is Broken, Let’s Fix It.   I received many comments from some high profile people who understand the industry.  Some of the comments came in through the blog, and more from individuals who weren’t particularly happy about having their thoughts made public quite yet.  Even though people mostly agreed with the point I was trying to make, their comments have caused me to slightly adjust my thinking.  I’m overdue to post an update, which will summarize what I have learned.  Stay tuned for more on that soon.

Until then, you might find this article posted by Bob Rice on Portfolio.com interesting: Tech Making Traditional VCs Obsolete. 

Guy Kawasaki was the first real entrepreneur I ever met.  I was so green, but had a full head of passion, and nothing was going to stand in my way.  He played an instrumental role in helping me to channel my passion into execution.  I’m sure he doesn’t even know how much of an impact he had on me.  He’s an author of bunch of must read books for aspiring entrepreneurs Art of the Start and Rules for Revolutionaries.  And he just sold his company Alltop Truemours to Vancouver’s NowPublic.

This morning he Tweeted the URL of his guest blog post on sun.com entitled Five most important lessons I’ve learned as an entrepreneur.  Check it!

Today, DreamBank launched!

DreamBank connects Dreamers and supporters to help create positive change by giving dreams, not stuff.

Very cool idea.  I still think the charity aspect confuses the message though.  I was forced to choose one to create a dream, and I didn’t know why.  Also, people will “dream” for “stuff” too.  I guess the slogan is to just discourage consumption, but not restrict it.

Good luck Dawn!

From all the coverage that Rogers has got about how bad they treat us Canadians, I’m sure it’s got the marketing geeks heads spinning.  They’re probably wondering if all this bad press is going to get them more subscribers or less, because it’s not obvious.  They’re probably asking themselves, what would have happened if they just priced the data at $30/6GB up front.  Would they have avoided the controversy, or would everyone have been just as unhappy with that plan.  What if they waited for all the crazy early adopters to wait in line and pay a premium for being first, and then reduce the price a couple months later.  What if they did nothing at all?  I’m not sure, but there are some facts.  Canada has some the highest priced cell phone plans in the world.  Part of the reason is a “System Access Fee” that we all pay.  David McGuinty, Member of Parliament, Ottawa South, is looking for support for his bill C-555 which will do away with the System Access Fee.  If you agree, sign the petition.