Over the past few years, the way we describe funds and funding rounds has become a bit ambiguous. I believe that this has been caused by what Fred Wilson calls Two Venture Capital Industries diverging from each other. In my opinion, most miscommunications can be avoided if we just use the same words to describe things. I really don’t care what the words are, as long as we can all agree on the meaning.
Specifically, I’d like to focus on the word “Series” as a way to define a round of financing. Depending on who you talk to this word is way “overloaded.” Some funds use it to describe the size of their fund, while other investors may use it to define a range of how much they invest in each company and lawyers use it to define a class of stock. For instance, when I purchase shares in a company, I’m usually purchasing shares in successive “series” of rounds; Each round defined using the next subsequent letter in the alphabet. So, if an angel purchases $50k worth of equity in a startup, the equity is usually labeled “Series A Preferred Shares” and the next round the angel invests would be labeled “Series B Preferred Shares.” Despite that the proper definition of the term “Series” is a legal definition of a round of stock, everyone else would consider the angel’s $50K investment a “seed” round and the following investment, the company’s “A” round. Culturally, “Series” is used to describe the *stage* of company that a fund invests in, which I think trumps the legal definition.
As you’ve heard over and over, Internet companies are more capital efficient then they were five years ago, which in my opinion, is the fundamental cause of this ambiguity. I believe that the name of each stage (Seed, Series A/B/C/D, Mezz, PE, IPO etc.) should be a function of the risk associated with the investment. For example: If I grow my company organically for 2 years, and it’s now generating revenues of $10M/year, then the first money I take will probably be from “Series B Investors.” It’s a function of price and risk tolerance. Keeping all these things in mind, here’s what I propose the rough definitions of the stages should be for Internet investing:
- Seed – Test an idea with the market; See if it sticks. Angels, Super-Angels, Seed Accelerators usually invest $10k-$100k in lots of deals, which means lots of failed tests, but an increasingly higher hit rate at the same time. If technology and user risk (ie: can they build it and do people want it?) is eliminated, then the company qualifies for the next level.
- Series A – Invest in successfully tested ideas from the seed stage, pressure-test the previously identified user acquisition channels, and refine the user experience. Today, series A investors typically invest $250k-$2m. If market risk (ie: can you grow it?) is eliminated, then they qualify for the next level.
- Series B+ – Once the site/app is built, customers are using it, revenues are flowing, user acquisition channels have been quantified, it’s time to put the pedal to the medal and grow! This requires capital, but selling equity may not be the founders first choice if they have other options.
- Factoring – Banks love to lend money to companies based on receivables. The smartest companies I know borrow as much as they can against these uncollected sales contracts in order to put as much money to work as quickly as they can.
- Private Equity - You might want to acquire another company, or buy equity held by an exiting management team. (Note: There are lots of reasons why you might raise money from a PE firm, but not the scope of this post)
- IPO – A lot of CEOs forget that an IPO is a way to raise money. Obviously, it provides liquidation for their stock, but if that’s the only thing that you’re after, there are other ways to achieve it.
I was debating this with a colleague of mine today, and his argument was that there’s a an entire “culture” built around the term, and to just accept that it’s flawed. – Maybe I should, but hopefully at least we’ll be talking the same language.
Our nation faces many threats: From wild fires, oil spills, the threat of nuclear war, to terrorism and industrial espionage. But there is one silent group of war mongers who isn’t given enough credit for the damage they cause within our own borders, and it’s time to take them down. Take aim at the NON-BELIEVER!
It’s tragically ironic that our very way of life was founded by some of the bravest entreprenuers the world has ever seen. Virtually every convenience we enjoy, from democracy to the iPhone, started as a thought in an entrepreneur’s mind. In fact, it is not being over dramatic to suggest that our very survival as humans on this earth is in the hands of Entreprenuers. It’s this special elite task force who are currently inventing new ways to find world peace (via increased communication technology that leads to understanding and tolerance of the world’s cultures), improve our health (bio-tech technologies to stop the worlds sicknesses and, hopefully, reverse my baldness) and clean our environment (clean technologies that will save us from ourselves).
