Is Having Too Much Money Bad for Startups?

By Mark Evans in Startups 5 Comments Tags: , , ,

In a post yesterday on StartupNorth, iNovia Capital’s Chris Arsenault put the spotlight on three large VC deals that were recently announced – Beyond the Rack, Fixmo and Shopify. Hist post included interesting commentary about the size of the deals, which are all more than $15-million.

“Obviously, I get nervous when I see a company (portfolio or not) raise such a large chunk of cash. Why? It’s not because I like the small size of the average Canadian financing rounds. Rather, it’s because I think that too much money for a young business can be as bad as or worse than not having enough. $15M-$40M rounds for Canadian tech companies are amongst the largest we have seen this side of the border in over 10 years.”

Whenever I hear about companies raising large amounts of money, one of the first things that comes to mind is how do they spend so much money. I can get raising and then spending $1-million, $2-million or even $5-million but when you’re talking about $15-million or $23-million (raised by Fixmo), that is much more difficult to grasp.

Think about it this way. If you raise $15-million, for example, it’s enough to employ 40 people for four years based on a back of the napkin calculation of $100,000 per employee. Another way to look at it is if you move into a large office to accommodate more people, rent could easily cost $20,000/month, $250,000/year or $1-million over four years.

Let’s say, a company decides to make a few strategic acquisitions for technology and/or people. That could be $1-million or so.

When you start breaking things down this way, raising a large round starts to make more sense, although it would still be mind-boggling to have that much money in the bank.

The challenge for start-ups that raise a large round is obviously having a plan on how to spend it. As well, a company needs to have the right people to effectively and efficiently manage the money so it’s spent on the right things at the right time.

From personal experience, I know having money in the bank is as dangerous to a startup as having no money. One of the biggest issues is thinking the money is going to last forever. Suddenly, you go from being frugal and scrapping to sloppy and frivolous. As well, there is a risk of moving too aggressively too soon, which could see the burn rate soar before it should.

Don’t get me wrong, the ability for Canadian startups to do great deals is awesome but having that much money can be as challenging as having no money.

What do you think? What are the downsides to raising a large VC round? How do start-ups make sure they taken the best approach to spending/investing a major raise.

Why Startups Need a Demo Video

By Mark Evans in Startups 2 Comments Tags: , , ,

A key challenge for startups is developing compelling ways to tell the world who they are and what they do.

It’s a straightforward proposition but it’s an easier said than done said process. Most startups do a good job to create products or services but they’re not as good at storytelling because it isn’t part of their core expertise.

There are different ways to tell stories but among the most engaging is the demo video. Whether they’re animated or live-action, demo videos are a great way to show people in a user-friendly way what they do and why anyone would be interested in, ideally, 120 seconds or less.

So why video?

Perhaps the biggest reason is people like videos. Given the choice between text and a video, people will pick a video most of the time. Videos are easy to consume because they require less work, a big consideration for people who are time-strapped and multi-tasking.

As well, videos can be used in a variety of ways. They can play a key role within a Web site, and serve as sales and marketing tools. Videos can also be easily shared via social media and, as important, search engines love videos so there is a solid SEO angle.

So what does a video cost?

It depends on your budget but a high-quality video can cost anywhere from $2,000 to $15,000, depending on the kind of video and production involved.

So how much should a startup spend? While it depends on marketing budgets, I recommend spending more than less because a video should be seen as a long-term investment that can be amortized over time and multiple uses.

A video that looks good and tells a compelling story can play a key role for startups looking for ways to capture peoples’ attention. A bad video such as a do-it-yourself screen capture project can hurt a startup because it creates the perception the product or service is low-quality as well.

In the scheme of things, a video should be a high priority for startups, even it means biting the financial bullet in the short term. Along with a good Web site, a video can be a way for startups to break out from the pack.

Speaking of video, ITBusiness is running a demo video contest with a $1,000 prize.

Sorry, Canada’s Not a Startup Paradise

By Mark Evans in Startups 3 Comments

“Canada’s ideal environment and proactive frame of mind are setting the standard for entrepreneurial culture. In fact, 88% of survey respondents agree these qualities are putting the country on the map as a startup paradise”
- Colleen McMorrow, Ernst & Young’s Entrepreneurial Services Leader in Canada.

Nothing wrong with a bullish attitude but McMorrow is clearly guilty of being far too optimistic. Yes, there is an increasingly active entrepreneur community, more financing (particularly seed capital) and an ecosystem of suppliers. But Canada’s is far from being a “startup paradise” if, in fact, a startup paradise exists anywhere.

What’s interesting about McMorrow’s bullishness is how a report recently issued by Ernst & Young suggests the entrepreneurial landscape has two major weaknesses:

1. