Tuesday, November 27, 2007

Startup Camp Toronto

The men at Startup North have taken the bull by the horns and out together the long-awaited Startup Camp Toronto session. Finding time to put together a quality event can be a thankless task, and I salute Jevon and Jonas for taking the initiative from rumour to reality. I'll see you all there December 6.

Wednesday, November 21, 2007

Quiet Exits by VCs

Late last week, the pending sale of MacLean Watson portfolio company Sitebrand to capital pool company Pretium was quietly announced. Pretium is a capital pool company with approximately $300,000 (According to filings) in cash. If the deal goes through, the company intends to raise apporximately $1.5 million to fund operations of Sitebrand going forward.

This is an interesting example of how VCs can use junior exchanges to fuel some growth for portfolio companies when, for one reason or another, continued venture capital investing is not appropriate. Many believe that the TSX Venture Exchange has built a solid list of quality junior companies, and has shed its reputation as a dumping ground. Future filings will provide some insight into what stake management has retained, among other matters.

Thursday, November 15, 2007

Nobody's Bitch

....No, not me. Stick a bottle of Johnny Walker and a big fat retainer on my desk and I'm all yours. Nobody's Bitch is the title of a book written by a former colleague of mine about his years at a certain NYC law firm I know and love well. Mr. X lives by two principles: (1) life should be an adventure, and (2) he's nobody's bitch. Guess how well those principles serve you if you want to succeed at one of the world's biggest law firms? Especially if, underneath it all, you're just a lonely guy looking for that someone special to do word jumbles with. Not.

You can check out some excerpts here. I know I'll never quite feel the same way about warm, soapy showers again.

Just for Fun: The Funded

I've avoided looking through this site for a few months now, but I caved a few nights ago and now I'm addicted: TheFunded.com has been getting lots of press the last few months as the online place "where entrepreneurs strike back!" The site contains ratings and comments about VCs, the fund-raising process and even has an amusing "Letters to Funds" section. Canadian investors have been added to the mix, although the comments are light.

Membership is restricted, but there is still a significant amount of content to cull through even if you don't want to cough up the annual fee. Next time you've finsihed watching Battlestar Galactica reruns, cruise on over and see what you think.

Wednesday, November 14, 2007

Why Being Outside Silicon Valley is Good for Startups

One of my clients has been on an acquisition spree in Silicon Valley this fall, gathering interesting perspectives between wheatgrass and soy shakes. His notes: development cost and employee retention are two of the most significant barriers to growth for Silicon Valley startups. For these reasons many SV VCs, he says, will not fund startups unless at least 50% of their development work is done outside of California.

By contrast, entrepreneurial communities outside of California tend to have significantly less employee churn in high tech companies. How valuable is employee retention in high tech these days? Take a look at Cognos. IBM is said to love buying Canadian companies like Cognos because of their tremendous employee stickiness. Next time one of my American clients ridicules Canada's pro-employee ways, I'll remind them of this.

Venture Capital in Ontario: The Final Nail or Resurrection?

Today the Ontario Government announced the first phase of its Ontario Venture Capital Fund. The fund, announced before the elections last spring, is seeded with $90 million of government money and additonal commitments of $75 million from RBC Capital Partners, OMERS, Business Development Bank and Manulife Financial. In its press release, the Government hints at additional commitments from further corporate and institutional partners.

For entrepreneurs, this will be great news - at some point. Note that the fund has not yet closed and, more importantly, the manager of the fund has not been named. Rumours have abounded on this for several months; two particularly popular ones are that the Ontario government is trying to raise at least $250 million for the first fund, and that it is looking for a US general partner to manage it. Time will tell if any of this is true.

Until then, today's release is being heard by some as a great sucking sound, made by the institutional partners as they withdraw their suppport from local venture funds and concentrate their Ontario-based venture capital bets here. Until the fund is acitvely investing, some think today's announcement has added to the uncertainty facing local entrepreneurs.

Watch closely for further announcements. For me, the announcment of who the fund manager is should tell us much about the future direction and focus of early stage funding here in Ontario. Interesting times ahead.