Don’t get me wrong. Not all ideas are good ones, but no single person is EVER capable of making that judgement on their own. Only the benefactors of that idea can make that call. I assert that if you open your mouth and tell someone that you don’t like their idea, you are committing nothing less than High Treason - you’re declaring war on your own country.
The good news is that these people are easy to identify. They walk among us. When you pitch your idea to them, they usually respond with “You’ll never pull that off,” or “Forget it, you’re totally underestimating how hard that is.” They work hard to persuade you to stop innovating, give up, stop taking risks, and just stop thinking about how to make a better world all together. Just the other day, someone told me that the job ahead of me is too big to be accomplished and that I was being naive. I was shaken up a bit, because I couldn’t imagine anyone would want to knock the idea down even though they had nothing to gain by doing so. I took some time to think about it, and realized that yes, my idea was audacious, and for me to accomplish it, I will have to be tenacious. – In other words, I would have to be an Entrepreneur.
What was the idea? To make Vancouver the absolute best place to start an Internet company in the world. Do you believe?
There isn’t a single regional area that I know of who isn’t desperate to building an internet technology industry in their city. When my wife and I decided to stay in Vancouver to raise our children, we made a commitment to do whatever we can to make Vancouver the best place to start an Internet company in the world. Lofty goal, yes, but hey, I’m an entrepreneur, and we’re a group who is plagued with unbridled optimism.
I’m not going to get into what mistakes most cities make, but I will say this: If you’re building an incubation/acceleration/mentor program first, and staffing it second, you’re doing it wrong. Each city has slightly different characteristics and what works for one probably means it wont work for another. The biggest of these differences is THE PEOPLE. Find the right people, empower them, and get out of their way.
For the first time in the last two years, since I have been working at building the eco-system in Vancouver, I feel like I finally have clarity about how to communicate the stages building and Internet Startup Eco-System, which I’m sure could be applied to any city:
Stage 1: Inspire
- About: This is the top of the funnel. There are many many people who have an interest of starting a company but just don’t think they can, or think they can afford it, or are worried about what might happen if they fail. At the same time, they probably can’t get thought of it out of their mind either. These people are entrepreneurs in making. They just need a little inspiration.
- Goal: 1) Reach new founders and encourage them to learn more about what it takes to start an Internet company, 2) create opportunities for them to meet co-founders and 3) convince them to quit their day job to start the company.
- How: Inspiration from networking and socializing with other members of the community. Events, Co-Founder speed-dating, Meet and study other successful founders and their companies, Universities. Dispel the myth that failure is bad. Trying is good, failure is experience, success is rare.
- Where: Inspiration can occur from many sources including: Universities, Trips to Silicon Valley, PR/Blogs, Industry networking events like co-founder speed dating, Stories from successful exits, Educational seminars.
Stage 2. Hack
- About: Okay, let’s say you’re a founder and you’ve just quit your day job. You love your idea. You may even have a co-founder already. What now? If you guessed that you should test your idea with customers, you’re right! But for god-sake, do it as quickly as possible with the least amount of money. In other words, hack something together, test it live, measure results, and iterate it daily. They’ll be plenty of time for optimizing your code once you find something that people want, but for now, hunt for the perfect user experience. This is NOT the time to raise money, write business plans, give powerpoint presentations, or project your financials performance.
- Goal: 1) Design mockups and develop prototypes, 2) Test ideas with target customers. 3) Run cheap customer development tests, 4) Educate, 5) Build community.
- How: Get a few laptops, fire up a Joyent instance, register a domain, start a blog and twitter account, create a google accounts for apps, analytics and adwords. Build some landing pages and start testing. And most importantly, start the conversation with your potential customers/users, listen to them, iterate.
- Where: I know now that any healthy eco-system requires that founders have access to an open public space to hack. A place with desks, couches, whiteboards, conference rooms, free WiFi, and, of course, the best coffee known to man. The space would give founders access to limited professional services, tons of advice from mentors, advisors and potential future Investors. But most importantly, it would be the focal point for the community. It would have a vibe that can only be created by the collective passion of the few who decide they can change the world with a simple idea in their heads. It would be a place designed by the community, for the community. The space must be subsidized by government, but most importantly, vertically focused on the Internet and operated by passionate members of the startup community.
