StartupNorth: Incubators, accelerators, and ignition
Ross
· 8 months ago
Great post. I've been wondering the same thing... in Toronto, we seem to have most of the ingredients to create a really strong new media cluster. Yet, we're really yet living up to that potential.
You can add to your list of academic programs the University/Industry collaboration programs at IBM, SAP, and CA. Not mentoring startups, per-se, but certainly advancing the state of practice in a bunch of areas. And these advanced research projects give students and industry-practitioners alike the opportunity to experiment freely -- which is a skillset in its own right that needs to be cultured.
I've always seen the main value of incubators as providing the link between entrepreneurs and funders. Finding mentors is not difficult, and at the early stage should never be paid for. Community-building and training are clearly important, but likewise can be addressed through other means. The incubator models like Techstars and Plug&Play work because the incubator takes a cut of the company, and has a vested interest to see it get funded. We'd have a hard time replicating that aspect of the model here in Canada, because there are so few VCs and angels to feed these projects through. Rather than try to replicate the US model, maybe we need to start thinking about founding portfolio companies -- pooled overhead expenditure, maximize SR&ED, leverage the vast pool of part-time entrepreneurs who will work for equity-only. Just a thought, but I do agree with you that the funding equation is the #1 challenge that we need to solve to move the industry forward in Toronto.
Taylor Davidson
· 8 months ago
Ross: you bring in a great point: there is not need to replicate the models (models, not model) being tested by venture funds in the US. The fact is that these funds are still in their early days and the returns are still unproven and there is still room for a lot of innovation in supporting early-stage ventures.
davidcrow
· 8 months ago
Hey Ross,
If we're adding companies, we might as well add Microsoft with programs like BizSpark http://microsoft.com/bizspark and Sun Startup Essentials and RIM with the BlackBerry Fund. There are lots of big companies that are building platforms and encouraging/incenting young entrepreneurs to build on their platform. It's the great thing about APIs. But these are supporting of the companies and technologies being built, e.g., Xobni is a accessing the 400M+ Outlook users.
I'm suggesting that the community of entrepreneurs, who also have a vested interest in success of their ventures can take this bull by the horns without giving up additional equity to help incubate each other and collaboratively build the platforms that are needed. When you look at companies in SF and at SxSW, there was a lot of shared effort for events like the 32-bit and the NxNW parties that were co-funded to offset costs by SF and Vancouver companies respectively.
The funding equation is a challenge. As I started write an a previous comment, I wonder if the funding situation is the root of other concerns, i.e., lowered salaries which leads to more consultants and reduces the overall effectiveness of the local talent pool available to Canadian startups.
Ross
· 8 months ago
David,
I do think we need to factor corporations into the mix; they are a vital part of the ecosystem. I mentioned those three specifically because they are incubating groups of graduate students working on diverse and innovative research projects, with the sole caveat that they must *gasp* factor in industry applications to the research. But certainly, any initiatives that encourage creativity, experimentation, and advanced research are wonderful in my books.
The academic model may not be entirely inappropriate for this discussion. Perhaps we should look at a research lab model for our startup incubator -- an environment where entrepreneurs can come in for a period of time to work on one or more projects, then move on into industry or take their project live. We'd manage the projects like a portfolio, with the better prospects getting more employees and funding and killing off ideas that don't work, while at the same time keeping the IP and lessons learned to be resurrected in future if a new group of entrepreneurs think they can do better.
I tend to believe that the resources are there for us to build an incubator to churn out at least a dozen great startups a year out of a Toronto (or Waterloo) based incubator. Where we really need to be creative is in how we nurture those startups post-incubation. We just don't have the VCs or angels to feed these deals through. This is where we need to be different than the US-based incubators; I think we do need to manage the portfolio post-incubation and provide some ongoing resources.
Whatever comes of this idea, it should factor in the HUGE pool of untapped talent from the part-time entrepreneurs in the community. Many of these individuals will literally work for free, mentoring or providing specific help as needed. Rather than exclude these individuals as not being "committed enough", we should embrace them.
Taylor Davidson
· 8 months ago
Funding is a huge concern, and at the source is the lack of capital to fund investing in this type of concept / pre-seed investing that has yet to demonstrate proven returns. As you rightly point out, running a fund with this type of investment focus is difficult to do given the operational cost and revenue structure. I've met and talked to many people at these early-stage funds, and have yet to meet a firm that has created the blueprint for high financial returns; but obviously there are many meaningful non-financial returns created by these funds.
davidcrow
· 8 months ago
Taylor,
I think the non-financial returns aka the secondary effects associated with activities: the cohort, training & mentoring, & the publicity/attention grab (think launch events); but they are used to continue to drive financial numbers. Let's be honest this is a financial game. The question for me is how do the investment timeframe for the limited partners and timeline required for significant impact by the secondary effects.
Not every incubator/accelerator will have the immediate PR and follow-on investment potential of Y Combinator (supported by acquisitions and divestitures like Reddit). Most will need to hit a few singles and doubles. But the secondary effects of the activities start the process of attracting additional entrepreneurs, bringing more press and attention to the launch events, and hopefully finding additional investors or acquirers.
Taylor Davidson
· 8 months ago
Solid points; the non-financial returns will play a huge role in seeding and amplifying the environment for financial returns. And yet it will be difficult for the LPs of the seed funds to see those financial returns; if anything those returns will flow to the follow-in investors.
The debate through the comment stream is fascinating; finding the right place for the seed fund to sit (literally and physically) in the city and the community will be critical for framing the investment theses and creating the type of secondary non-financial returns needed to attract the right kind of financially-oriented follow-on investors.
