Friday, March 30, 2007

Business Meetings: Hugging it Out

Earlier this week I had a meeting with some local investors. Instead of the usual handshake greeting, they were all doing the handshake-into-a-hug thing thing Al Gore does.

Are we doing this now? Because if so, I need to get some major heels. It's all fine and dandy for guys to bump chests in this way, but I'm a short gal and my nose is seeing a lot of clavicle contact. If this keeps up I'm going to look like Rocky Balboa.

Just let me know.

Public Market Exits: Is the Door Closing?

Just before Christmas the Ontario Securities Commission slipped out a bulletin proposing changes to several rules. Nestled in the middle of the bulletin was an interesting comment that could spell doom for the junior offerings being used by VCs for some of their long in the tooth investments, and have a chilling effect on acquisitions by public companies. Listen up:

The OSC is proposing that "substantial beneficiaries" of an offering must certify any prospectus filing. In other words, the OSC believes that persons who receive substantial benefits from an offering should be liable for any misrepresentation in a prospectus.

As a lawyer, my eyes grow starry at the prospect. If this rule proceeds, major shareholders, among others, will need to do extensive due diligence for each prospectus a company issues in order to protect themselves. Think of the legal fees! I am picturing mahogany flooring at the summer home the OSC will help me buy. The indemnity agreements that companies pass out to VCs will have to be re-thought. And what about the insurance costs for VCs, given this new liability?

With the potential ramifications, I was shocked to note that only a handful of comments have been received by the OSC, and none of them are from VCs. What is the thinking behind this?

Founders, this impacts you as well. Track this development carefully. The guru in the start up world on securities matters affecing start ups is Naomi Morisawa de Koven. I hope she's going to blog on this matter. Naomi will also be part of the team presenting at our breakfast seminar April 11; come on down and see what she has to say.

Tuesday, March 27, 2007

Non Compete Provisions (US)

Here's a solid blog which discusses how non compete clauses and other practices impact employees. I recommend you check it out from time to time for additional information on the matter.

Monday, March 26, 2007

Conrad: A Whiter Shade of Black

I have complicated feelings about a Chicago judge and jury hearing the case against Conrad Black and his Hollinger underlings. There's something repugnant about using one of Canada's own to fuel the careers of ambitious Chicago prosecutors. What, there were no local businessmen or politicians acting corruptly or breaching securities law? In Chicago? And I am horrified at the photos of the prosecutor's wife and young children showing up to hear Daddy's opening argument. It's unseemly. I certainly never take my children to business meetings so that they can watch mommy try and stick it to the other side.

Perhaps I feel protective because, when you boil it down, Conrad is one of us - a Canadian entrepreneur. I don't care that he's a British citizen now. The Queen is on my dime and I still welcome her to town when she comes. And we still claim Jim Carrey, now a US citizen, as one of Canada's finest comedians. One shouldn't quibble about it. Lord Cross-Harbour is our homeboy.

The entrepreneurs I've worked with fall into two categories: the visionaries, who are driven by a new technology or business model to create a market, and the overachievers, who are driven by the principle that they can have anything they want if they work for it. Conrad is one of the latter.

Overachievers typically play in traditional and established industries,drawn to them in part by their individual needs to reinvent themselves as leaders of the business establishment. They play big and when they lose, they lose big. Robert Campeau was my first experience with this kind of entrepreneur. At the height of his success, the man travelled in a private jet with the song "My Way" programmed to play in a continuous loop. His empire was dismantled in a courtroom in Cinncinnati full of New York and Toronto lawyers (need information on what to do during a court recess in the midwestern US? Call me). Now he lives as a semi-recluse in Ottawa.

I don't expect Conrad Black will meet the same fate. I think the story that will unfold in the next few weeks won't be about Conrad at all, and could be far more damaging to the rest of us: how a board of leading directors failed to provide proper oversight (or any oversight at all), and how a prominent law firm fumbled by providing a legal opinion blessing Conrad's actions.

This is not the kind of message about the Canadian business community I want in circulation. And I believe we will as a business centre be tarred with it for some time. Spin doctors, start your engines. Please.

Sunday, March 18, 2007

Ycombinator: a new model for Web 2.0 investing

In its one year of operations, Ycombinator seems to have hit upon an interesting model for funding young Web 2.0 companies. Dispensing funds in two cycles a year, Ycombinator focusses on startups in Silicon Valley for the winter months, and the Boston area for the summer.