Startup Metrics for Pirates, Dave McClure, Eric Ries
Stage 3. Seed/Accelerate
- About: Most founders are first-time founders. While extremely intelligent in building products that people want to use, they have a very limited network of people who have been through the experience of successfully starting and exiting a company. It’s these people who will provide the credibility they need, and help the founder prepare the company to raise financing required to grow. It’s clear, raising money is hard. Raising money from people who don’t know you is virtually impossible. Realistically, founders will need a credible introduction to even have a chance. Being accepted into a true seed accelerator is a great start, and the mentors that you work with while in the accelerator complete the picture.
- Goal: 1) Provide seed financing, 2) Measure customer acquisition channels. 3) Develop permanent relationships with mentors, partners, & investors. 4) Develop the investor pitch. 5) Transition from iteration to execution.
- How: There are a few examples of great Seed Accelerators run by even greater people. In my opinion, the team at TechStars, lead by David Cohen, is the leading the way. Seed Accelerators are NOT incubators. Seed Accelerators are unique from Incubators in the following combined ways, 1) Mentorship focused. 2) Provides a small amount of financing in exchange for equity in the startup. 2) Accepts only a small group of companies at a time, 3) Limited time, about 3 months. 4) Have a physical space.
- Where: Bootup, YCombinator, TechStars, Capital Factory, Montreal Startup, Extreme University, Year1Labs, and tons more. You can also emulate this by working your own professional networks to get introduced and invested in by Super-Angels.
Startup Metrics for Pirates, Dave McClure, Steve Blank
Stage 4. Grow
- About: By this stage, founders are finalizing the transition into a working company with the goal of optimizing current user acquisition channels, and discovering more. Although, product iteration never actually ends, it is much more focused on individual feature adds/removes/updates. Another way to put it: you change from searching for a product that works to optimizing one that starting to show traction. This is the time to put the peddel to the metel.
- Goal: 1) Fund the acquisition of new customers as fast as possible in the cheapest way possible 3) develop new acquisition channels 2) Reinvest revenue and/or raise funding.
- How: Need a $20M Series A venture fund to act as a local lead investor. Exits of companies within this fund, will attract additional investment funds to open offices in the region. The fund will invest in the best local companies it can find, but syndicate with highly connected and reputable super-angels and VC firms in Silicon Valley, New York, etc. This will bring investment from more firms into the local area more quickly than starting up new firms. This fund must be able to invest in companies outside the local region in order to be focused on making the highest return possible, but it is also very important to build relationships with well connected and experience firms who consistently get invited to invest in the creme of the crop.
- Where: A modern VC firm in the local area, preferably within the same building that the Seed Accelerator is in.
What’s next? (pick one)
- Series B Financing. Further equity financing for growth. onward to becoming large anchor technology firm.
- Customer Acquisition Factoring. A hypothetical future financing model which I project will be available by the time any company starting today is ready for Series B. This concept deserves it’s own post, but essentially, in the same way banks factor receivables, they will begin to factor user acquisition channels negating the need for Series B VCs.
- Merger/Acquisition. There should NEVER be any strings or attempts made to keep the company in the local region. While the eco-system is ramping up, chances are a higher percentage of companies will sell to US companies, but not ALL of them. Over time, as the eco-system matures, more companies will stay.
- Organic Growth/Bootstrap/Lifestyle.
- IPO (an option, but only in very rare and specific situations)
- Fail - Entrepreneur gains valuable experience – goto Stage 2.
Net benefit to eco-system.
- Higher volume of startups started and a higher success rate.
- More high paying high tech jobs created
- Angels are created and reinvest.
- Increased foreign investment from VCs
- Investor confidence increases.
- Anchor technology companies.
- New entrepreneurs inspired, goto Stage 2.