Steve Croth
· 8 months ago
As an entrepreneur, and by witnessing successful entrepreneurial centres, it is my belief that in order for a city to be successful you need a few fundamental forces to power startups - (readily available and risk tolerant) seed capital, supporting knowledge/skills, capabilities, and a supportive culture. The fourth component is probably one of the most important - and is the one with room for the greatest improvement in Canada. An entrepreneurial culture will drive the other necessary forces. Canadians (and I am one) have not yet fully embraced an entrepreneurial culture - we're dipping our toe in the water - but we're not fully committed. Because of this - we have very little seed capital (see PWC money report), fragmented skill centres (where is our triple helix model a la Stanford, Google and California State Gov't). I do find Communitech in Waterloo very interesting - and probably one of the best models in Canada...so what is our Waterloo in Toronto - UofT? Maybe - but much of our creative capital comes from an unconcentrated pools of individuals from various schools. Leadership will shape culture - so our business, institution and government leaders must lead the way and embrace, support and invest in entrepreneurs. Simple solutions - include actually using the BDC like it was designed. Simplifying and making program funding more accessible (why should a startup have to hire Tier 1 consultants to apply for SRED) and fund the innovation centres that are already here (eg. MaRS), find foreign cash and make strategic investments in universities to create centres of excellence. If anyone's interested in what we're doing - we launched the first B Corporation in Canada - a digital social enterprise that have developed an online fundraising platform for global charities.
davidcrow
· 8 months ago
Steve,
Communitech is a community organization focused on Waterloo. They do a great job serving as the lightning rod in Waterloo. Without UW, TechCapital, and a few successful local entrepreneurs (RIM, Pixstream, Reqwireless, etc.) to help encourage, inspire and fund the next generation of companies.
The consultant thing is a challenge. I think it stems from the substandard salaries paid to Canadian employees. Why take an $75-80k salaried job when you can work 3/4 time as consultant and bring home $120k+. Now, is this because of a fundamental structural issues with compensation in Canada? Or a result of the funding market that forces startups to go with the available talent or shorter term consulting gigs for key roles?
I'm not sure existing innovation centres and funding programs are addressing the needs of current/future entrepreneurs. I think we've seen what these programs bring, and there is a need to try something new. And it is not the government, it is up to the entrepreneurs to take ownership and build what they want.
Jacqui Murphy
· 8 months ago
Sign me up David. I'd love to be involved.
Dan Hocking
· 8 months ago
David, great post. As a young, aspiring entrepreneur in the web community, I'd definitely be interested in seeing this become a reality. What can those of us who are young and ambitious do to help this process along?
Terry Smith
· 8 months ago
Even as with many of these programs, this would attract a lot of national attention and has the opportunity to bring more entrepreneurs to Toronto as well. I'm from Northern Ontario and I would certainly relocate to Toronto for this chance.
Alex de Bold
· 8 months ago
Great list and observation as usual. I do think that there is a need for this up and running in Toronto.
IMPACT is a student entrepreneurship group that you might want to add your list. I only became aware of them this year and they're working super hard and a 'startup ethos' is central to their existence. The students, people and results that they're producing are just incredible.
andrewhyde
· 8 months ago
Great post, have put a lot of great sites on my reading list.
Feel free to visit us in Boulder at TechStars, would love to have you. Whatever we can share or answer, just let us know.
Reg Braithwaite
· 8 months ago
For those who are interested, yes I do advise startups from time to time on an informal basis. My observation is that typically I am approached by startups with a strong technology founder or founders. They know of me through my development activities, so they are motivated to seek me out and exchange ideas.
That's terrific, and technology-centric founder please don't stop: I love talking with fellow developers! At the same time, I have a sneaking suspicion that the technology-centric founders would do well to also seek out business-centric advisors and learn to manage the resulting impedance mismatch. Likewise, business-centric founders might benefit even more from bringing a technology-centric advisor on board to complement their strengths.
Justin Kozuch
· 8 months ago
Thanks for the link, David. As Dan said, I'd love to see something like this come to fruition. How can we help?
Josh Sookman
· 8 months ago
Great overview of what's out there and what might be needed in Toronto. David, I'd love and be a part of this. In fact, I was telling some people at Mesh last week that Toronto needs a more entrepreneurial community, and this could really help to stir things up! Please let me know how I can help.
Anton
· 8 months ago
We are running a b2b saas incubator at Omazo Ventures. Based downtown Toronto.
Soon using a similar model focused on cleantech and Asia.
jonlax
· 8 months ago
2 x 12 week programs a year 4 startups a session 8 startups a year
I'm in.
Ryan McKegney
· 8 months ago
Excellent post. I'm always happy to offer advice to aspiring entrepreneurs. I've gained so much by being involved in the community over the past 4 years.
Igniter
· 8 months ago
This is absolutely about an ecosystem, a focused period of attention around a cohort, and generating some quick successes. I think the design communities and diversity that we have in the region gives us a unique perspective an opportunity to create game-changing ventures (for for-profit and for-benefit).
The stuff going on with Unfinished Business and the Movement might also bring some Toronto/design flavour to how this might happen. As for funding, I like the life-support funding for the focus period and also think that this would be a great place for founders of emerging and successful ventures to donate some founder's equity to support the region's entrepreneurial ecosystem.
Toronto's in a unique position at a unique moment in time. Would be great to see a leader step up to make this happen :-)
Joseph Fung
· 8 months ago
Great post - and I agree, it's a much-needed facility. In terms of making it happend though, there are a couple of notes that I would add. There may be additional ways to help offset the funding and management issues if the incubator itself was established as an investment fund and could take advantage of Ontario's matching program, and if the facility were setup using a model similar to Waterloo's accelerator centre to offset the facility costs.