Tuesday, November 13, 2007

Startup Trademarks: Thoughts from the Beauty Trenches

Even though I have given up exfoliating regularly so I can better serve my clients, I still care about beauty in general and the beauty business in particular. Because brand protection is important right from the start in the beauty business, it's a good reference point for all startups dealing with brand issues early. Facebook applications and other 2.0 folks, listen up:

Why trademark out of the gate? Many major retailers won't even consider trialing your products unless you've got solid trademark protection for each product. I wish registering marks was an academic exercise, but I've come across at least two new companies in the beauty business this month that are clearly using marks that are registered by someone else. They're going to have to re-think their web presence, branding and even their product packaging. (For those of you in high tech, I can save you heartache by telling you now, don't even think about naming anything after King Arthur and his knights. Not gonna happen.)

Searching for registered trademarks in your product class is not enough, either; there are some trademark owners who will come after you even if you're not operating in the same industry. A savvy trademark lawyer can clue you in on these.

How do I know? I have a little body and bath care business called Corner Office Beauty. The products are all named to fit our tag line, "Success is Beautiful." Thanks to certain trademark holders, some of our perfumes have been reduced to smells without names, at least until we can think of other labels.

For example, I wanted to do a limited edition scent called "Stealth Mode" (I think you know why). My trademark guru nixed the idea, noting that some fellow out there who, believing he owns all rights to the word "Stealth," will sue anyone and their mother who tries to market using the name. Not worth the litigation fees, according to Beauty Marks goddess Jessica Stone Levy.

Likewise, I wish you could smell the comforting scent that we named "Mentor"; since most women don't seem able to find actual mentors, I decided to create a scent that would evoke a virtual one. A company that manufactures breast implants and other devices filed a protest to the proposed mark registration, and so we'll all have to continue to do without.

Even when designing packaging, you need to mindful of trademarks. Here are the comps created for SOCCER MOM (they're pre-production samples; the finals look much better): See the leather stripe on the sample on the far left? Too like Adidas, apparently.

Of course, none of this answers why some companies can brand based on the look and feel of other properties. If I were "That Girl" Marlo Thomas, I certainly would be speaking to Benefit about their new face primer, That Gal.Even the graphics are reminiscent of that series:

Like beauty startups, community and network-based startups need to consider trademarking and branding earlier and in a more comprehensive way than those of you who are in product development mode. Learn from my pain, so that you too, are not left with a handful of products that might as well be called "Silent But Deadly."

Monday, November 12, 2007

Selling the Startup: The "No-Shop" Clause

As in an equity financing, a term sheet for the acquisition of your startup will contain a "no-shop" clause that restricts you from seeking other purchasers for the business, or other avenues of liquidity, for an extended period of time. Many entrepreneurs spend little time debating the terms, taking an "in for a penny, in for a pound" approach to the no-shop clause. After all, they reason, once they've started towards closing and their customers begin to catch wind of the deal, it will be very hard to change horses.

I appreciate the logic, but the reality is, once the term sheet is signed, the power shifts away from the startup to the purchaser. The typical term sheet will give the purchaser the discretion to step away from the deal if due diligence is unsatisfactory, or if the necessary internal approvals are not obtained. We can often narrow this discretion quite substantially for our clients, but our ability to do so in part depends on how deal-hungry you, the entrepreneur, are. For example, if you sign a term sheet early in discussions with a potential purchaser, it's harder to pare back.

Here are my notes from the front on no-shop clauses:

1. There is no "standard" no-shop for an acquisition. The length of the no-shop period, the seller's obligations during that period, and the penalty for breaching the clause vary widely. You can, and should, have a reasoned debate about each aspect.

2. No-shop clauses are rarely mutual, but maybe they should be. The most common drivers of an acquisition of a high tech startup are: (a) consolidation of a maturing market, (b) the purchaser's desire to expand into new verticals, and (c) the purchaser's desire to shift from selling one or more point solutions to a single platform offering. These drivers favour multiple acquisition strategies. Why should a purchaser be allowed to pursue alternate acquisitions of competing or overlapping technology while you are shut out of the market?