My hope is that companies will start to feel comfortable regularly communicating which stage their in to each other and investors. Investors should also communicate which stage their interested in investing in. Aligning these two groups will help to eliminate a point of animosity between these two groups. Associations, Governments and Universities should communicate which stage their targeting with their programs. But an eco-system is only actually healthy and functional when all 4 of these stages are fully active, properly funded, and managed by passionate people who care.
One last thought before I anxiously await your comments. I’m sure you can cite specific examples of companies that “made it” by skipping one ore more of these Stages. Please keep in mind that I’m not saying that this is the ONLY way to build ALL companies. However, I am adamant that this is the only way to build a healthy, productive, Internet technology eco-system that produces a high quantity of world-class companies.
There is definitely something in the air. I mean, I am used to getting an email once in a while from a friend asking if I know any PHP/Drupal, or Ruby, or Python, javascript/css developers and designers, but it’s getting out of hand. If you want to work for a Startup? Two Bootup companies are hiring and a few other friends as well. See below:
- Summify is hiring a web ui designer. Summify is building nothing less than the first usable personalization engine for your news links. I’ve been using it for over a month now and everytime I try something else, I have to go back. Summify is backed by Boris Wertz of W Media Ventures and Boootup Labs.
- If you have any affinity for food (who doesn’t) but also care where your food actually comes from, then check out FoodTree. FoodTree is hiring someone to head up all of web development. Very rare opportunity to join a funded startup at the highest technical position in the company, doing something so big as to map the world’s food sources.
- In fact, Strutta has had an opening for a PHP/Drupal dev for over two months and still hasen’t been able to fill it. (if you are one, please apply, it’s an awesome group of people to work with)
- You may remember that Layerboom was sold to Joyent. Howie is now tasked with hiring enough engineers to fill out their sweet offices overlooking the north shore mountains. If you think you know your way around the cloud then apply now
- Mozzilla Messaging has 3 positions open. Mozilla works with us on the 2nd floor here at 163 W. Hastings, and is headed up by former ActiveState CTO David Ascher. They are one group of crazy smart open source developers.
- I’ve also heard a rumor that NetApp has over opened 100 positions in Vancouver after their acquisition of ByCast. Obviously, I would hope that we can entice anyone intrested to join a startup instead, but if working for one of the worlds largest storage companies is your thing, check them out.
If you’re hiring, feel free to leave a link in the comments below. If you’re looking for a job make sure to review the comments. The perfect job just might be in there.
Related articles
- Strutta Launches New Contest Builder Software, API (techvibes.com)
- Layerboom Acquired by Joyent (bootuplabs.com)
- Social News-Reader Summify Raises Funds to Solve Information Overload (nytimes.com)
- Open House at Bootup Labs (startupnorth.ca)
Jon Gelsey will be coming up to Vancouver from Redmond to help us learn how to get to know Microsoft. Jon is Director of Corporate Development at Microsoft where he handles acquisition and investment opportunities for Microsoft’s operating systems, search, content and advertising business groups.
Another great event by the Bootup Enreprenuerial Society
Since 2005, Microsoft has acquired an average of 10 companies per year and purchased stakes in several companies valued at over $1 Billion dollars.
Jon Gelsey, who is the Director of Corporate Development at Microsoft, will join us on August 12 to connect with you and discuss:
- What does MSFT look for in a potential partner or acquisition target?
- What kind of innovation or problems can startups address?
- How does MSFT decide to acquire vs. build?
- How does the acquisition process work?
We’re pleased to announce that Joyent has acquired Layerboom Systems for an undisclosed sum. Layerboom was founded in May 2009 by Trevor and Howie, and is the first Bootup Labs company to be acquired.
Layerboom will join Joyent’s CTO Mark Mayo and his engineering team here in Vancouver. Joyent appears to be assembling the world’s top engineers in the cloud computing space and the Layerboom team are among the leading cloud computing thinkers, doers and developers. The technology that they developed is a critical part of Joyent’s future plans. What’s cool is that they’re moving to Bootup’s original address at 375 Water St. So in a way, Howie, Trevor, Josh and Kevin are moving back to where it all started.