Good call on the big launch event though - the buzz would be important. Part of that launch event should be the local independent arts/music scene to really give it the right feel. Anything more glitzy may just feel incongruent.
College Mogul
· 8 months ago
I think they'll soon be an incubator in every major city in the US. They're also growing in popularity abroad.
There's also a Y Combinator-type incubator in Affrica now...I recently put together a more complete and updated list on CollegeMogul.com that profiles 19 incubators.
Danny didn't go into some of the other financial details of Bootup Labs (fund flows money through startups to management co), but the numbers do work on a fund. See his outline on Rick Segal's Farm Team post.
I also would add Montreal Startup Fund to the list, in that even if they don't do a bunch of direct incubation, they are applying the same thinking and economics.
We could do work on a "real" big launch event here in Canada. You're still going to travel to other events (US vs. Canadian market, etc.) but this is definitely something that can and should be supported at home.
The MaRS Entrepreneurship program looks similar to New Ventures BC. Not necessarily too long, just serves different needs. Note: Bootup is currently looking at 8 months -- yep, way longer than other programs, we're aiming for some more fully formed companies (higher valuations!)
Lastly, we did some talking with John Stokes of Montreal Startup about helping out with a Canada wide program that is shorter / more Y Combinator~ish in length. Now that the alarm bells are being rung all over the place, hopefully we can all get behind a handful of programs.
Varun Mathur
· 8 months ago
Brilliant post David!
As a Toronto-based entrepreneur, I would love to see such a program in Toronto and have come across other students in the local computer science / engineering community who would have been interested and could have benefited others and the community as a whole had such a program existed. I've known such folks who wanted to start a software company, had ideas, motivation...and even internship experience at places like Microsoft and Google. Doing a startup in Toronto was their first choice, but they couldn't connect the dots, so they left. Some of the best and the brightest talent from Toronto's universities is in Redmond and Mountain View right now, for lack of a startup culture here. I've known others as well who took great risk in starting up a venture, and when it dwindled, they had to take up jobs elsewhere to pay the bills. There are only 2 companies which I know of which have emerged very strongly by folks who were recently studying computer science / engineering at UofT / Waterloo, and they are BumpTop and PolarMobile. There could have been a lot more. I'm sure you remember meeting Igor with me couple of years ago - he was a top 50 programmer in the world and was doing his PhD in Computer Science at 24, and he wanted to do a startup but didn't have a business background / connections or even a desire to attend any startup conferences, etc - so he left Toronto for a job elsewhere. And I'm sure there are others around here who face a similar predicament, and if they are really good, they leave, even if they *wanted* to live in Toronto.
A 3 month summer program, $20k to each team, and 10 teams each summer, with the program backed by people who can provide mentorship and future connections - and that would really kickstart the local startup culture here. Hackers who can execute can focus on building their startups over the summer instead of doing internships elsewhere. The startup events and conferences are good, but of limited value at the end of the day as that knowledge is available online as well. It is the cash and the connections to the right people which matter in my opinion to translate ideas into real companies.
Canada needs its own YCombinator. Hopefully this post of yours will instigate some folks and something good will come out of it. And then I will have more startups to write about for Techvibes and more founders to interview :)
Chris Arsenault
· 8 months ago
YES! We are responsible for what we do and don't do. We need to constantly build out our entrepreneurial Ecosystem, leverage our unique experiences and networks, not just for Toronto, but across Canada! I can't agree more with the concept of leveraging, building and taking action. Try, assess, move on and repeat. I recently posted a story on Montreal Tech Watch about Ecosystem leverage and the new role some governments are playing as std LPs http://bit.ly/2aIZD3
It's interesting to note that we have built from scratch a University tech commercialization pre-seed innovation gap investor and coaching services called MSBiV (over 20 deals, of which 9 matured into Fund I or Fund II portfolio companies). MSBiV is somewhat of a feeder fund for iNovia Funds and iNovia provides MSBiV with key contacts, poytential commerncial partners, investors and market insight. I think that MSBiV fills a gap between University technology and Entrepreneurs (who in turn fills the gap between the same technology and the market).
I'm not sure about what the best model is for incubators, but I would be interested seeing iNovia develop closer relationships with Ycombinator type models, with some specific clusters of expertise and open up a little more.
Count me in as well as the iNovia team!
TJ Sondermann
· 8 months ago
I'll chime in with "great post". It sounds as though you've all your bases covered.
I'm glad to see commentors who believe that this type of model could (and should) be working in other cities. We're just getting off the ground here in Providence, RI with http://betaspring.com.
If any of you folks want to try to put some heads together on how to let one thousand seed venture platforms bloom, we'd definitely like to be involved.
leftist
· 8 months ago
I'd be all over this, but I think we're missing out on opportunities to consider non-software tech ventures.
So many amazing ideas take place in the physical realm, there just needs to be a community of builders in the same way that there's a relatively new community of web geeks.
davidcrow
· 8 months ago
There are a few companies building device-based development practices including Nytric http://nytric.com/ based in Waterloo. I think there is a huge need to have a Maker-like community in Toronto.
micheleperras
· 8 months ago
Great post David - you've hit the mark with your description of the challenges and solutions. Part culture, part support, part vision; all guts, heart and brains. I'd love to be more involved.