The amount invested is small - $5,000 per founder - which buys Ycombinator 2-10% of the Company. The real value appears to be in the extended mentoring. Investees are expected to relocate to one of the above locales for a three month period, to avail themselves of Ycombinator's advisors and to attend a Startup School whose faculty is impressive. I wish we had such an offering here in Toronto.

It's difficult to see how Ycombinator itself makes money. Certainly, the program a terrific marketing tactic for someone who wants to embrace the next generation of startups. Its website text has got to be music to every university grad with an idea: " We're the right choice for a group of two or three young hackers who have an idea, and want some money and advice to get it launched... We make funding decisions based on our application form and personal interviews. We love demos, but we never read business plans."

Y Combinator claims it will let founders sell early, too: "We think startups will increasingly opt to sell themselves when they're small for a few million, rather than take more funding and roll the dice again. Google and Yahoo both like to do this sort of acquisition, and we expect it to become increasingly common...[W]e realize (having been there) that an early offer from an acquirer can be very tempting for a group of young hackers."

For an entrepreneur, there's loads of near term value in this offering. Take advantage while it lasts, if you can.

Friday, March 09, 2007

April 11 Seminar: Friends, Family and Angels

If you can get to downtown Toronto in the morning on April 11, we hope you'll join us for the following:

Friends, Family and Angels:

How to Prepare and Close the Deal
(and Keep them happy)

A soup-to-nuts review of financing and running a friends and family financing

In this fast-paced 45 minute workshop, the team from Venture Law Line will show you how to structure, paper and close an investment by your friends, family and angels. We'll review the principles for valuing your venture, show you how to paper the deal, and cover special issues such as investments from non-Canadian residents and deal "sweeteners". You will also receive a CD of handy reference materials, including model financing-related documents. And donuts.

Also on hand will be some founders and angels to share their own war stories. And eat our donuts. Interested parties should contact us at, and we'll send you the registration details.

For those of you who can't make it to town, watch this space for upcoming details on our podcasts. From time to time, we are going to podcast those events which we think you might find helpful. Provided that our hair looks good.

Startup Blogging: Simply Iotum

Alec Saunders and Howard Thaw at Iotum are among the best examples out there of how to build a brand by building community. Alec's blog has become a real network node for the VOIP community, and for entrepreneurs in general. Check out their company blog and Alec's own blog to see what I mean.

My wishes for them in 2007 are that: (a) their new product upgrade gives them the acclaim they deserve, and (b) Alec expands his fashion palette to include colours other than beige. The man owns more beige polarfleece and sweaters than a technology evangelist should.

(You may also want to check Alec's blog for pictures from his recent trip to eTel. There is an alarming amount of facial hair being shown by emerging telephony pundits. )

The Venture Capital of Beauty

Beauty is one of the industries kindest to startups. After all, retail channels (Sephora, Ulta) depend on a continuous supply of new, independent brands to stimulate consumer demand.There's a whole ecosystem of suppliers, product forumlators, packagers that support and nourish startups. It's probably the most supportive, collaborative group of people I've ever worked with. Beauty companies can generate staggering amounts of cash with a handful of people. It is the Web 2.0 of consumer products.

Canada is exceptionally good at the game of beauty startups, as yesterday's report that Fusion Brands has sold a controlling interest for $45 million indicates. Fusion Brands is run by a handful of people under the control of Ottawa entrepreneur Randi Schinder. The company is a conglomeration of products Randi has developed over the years, including Clean Perfume and Jessica Simpson's Desserts products (an unfortunate set of 'edible" beauty products that, very fortunately, made a ton of money). With just a handful of people, Fusion Brands in Ottawa generated $100 million in revenue, Ms Shinder told the Ottawa Citizen. That's a lot of moisturizing body whip.

I work with a number of beauty startups, including my own. I love this group of clients: they smell good and bring samples(other clients, take note: no need to drop off wavelength multiplexers for me to try. Still working on my last one.). Toronto is fast becoming a significant centre of independent beauty brands - watch this space for further developments.

Tuesday, March 06, 2007

Pink Sheets Upgrade

Many of our clients have been intrigued by the liquidity opportunites in the over the counter securities market. The Wall Street Journal reported today on how Pink Sheets is upgrading it services to take advantage.