Most people will congratulate Layerboom for building a company that was so highly coveted that they received more than one offer to be acquired in such a short period of time. But there are some who will criticize the decision to exit early. Did Vancouver miss another opportunity to build the next RIM or EA? Those who knew Layerboom closely felt they had a real shot at giving VMWare a run for their money. At Bootup, we spend a great deal of time pairing the founders with mentors and advisors who have been through acquisitions like this before. We want founders to hear opinions from varying backgrounds so they can understand that there is more than one way to do it. Believe me, a lot of thought went into their decision, but in the end, we always encourage founders to do what’s right for them personally, and that’s exactly what they did.
From everyone here at Bootup Labs, we would like to congratulate the Layerboom team for a job well done, and wish them the best of luck at Joyent. Hopefully you’ll be seeing Howie and Trevor on our mentor page soon.
UPDATE: GigaOM post here, Layerboom post here, Techvibes post here
UPDATE2: Official Press Release
Can you feel it!? There is definitely a buzz in the air around GrowConf that’s coming to Vancouver Aug 19, 20th, and 21st. I mean why wouldn’t there be; If you work on the Internet, then this event is NOT to be missed. Even the Mayor tweeted it out.
(Side note: I noticed that the mayor of San Francisco has 1,345,888 followers, and Gregor, Mayor of Vancouver, only has 6,440). Let’s all follow him and show him that we want to hear more from him via social media.
Inspired by Le Web, Debbie at DealMaker Media and I threw around the idea around of creating a new style tech event hosted in Vancouver, we instantly knew it would be huge – if we could pull it off that is. As Debbie says:
“Canada is coming out of Stealth mode”
Some of you may remember Debbie from LPV8, dubbed Under the Launch Party, named after DealMaker’s Under the Radar events that Debbie has been organizing in San Francisco for ever. Through those, and the other events that Dealmaker organizes, Debbie has become so well respected in Silicon Valley, that we knew should could pack the house with a some of the greatest minds on the Internet. Did she come through or what! Check out these speakers:
- Chris Albinson, Managing Director - Panorama Capital
- Jason Bailey, GM of Virtual Currencies - Adknowledge
- Lane Becker, Co-Founder & VP, Strategy - Get Satisfaction
- Paul Bernard, Head of Business Development, Business Services - Nokia
- Leonard Brody, President - Clarity Digital
- Michael Buhr, CEO of Travelport and former CEO of StumbleUpon - Travelport
- Wesley Chan, Investment Partner - Google Ventures
- Don Harrison, Deputy General Counsel - Google
- Rob Chaplinsky, Managing Director - Bridgescale Partners
- Jeff Clavier, Managing Director - SoftTech VC
- Tom Conrad, CTO - Pandora
- Robert Goldberg, SVP of Corporate Development - Zynga
- Rob Hayes, Managing Partner - First Round Capital
- Tony Hsieh, Author of Delivering Happiness and CEO - Zappos
- Debbie Landa, CEO and Founder - Dealmaker Media
- Stew Langille, VP Marketing - Mint
- Ellen Levy, Vice President Strategic Alliances - Linkedin
- Dan Martell, Co-Founder - Flowtown
- Andrew Mason, Founder and CEO - Groupon
- Dave McClure - 500 Hats LLC
- Mike Parker, President, Tribal DDB US - Tribal DDB
- Ariel Poler, CEO of TextMarks Inc. and Angel Investor - TextMarks
- Danny Robinson, Managing Director - Bootup Labs
- Rick Segal, Co-Founder - Fixmo
- Aydin Senkut, Founder and President - Felicis Ventures
- Dana Settle, Partner - Greycroft Partners
- Bill Tai, General Partner - Charles River Ventures
- Jeremy Toeman, Founder - Stage Two
- Steven Woods, Site Director, Waterloo - Google
And there are even more that we haven’t announced yet!