As well, while still in the early stages, you can add the MEIC to the list under university-industry collaborations. The MEIC is investing (via interns/research leads) in collaborative mobile research/prototyping projects over, you guessed it, 3 month timelines.
Michael O'Connor Clarke
· 8 months ago
Yup. An enthusiastic +1 to all points.
Of course, Toronto did have its own set of incubators once. Seems like decades ago now, but we really only have to look as far back as the turn of the millennium for examples.
There was the spectacular rise, and then equally spectacular flame out, of itemus. They weren't a pure incubator, although one part of the operations was heavily based around the original IdeaLab tech incubator model. (Disclosure: I was closely involved in the whole itemus thing from incept to untimely demise. To say I learned a lot is the understatement of the decade).
The UofT also had its sadly short-lived Excelerator program out of the Innovations Foundation (which saw a couple of interesting semi-exits and plenty of genuine innovation, but no big news or enduring successes, as far as I recall).
The climate and expectations back then were very different, of course. Incubators were pretty-much dominated by a bubble mentality, very unlike the mindset evident in Rick Segal's excellent Farm Team post. Back in '99/2000, even as the market was failing, all eyes were on the liquidity event - less focus on the quality of the innovation and the native positive value inherent in entrepreneurial energy, more focus on the quck path to exit.
I think we're calmer and smarter now, but that also likely means we're more cautious. Once bitten, etc. Anyone who lost a lot of money the last time the bubble burst is naturally going to be both rather more reserved and perhaps more demanding this time around.
And that could be a big roadblock. I don't know, I'm not in the capital business - but I'm certainly not seeing a lot of deals announced in the last year or so. As you point out, there are serious funding challenges related to a zero IRR. Maybe that's precisely what was so wrong with the incubator approach the last time we tried it in Canada. Even in the current market, there are still sources of IRR and NPV-based funding available for early stage companies with demonstrable traction. The term sheets may be ugly, the deals and valuations may suck, but there is money out there if you want to follow the "traditional" routes .
But if you don't yet have traction, and haven't yet proven a model that will satisfy an external investor's IRR calculations, it's a tough haul trying to get your idea fleshed out into something that makes the $$ look attractive enough to a traditional thinker in the VC world.
Again, Rick's call for "lower dollars in, smaller exits, rinse-n-repeat" thinking makes a lot of sense here. You can't apply VC models to incubator practice - the economics just don't work. We did that last time, and look what happened. As the needs and goals of a startup in an incubator environment are different, so to the entire approach to funding, support, and investor expectations needs to be completely different. Yes: it's reasonable (and necessary) to expect, plan for and even demand tangible ROI - but the rewards shouldn't always be measured in terms of a 10x return on hard $$ invested.
Feels like the time and the market is primed for this kind of thing to grow again. I know there are a lot of great ideas and smart, budding entrepreneurs out there who are struggling for access to capital, access to advice, even access to fundamental infrastructure. I'd gladly lend some hours to help out with something like this. I walked that incubator road before and, while I don't know that I have any solid answers, at least I learned a lot about what not to do.
davidcrow
· 8 months ago
I still think that Accelerators or Incubators that are run as real estate plays pretending to be capital plays are doomed to failure. My thoughts on this topic http://www.startupnorth.ca/2008/11/19/mars-phas... . Many of the challenges with past Toronto options has been the focus on providing expensive real estate masquerading as investment opportunities.
The question for me is still around exits in Canada. Who is actively buying companies? In Silicon Valley, over the past few years Microsoft, Google, Yahoo, Cisco, Oracle, and others were buying companies (most still are just slowed down). Who is buying companies in Canada? Rogers? Bell? Telus? Quebecor? RIM? PwC? Algorithmics? IBM? CIBC/BMO/Scotia? OpenText? GlobalLive? Where are these smaller exits going to come from? Kaboose and AvidLifeMedia had actively been acquiring companies. But Kaboose has sold off their assets.
I Jacqui Murphy hits it with http://blog.techcapital.com/2009/04/14/calling-... we need to help connect Canadian entrepreneurs with Canadian and international business development relationships to enable companies to build products, grow their customer base, and hopefully build success cash generating businesses.
CP
· 8 months ago
In your listing of Toronto incubators, you missed the Toronto Business Development Centre on King Street West. They are a general incubator with companies from all sectors, including digital media and tech. Might be worth checking out.
Daniel Debow
· 8 months ago
David
Great post.
I think the comments on adding sales, marketing, b-d support and advice for Toronto start-ups are particularly appropriate.
I'd love to help, if I can. Count me in.
oshoma
· 8 months ago
Good writeup. I agree something like this is needed here. Clearly we have the intellectual capital to do it.
What if we tried micro-funding instead of the current approach? That might net enough investors to make it viable. We create a fund that pays for operating one session (or one year) of the program from start to finish. Price shares at, say, $5,000 apiece. Standardize the share terms so there's no negotiation involved. Entrepreneurs offer up a fixed amount of equity in exchange for program participation. Investors share in the entrepreneurs' risk and reward.
Who would buy? Well, at that price, I'd buy a share. I bet at least a few hundred other people would too. Wealthy investors (incl. some Angels) might purchase tens or hundreds of shares. Forward-thinking corps and a VC or two looking for higher-risk investments would buy in, and get good PR as a result. Maybe even the government buys some shares, or provides a tax incentive to others for buying. If the terms are suitable, even investors in other countries could participate.
Could we sell 2000 shares at that price? $5,000 x 2000 shares = $10M.
Standardization would be key: everyone would buy in (and, hopefully, eventually cash out) on exactly the same terms.
It would be good to hear numbers from others like Y and TechStars what it costs them to run a single cohort through, so that we know better whether we're talking about $10M or $1M.
davidcrow
· 8 months ago
Osh,
I wonder what the implications for investors are, my guess is that this would constitute selling securities, and we'd be shut down by the OSC in about 4 seconds.
Joyent, aka TextDrive, did a VC-Customer Campaign back in 2003-4 to raise $40,000 of capital costs to buy new servers. http://photodude.com/2004/06/01/textdrive-or-ho... but this was done by offering lifetime services, not by offering equity or debt in the company.
It is an interesting question that I think others like Michael Garrity at CommunityLend http://communitylend.com/ are better able to answer than I am.
Tania Samsonova
· 8 months ago
Hi David
I am confused: isn't MaRS a tech incubator? How would you define a tech incubator, then?
MaRS has the potential to be a home for a tech incubator, mainly because of the lack of demonstrated financial returns from early stage funds and the assumption of an IRR of zero in Rick's FTF http://ricksegal.typepad.com/pmv/2009/04/the-fa... there needs to be a spot that has a public policy mission to support entrepreneurs.
MaRS has many of the pieces to be a key player in Toronto and Ontario.
* Real estate for companies & events * Training programs (that may need a refresh) * Venture advisory services available to entrepreneurs at various stages http://marsdd.com/mars/advisoryservices.html * Strong ties and relationships in municipal and provincial governments for funding and policy making decisions
But would I describe Y Combinator & MaRS as similar entities, NO WAY!
David, I'm late to the conversation, but really interesting read & comments..
I'm absolutely 100% behind the premise of a seed ecosystem with a strong cohort (essential) and mentor program. However, it also seems to me that the entire model (Y-Combinator, Techstars, etc) is predicated on the "graduation" phase. It's one thing to get the entrepreneurs working on their ideas under a "ramen profitability" model, but there needs to be a path and ecosystem beyond that.
Based on all of my conversation with YC founders, it was the introductions and network that they ultimately found most valuable, and I'm afraid we're lacking in that department. JLA, Edgestone, TCP, etc. are all great funds with great people behind them, but reality is.. they can only do so many investments. Canada-US is also a thorny issue. I'm continuously amazed how much pain and suffering a company has to go through (visa's, investment barriers, etc) to attract external investment.
I guess I'm not saying anything new here, but it feels like there is a missing piece there: getting started phase is critical (cohort, mentors) but somehow we also need to figure out how to lower the graduation barriers, because otherwise.. the whole thing might fail.
davidcrow
· 8 months ago
Ilya,
I think you've hit a very important point. Exits. What are possible/potential exits for Canadian startups?
* IPO - NASDAQ vs TSX vs TSX-Venture * Acquistion - Who in Canada is buying companies? Who in the US is buying Canadian companies? * Operate profitably * (the worst case scenario) go under
I think the think many early stage entrepreneurs and students I talk to in Toronto and Waterloo is that they get enthralled by the raising of venture capital and the perceived ease of access to capital. There is a need to understand about building successful, sustainable, profitable companies. Having customers. Building a product. Growing a business. These are good things and should be celebrated by entrepreneurs.
Ilya Grigorik
· 8 months ago
Right, and I don't think anyone will argue against that. But here's an interesting observation: how many YC / TechStar companies graduate from the program in the black? I think we're also missing the step before exit... It takes time to define a market, find the customer, tailor the product and establish the pipeline. YC~like funds don't give the company enough capital to last to go through this process. Instead, they provide the cohort experience and minimal guidance + introductions and network to complete the second phase (find the customer).
Some companies can boostrap by being lean, some by dipping into their own pockets, but the vast majority need a support network: active angels, VC's willing to make a bet on an 'unproven team', or a 'emerging/potential' market.
Once again, what I'm saying is not new, it just feels like some of that infrastructure is missing in our ecosystem. It's a chicken and the egg problem where one cannot exist without the other.
All Comments
You can add to your list of academic programs the University/Industry collaboration programs at IBM, SAP, and CA. Not mentoring startups, per-se, but certainly advancing the state of practice in a bunch of areas. And these advanced research projects give students and industry-practitioners alike the opportunity to experiment freely -- which is a skillset in its own right that needs to be cultured.
I've always seen the main value of incubators as providing the link between entrepreneurs and funders. Finding mentors is not difficult, and at the early stage should never be paid for. Community-building and training are clearly important, but likewise can be addressed through other means. The incubator models like Techstars and Plug&Play work because the incubator takes a cut of the company, and has a vested interest to see it get funded. We'd have a hard time replicating that aspect of the model here in Canada, because there are so few VCs and angels to feed these projects through. Rather than try to replicate the US model, maybe we need to start thinking about founding portfolio companies -- pooled overhead expenditure, maximize SR&ED, leverage the vast pool of part-time entrepreneurs who will work for equity-only. Just a thought, but I do agree with you that the funding equation is the #1 challenge that we need to solve to move the industry forward in Toronto.
If we're adding companies, we might as well add Microsoft with programs like BizSpark http://microsoft.com/bizspark and Sun Startup Essentials and RIM with the BlackBerry Fund. There are lots of big companies that are building platforms and encouraging/incenting young entrepreneurs to build on their platform. It's the great thing about APIs. But these are supporting of the companies and technologies being built, e.g., Xobni is a accessing the 400M+ Outlook users.
I'm suggesting that the community of entrepreneurs, who also have a vested interest in success of their ventures can take this bull by the horns without giving up additional equity to help incubate each other and collaboratively build the platforms that are needed. When you look at companies in SF and at SxSW, there was a lot of shared effort for events like the 32-bit and the NxNW parties that were co-funded to offset costs by SF and Vancouver companies respectively.