3. The larger the purchaser, the more likely it is that the deal will take more than a year to complete.
Depending on where your products (and your industry) are in the technology life cycle, a non compete that could keep you out of the market for that long may be unacceptable.

4. Go-Shop Clauses: Some purchasers try to alleviate your concerns about (1) - (3) above by adding a "go-shop" clause, which allows your startup to continue to look for a more favourable price for a limited period of time after the term sheet is signed. This notion was concocted by public company boards as a means of satisfying their fiduciary obligations to shareholders. A number of rulings criticizing these provisions have since been made, but go-shop clauses are now making their way into private company financings and acquisition term sheets. "Go-shop" clauses are challenging: typically certain competitors are carved out and other provisions inserted so that they don't allow a startup to try and meaningfully shop around. The best approach, in my view, is to focus on creating a no-shop that allows you and your startup relief if, for example, progress is not made in a short time frame, or if deal terms are altered, and which will ensure that, as a tactical matter, you don't sign the term sheet too soon in the process.

Friday, November 09, 2007

Makeover Solutions: Success with Off the Grid VCs

This week's announcement of a US$7 million raise by Makeover Solutions is an interesting example of how regional VCs can come together around a common investment theme.

The financing for the Toronto -based company came from Quebec-based Rho Canada, New York-based Borealis Ventures and Village Ventures in Williamstown, Massachusetts. Rho Canada is a regional branch of Rho Ventures. After a lengthy search for Canadian partners, Rho finally recruited wireless chip veteran Antoine Paquin and Jeff Grammer from Boston. Surprisingly, their investments have focused more on Web 2.0 businesses such as Now Public and HR alloy, rather than the kind of semiconductor and telecom plays Paquin has worked n in the past.

Rho is an interesting fund to combine with Village Ventures, the Williamstown-based brainchild of Bo Peabody. Like me, Bo is an alum of Williams College. Unlike me, Bo made his fortune barely out of school ,selling his Tripod community to Lycos. He then evolved the idea of a network of regional funds that would nurture start ups in business areas that were out of the mainstream, such as the Berkshires of Massachusetts, and Village Ventures was born.

Makeover, which has been around for several years, is hardly a seed investment opportunity. The press release hints that its technology and community-building opportunities may have been what attracted the diverse interests of its investors. Whatever the reason, it's a good example of how a syndicate of investors can be put together with some targeted research for the right players.

Thursday, November 08, 2007

Holiday Shopping for Your Wireless Clients: Retro Cell Phone Headset

They're on special at stupid.com. Plenty of room to emboss it with your firm logo, too. And, for those less inspiring businesses, you can even add a helpful warning, like "Those who do not learn from history are doomed to repeat it."

Back to signing tasteful cards with a Waterman.

Wednesday, November 07, 2007

Early Holiday Shopping for Clients

It's my favourite time of year again, when I scour the internet for interesting ways to express my thanks to my clients and business partners. This year, I'm not sure how this will pan out; my colleagues have already ordered fancy embossed cards I am expected to sign and deliver instead. In case we go all Tiffany on you this year, here are some early favourites I would have sent. You might want to run to the store yourself before they sell out. All of the following are available through stupid.com:

For my e-Health and Healthcare clients, I favour "Tickle Me Freud." Totally different treatment delivery.

Even with the decline of venture capital, it's been a year of triumphs for many entrepreneurs. As you may know, some of Canada's hardiest entrepreneurs are also avid competitors on the world Rock, Paper, Scissors circuit. This candy tribute could remind us all that, when it comes to software and Rock, Paper Scissors contests, we bow to no nation. It's a game, too.

Of course, this year's been just as hard on VCs. What better way to show them we care than to give them a little love to put in their pockets? When you press a button, you hear a loud, clear song or saying from Mister Rogers himself, including:

"Please won't you be my neighbor?"
"I like you just the way you are."
"I think I'll make a snappy new day."
"It's a beautiful day in this neighborhood. A beautiful day for a neighbor."

Friday, November 02, 2007

Presidential Report Card

Exit poll from New England's classrooms.