When I was starting my first internet company, I remember attending every conference I could. And I still do that today. Many people ask me, “how do you know so many people?” It’s because I get out there, and talk to people, who in-turn introduce me to other people. Entrepreneurs should never under estimate the importance of building your personal networks. If you attended the panel at VEF on investment trends, one of the questions asked of the panel was “Where do they source their deals from?” The unanimous answer was “Through introductions from people they know and trust” The same goes for doing bizDev. Don’t expect to walk in the front door and get a deal done. You have to get out there and build your network one person at a time. Build trust enough to be introduced and endorsed by a common connection.
Come to GrowConf. If you know me, ask me to introduce you to someone. If you don’t know me, introduce yourself to me, and let’s set up a time to grab a coffee.
Launch Party Vancouver 9 will kick off tomorrow night, June 17th at 6pm. 9 companies will be demoing their latest and greatest digital media and internet creations to 500 of our closest friends. We’re proud to say that two of these companies, 8.5×14 Media Inc’s Contractually and OverInteractive’s DimeRocker, have completed the Bootup Labs program and we wish them luck in the competition portion of the event.
There are a lot of great technologies being developed in Vancouver that we’re proud of, and personally I think we could do a better job telling our story. For example, not many people know of these three world class organizations being developed right in our city, and Bootup Labs is lucky enough to be call them “Roomies”… at least for a little while.
Stewart Butterfield‘s TinySpeck has temporarily set up shop in the old DimeRocker office while they wait for their new office to be renovated. Stewart is best known for creating Flickr here in Vancouver, and now splits his time between here and San Francisco. TinySpeck’s first project is called Glitch. It’s pretty amazing to watch Stewart and his rock-star team of artists and developers create something from thin air at break neck speed.
Mozilla Messaging’s Thunderbird 3 email client, developed by David Ascher and his team. David was formerly with ActiveState, which is another Vancouver success story. Everyone is familiar with the FireFox web browser developed and maintained by Mozilla. The same organization develops Thunderbird. I’ve been using the beta version for the past few weeks and I have to tell you, these guys know what they’re doing. David and his team will be here for the indefinite future, and look forward to lots of go-cart battles between team Thunderbird and team Bootup.
Joyent’s cutting edge cloud computing technology lead by VP of Engineering, Mark Mayo right here in Vancouver. Joyent is also waiting for their new office to be built and we were more than honoured to put them up at Bootup until then. Joyent makes the bold statement: “Putting the same old OS “in the cloud” isn’t cloud computing. It’s dumb computing.” I believe there will be a day when all web applications can scale linearly regardless of hardware or special coding. Joyent is the leader among the best of the best in the world trying to make that a reality.
We look forward working with these with each of these local tech anchors to help tell the story of the quality of company we build here in Vancouver. And hope to see you at LPV9 on June 17th and GrowConf Aug 19th-21st.
- Post: Tweet for the week of 2010-05-24 http://goo.gl/fb/dhI3C #
- Post: Draft Panel Questions: “Digital Media Investment Trends” What do you want to hear? http://goo.gl/fb/QA1ow #
- RT @dannyrobinson: Looking forward to Startup Drinks tomorrow http://www.startupdrinks.ca/index.php/vancouver/ #
- Great synopsis of our Digital Media Investment Trends panel last night by @geoffdevereux on @techvibes http://bit.ly/dAgfbr #
- Vancouver Startup Meetup by @jason RT 101 Meetups! get in there! i'm giving an ipad to someone http://www.meetup.com/Startups/ #twist #
- RT @sonsryan: Looking for a Co-Founder? Come by Co-Founder speed dating pre #lpv9 Sign up here. http://silkstart.com/landing/bootup #
- @innovation_camp Watching you guys innovate is all the thanks we need. in reply to innovation_camp #
- Only a handful of spots left for @danmartell's talk on Lean Product Development. http://leanproduct.eventbrite.com/ #
- RT @foodtree: Looking for help on a list of Vancouver farmers market food vendors; if you're frequently, help out? http://fdtr.me/vanmkt #
- RT @bmann: The folks at Demonware (Activision / Blizzard) are looking for sysadmin types http://www.demonware.net/ #job #