The funding equation is a challenge. As I started write an a previous comment, I wonder if the funding situation is the root of other concerns, i.e., lowered salaries which leads to more consultants and reduces the overall effectiveness of the local talent pool available to Canadian startups.
I do think we need to factor corporations into the mix; they are a vital part of the ecosystem. I mentioned those three specifically because they are incubating groups of graduate students working on diverse and innovative research projects, with the sole caveat that they must *gasp* factor in industry applications to the research. But certainly, any initiatives that encourage creativity, experimentation, and advanced research are wonderful in my books.
The academic model may not be entirely inappropriate for this discussion. Perhaps we should look at a research lab model for our startup incubator -- an environment where entrepreneurs can come in for a period of time to work on one or more projects, then move on into industry or take their project live. We'd manage the projects like a portfolio, with the better prospects getting more employees and funding and killing off ideas that don't work, while at the same time keeping the IP and lessons learned to be resurrected in future if a new group of entrepreneurs think they can do better.
I tend to believe that the resources are there for us to build an incubator to churn out at least a dozen great startups a year out of a Toronto (or Waterloo) based incubator. Where we really need to be creative is in how we nurture those startups post-incubation. We just don't have the VCs or angels to feed these deals through. This is where we need to be different than the US-based incubators; I think we do need to manage the portfolio post-incubation and provide some ongoing resources.
Whatever comes of this idea, it should factor in the HUGE pool of untapped talent from the part-time entrepreneurs in the community. Many of these individuals will literally work for free, mentoring or providing specific help as needed. Rather than exclude these individuals as not being "committed enough", we should embrace them.
I think the non-financial returns aka the secondary effects associated with activities: the cohort, training & mentoring, & the publicity/attention grab (think launch events); but they are used to continue to drive financial numbers. Let's be honest this is a financial game. The question for me is how do the investment timeframe for the limited partners and timeline required for significant impact by the secondary effects.
Not every incubator/accelerator will have the immediate PR and follow-on investment potential of Y Combinator (supported by acquisitions and divestitures like Reddit). Most will need to hit a few singles and doubles. But the secondary effects of the activities start the process of attracting additional entrepreneurs, bringing more press and attention to the launch events, and hopefully finding additional investors or acquirers.
The debate through the comment stream is fascinating; finding the right place for the seed fund to sit (literally and physically) in the city and the community will be critical for framing the investment theses and creating the type of secondary non-financial returns needed to attract the right kind of financially-oriented follow-on investors.
Communitech is a community organization focused on Waterloo. They do a great job serving as the lightning rod in Waterloo. Without UW, TechCapital, and a few successful local entrepreneurs (RIM, Pixstream, Reqwireless, etc.) to help encourage, inspire and fund the next generation of companies.
The consultant thing is a challenge. I think it stems from the substandard salaries paid to Canadian employees. Why take an $75-80k salaried job when you can work 3/4 time as consultant and bring home $120k+. Now, is this because of a fundamental structural issues with compensation in Canada? Or a result of the funding market that forces startups to go with the available talent or shorter term consulting gigs for key roles?
I'm not sure existing innovation centres and funding programs are addressing the needs of current/future entrepreneurs. I think we've seen what these programs bring, and there is a need to try something new. And it is not the government, it is up to the entrepreneurs to take ownership and build what they want.
IMPACT is a student entrepreneurship group that you might want to add your list. I only became aware of them this year and they're working super hard and a 'startup ethos' is central to their existence. The students, people and results that they're producing are just incredible.
Feel free to visit us in Boulder at TechStars, would love to have you. Whatever we can share or answer, just let us know.
That's terrific, and technology-centric founder please don't stop: I love talking with fellow developers! At the same time, I have a sneaking suspicion that the technology-centric founders would do well to also seek out business-centric advisors and learn to manage the resulting impedance mismatch. Likewise, business-centric founders might benefit even more from bringing a technology-centric advisor on board to complement their strengths.
Soon using a similar model focused on cleantech and Asia.
4 startups a session
8 startups a year
I'm in.
The stuff going on with Unfinished Business and the Movement might also bring some Toronto/design flavour to how this might happen. As for funding, I like the life-support funding for the focus period and also think that this would be a great place for founders of emerging and successful ventures to donate some founder's equity to support the region's entrepreneurial ecosystem.
Toronto's in a unique position at a unique moment in time. Would be great to see a leader step up to make this happen :-)
Good call on the big launch event though - the buzz would be important. Part of that launch event should be the local independent arts/music scene to really give it the right feel. Anything more glitzy may just feel incongruent.
There's also a Y Combinator-type incubator in Affrica now...I recently put together a more complete and updated list on CollegeMogul.com that profiles 19 incubators.
http://www.collegemogul.com/content/directory-i...
I also would add Montreal Startup Fund to the list, in that even if they don't do a bunch of direct incubation, they are applying the same thinking and economics.
We could do work on a "real" big launch event here in Canada. You're still going to travel to other events (US vs. Canadian market, etc.) but this is definitely something that can and should be supported at home.
The MaRS Entrepreneurship program looks similar to New Ventures BC. Not necessarily too long, just serves different needs. Note: Bootup is currently looking at 8 months -- yep, way longer than other programs, we're aiming for some more fully formed companies (higher valuations!)
Lastly, we did some talking with John Stokes of Montreal Startup about helping out with a Canada wide program that is shorter / more Y Combinator~ish in length. Now that the alarm bells are being rung all over the place, hopefully we can all get behind a handful of programs.