Pink Sheets provides electronic quotation and other financial information for the over-the-counter securities markets. To address its broadening appeal, today it announced the launch of a new Pink Sheets designation for domestic and international stocks, called OTCQX, in what it says is an effort to help individual investors better differentiate between legitimate companies and the shady ones.

The new QX designation will apply to both domestic and foreign stocks and will only be awarded to "reputable companies with continuing business operations and which provide credible disclosure to the marketplace".

My VENTURE LAW LINE colleague, Naomi Morisawa de Koven, is a reigning expert on public market liquidity for startups. Want to know more? Give her a buzz.

Serial Entrepreneurs: the new Glass Ceiling?

A few years ago, I had a number of clients who were former investment bankers and private equity investors. They were casualties of the slowdown in high tech investing, looking to start or buy their own businesses to run. Almost all of them said the same thing: "I don't ever want to work for someone else again."

Fast forward a few years, and many of them have returned to the private equity game. At their core, they are high risk, high reward players. They can't stay away.

This same trend seems to be emerging among founders in the startup world. I work with many who, after two or more successful startups, still find themselves unable to break the founders glass ceiling to remain as long-term CEOs. "You're more of a serial entrepreneur," they are told dismissively by their investors.

In truth, some of them really are better suited to company creation than operations. That doesn't mean they don't feel the sting of being pigeon-holed. I understand; I may not look good in bootcut jeans, but I still want to buy them.

Many founders don't object to the principal of hiring a professional CEO, but to how their VCs execute on it. A common complaint I hear is that the VCs underhired, selecting someone who will have to grow into the CEO role(a big company exec, or a CEO from a different industry segment). Or that the board overtrusted - allowing the new CEO to make too many changes, or to underperform without consequences.

The result? Increasingly, founders who are frustrated by the limitations imposed on "serial entrepreneurs" are building their next companies on strategies that do not require venture capital. They don't want to work for anyone else.

I'm betting this is a temporary blip on the screen.

Friday, March 02, 2007

Lawyer Parents: the New Black

I'm a working mother. My clients know that they can call me anytime and anywhere, parental duties notwithstanding. The tradeoff is that we never discuss any questionable accessory choices I may make. Sometimes, if I'm in a hurry, I WILL borrow a barrette from my 9-year old. That's how I roll.

Law is supposed to be a punishing profession for young mothers. I've never found that to be particularly true. Law firms were not so much anti-mother as they were pro-testosterone. Talk in sports metaphors, pretend to care about Ermengildo Zegna's latest line of ties, and suppress your desire to complain about your sore nipples, and generally you would be okay. This was all fine with me. I figured, my day would come.

The thing is, I thought when my day DID come, it would actually be MY day. Recently I was the only female at a meeting of clients, lawyers and bankers. When the clock hit five p.m., one of the senior lawyers on the other side jumped up and excused himself, saying it was his turn to pick up his children from day care. The other men smiled, nodded approval, and sent him on his way.

What the hell?

A few years ago, if I had done the same thing, there would have been repercussions. Questions would have been raised about my commitment to my job. But now, it appears a guy can do the same thing and get warm approval. A gentleman, might I add, who until recently would urge his female colleagues to "strap on a pair" and close a deal.

Men: if being a caring, working parent is now in fashion, then you need to get in line. Me and my uterus were here first, and we want our due. Until you are so sleep deprived that you start taking notes at a meeting with a tampon that you mistakenly pulled from your briefcase, you're not one of us.

Thursday, March 01, 2007

A New Angel in Town

Just got off the phone with Rob Koturbash, who is the newly-minted Managing Director of Toronto's latest angel group, Maple Leaf Angels. Several of its members are long-time angels here in town. The typical size of the group's first round invesment is $500k. Interested parties can send me an email, or watch for their website, which will be up soon.

Redknee: The Benefits of Avoiding Venture Capital (?)

The launch of Redknee into trading on London's AIM is an interesting chapter in the company's history. Redknee, a Toronto mobile applications service provider, has built what appears to be a nice business around some of the best talent out of Nortel and Rogers. For years, Redknee played coy with hedge funds and VCs alike (including me), ultimately deciding to grow organically.

The result? According to the numbers reported on the AIM's site, just before completion of its 17.5 million pound placement, founders and senior management had managed to hold onto 70% of the company's equity (the two founders held a total 42% , and the top three other members of management shared just over 30%). A private placement on London's AIM is a questionable liquidity event, but the numbers are an interesting data point.