As a Toronto-based entrepreneur, I would love to see such a program in Toronto and have come across other students in the local computer science / engineering community who would have been interested and could have benefited others and the community as a whole had such a program existed. I've known such folks who wanted to start a software company, had ideas, motivation...and even internship experience at places like Microsoft and Google. Doing a startup in Toronto was their first choice, but they couldn't connect the dots, so they left. Some of the best and the brightest talent from Toronto's universities is in Redmond and Mountain View right now, for lack of a startup culture here. I've known others as well who took great risk in starting up a venture, and when it dwindled, they had to take up jobs elsewhere to pay the bills. There are only 2 companies which I know of which have emerged very strongly by folks who were recently studying computer science / engineering at UofT / Waterloo, and they are BumpTop and PolarMobile. There could have been a lot more. I'm sure you remember meeting Igor with me couple of years ago - he was a top 50 programmer in the world and was doing his PhD in Computer Science at 24, and he wanted to do a startup but didn't have a business background / connections or even a desire to attend any startup conferences, etc - so he left Toronto for a job elsewhere. And I'm sure there are others around here who face a similar predicament, and if they are really good, they leave, even if they *wanted* to live in Toronto.
A 3 month summer program, $20k to each team, and 10 teams each summer, with the program backed by people who can provide mentorship and future connections - and that would really kickstart the local startup culture here. Hackers who can execute can focus on building their startups over the summer instead of doing internships elsewhere. The startup events and conferences are good, but of limited value at the end of the day as that knowledge is available online as well. It is the cash and the connections to the right people which matter in my opinion to translate ideas into real companies.
Canada needs its own YCombinator. Hopefully this post of yours will instigate some folks and something good will come out of it. And then I will have more startups to write about for Techvibes and more founders to interview :)
It's interesting to note that we have built from scratch a University tech commercialization pre-seed innovation gap investor and coaching services called MSBiV (over 20 deals, of which 9 matured into Fund I or Fund II portfolio companies). MSBiV is somewhat of a feeder fund for iNovia Funds and iNovia provides MSBiV with key contacts, poytential commerncial partners, investors and market insight. I think that MSBiV fills a gap between University technology and Entrepreneurs (who in turn fills the gap between the same technology and the market).
I'm not sure about what the best model is for incubators, but I would be interested seeing iNovia develop closer relationships with Ycombinator type models, with some specific clusters of expertise and open up a little more.
Count me in as well as the iNovia team!
I'm glad to see commentors who believe that this type of model could (and should) be working in other cities. We're just getting off the ground here in Providence, RI with http://betaspring.com.
If any of you folks want to try to put some heads together on how to let one thousand seed venture platforms bloom, we'd definitely like to be involved.
So many amazing ideas take place in the physical realm, there just needs to be a community of builders in the same way that there's a relatively new community of web geeks.
As well, while still in the early stages, you can add the MEIC to the list under university-industry collaborations. The MEIC is investing (via interns/research leads) in collaborative mobile research/prototyping projects over, you guessed it, 3 month timelines.
Of course, Toronto did have its own set of incubators once. Seems like decades ago now, but we really only have to look as far back as the turn of the millennium for examples.
There was the spectacular rise, and then equally spectacular flame out, of itemus. They weren't a pure incubator, although one part of the operations was heavily based around the original IdeaLab tech incubator model. (Disclosure: I was closely involved in the whole itemus thing from incept to untimely demise. To say I learned a lot is the understatement of the decade).
The UofT also had its sadly short-lived Excelerator program out of the Innovations Foundation (which saw a couple of interesting semi-exits and plenty of genuine innovation, but no big news or enduring successes, as far as I recall).
The climate and expectations back then were very different, of course. Incubators were pretty-much dominated by a bubble mentality, very unlike the mindset evident in Rick Segal's excellent Farm Team post. Back in '99/2000, even as the market was failing, all eyes were on the liquidity event - less focus on the quality of the innovation and the native positive value inherent in entrepreneurial energy, more focus on the quck path to exit.
I think we're calmer and smarter now, but that also likely means we're more cautious. Once bitten, etc. Anyone who lost a lot of money the last time the bubble burst is naturally going to be both rather more reserved and perhaps more demanding this time around.
And that could be a big roadblock. I don't know, I'm not in the capital business - but I'm certainly not seeing a lot of deals announced in the last year or so. As you point out, there are serious funding challenges related to a zero IRR. Maybe that's precisely what was so wrong with the incubator approach the last time we tried it in Canada. Even in the current market, there are still sources of IRR and NPV-based funding available for early stage companies with demonstrable traction. The term sheets may be ugly, the deals and valuations may suck, but there is money out there if you want to follow the "traditional" routes .
But if you don't yet have traction, and haven't yet proven a model that will satisfy an external investor's IRR calculations, it's a tough haul trying to get your idea fleshed out into something that makes the $$ look attractive enough to a traditional thinker in the VC world.
Again, Rick's call for "lower dollars in, smaller exits, rinse-n-repeat" thinking makes a lot of sense here. You can't apply VC models to incubator practice - the economics just don't work. We did that last time, and look what happened. As the needs and goals of a startup in an incubator environment are different, so to the entire approach to funding, support, and investor expectations needs to be completely different. Yes: it's reasonable (and necessary) to expect, plan for and even demand tangible ROI - but the rewards shouldn't always be measured in terms of a 10x return on hard $$ invested.
Feels like the time and the market is primed for this kind of thing to grow again. I know there are a lot of great ideas and smart, budding entrepreneurs out there who are struggling for access to capital, access to advice, even access to fundamental infrastructure. I'd gladly lend some hours to help out with something like this. I walked that incubator road before and, while I don't know that I have any solid answers, at least I learned a lot about what not to do.
The question for me is still around exits in Canada. Who is actively buying companies? In Silicon Valley, over the past few years Microsoft, Google, Yahoo, Cisco, Oracle, and others were buying companies (most still are just slowed down). Who is buying companies in Canada? Rogers? Bell? Telus? Quebecor? RIM? PwC? Algorithmics? IBM? CIBC/BMO/Scotia? OpenText? GlobalLive? Where are these smaller exits going to come from? Kaboose and AvidLifeMedia had actively been acquiring companies. But Kaboose has sold off their assets.
I Jacqui Murphy hits it with http://blog.techcapital.com/2009/04/14/calling-... we need to help connect Canadian entrepreneurs with Canadian and international business development relationships to enable companies to build products, grow their customer base, and hopefully build success cash generating businesses.
Great post.
I think the comments on adding sales, marketing, b-d support and advice for Toronto start-ups are particularly appropriate.
I'd love to help, if I can. Count me in.
What if we tried micro-funding instead of the current approach? That might net enough investors to make it viable. We create a fund that pays for operating one session (or one year) of the program from start to finish. Price shares at, say, $5,000 apiece. Standardize the share terms so there's no negotiation involved. Entrepreneurs offer up a fixed amount of equity in exchange for program participation. Investors share in the entrepreneurs' risk and reward.
Who would buy? Well, at that price, I'd buy a share. I bet at least a few hundred other people would too. Wealthy investors (incl. some Angels) might purchase tens or hundreds of shares. Forward-thinking corps and a VC or two looking for higher-risk investments would buy in, and get good PR as a result. Maybe even the government buys some shares, or provides a tax incentive to others for buying. If the terms are suitable, even investors in other countries could participate.
Could we sell 2000 shares at that price? $5,000 x 2000 shares = $10M.
Standardization would be key: everyone would buy in (and, hopefully, eventually cash out) on exactly the same terms.
It would be good to hear numbers from others like Y and TechStars what it costs them to run a single cohort through, so that we know better whether we're talking about $10M or $1M.
I wonder what the implications for investors are, my guess is that this would constitute selling securities, and we'd be shut down by the OSC in about 4 seconds.
Joyent, aka TextDrive, did a VC-Customer Campaign back in 2003-4 to raise $40,000 of capital costs to buy new servers. http://photodude.com/2004/06/01/textdrive-or-ho... but this was done by offering lifetime services, not by offering equity or debt in the company.
It is an interesting question that I think others like Michael Garrity at CommunityLend http://communitylend.com/ are better able to answer than I am.
I am confused: isn't MaRS a tech incubator? How would you define a tech incubator, then?
I do not think that MaRS is currently a tech incubator. They are a real estate play with value added services. My initial thoughts on this http://www.startupnorth.ca/2008/11/19/mars-phas... .
MaRS has the potential to be a home for a tech incubator, mainly because of the lack of demonstrated financial returns from early stage funds and the assumption of an IRR of zero in Rick's FTF http://ricksegal.typepad.com/pmv/2009/04/the-fa... there needs to be a spot that has a public policy mission to support entrepreneurs.
MaRS has many of the pieces to be a key player in Toronto and Ontario.
* Real estate for companies & events
* Training programs (that may need a refresh)
* Venture advisory services available to entrepreneurs at various stages http://marsdd.com/mars/advisoryservices.html
* Strong ties and relationships in municipal and provincial governments for funding and policy making decisions
But would I describe Y Combinator & MaRS as similar entities, NO WAY!
I'm absolutely 100% behind the premise of a seed ecosystem with a strong cohort (essential) and mentor program. However, it also seems to me that the entire model (Y-Combinator, Techstars, etc) is predicated on the "graduation" phase. It's one thing to get the entrepreneurs working on their ideas under a "ramen profitability" model, but there needs to be a path and ecosystem beyond that.
Based on all of my conversation with YC founders, it was the introductions and network that they ultimately found most valuable, and I'm afraid we're lacking in that department. JLA, Edgestone, TCP, etc. are all great funds with great people behind them, but reality is.. they can only do so many investments. Canada-US is also a thorny issue. I'm continuously amazed how much pain and suffering a company has to go through (visa's, investment barriers, etc) to attract external investment.
I guess I'm not saying anything new here, but it feels like there is a missing piece there: getting started phase is critical (cohort, mentors) but somehow we also need to figure out how to lower the graduation barriers, because otherwise.. the whole thing might fail.
I think you've hit a very important point. Exits. What are possible/potential exits for Canadian startups?
* IPO - NASDAQ vs TSX vs TSX-Venture
* Acquistion - Who in Canada is buying companies? Who in the US is buying Canadian companies?
* Operate profitably
* (the worst case scenario) go under
I think the think many early stage entrepreneurs and students I talk to in Toronto and Waterloo is that they get enthralled by the raising of venture capital and the perceived ease of access to capital. There is a need to understand about building successful, sustainable, profitable companies. Having customers. Building a product. Growing a business. These are good things and should be celebrated by entrepreneurs.
Some companies can boostrap by being lean, some by dipping into their own pockets, but the vast majority need a support network: active angels, VC's willing to make a bet on an 'unproven team', or a 'emerging/potential' market.
Once again, what I'm saying is not new, it just feels like some of that infrastructure is missing in our ecosystem. It's a chicken and the egg problem where one cannot exist without the other.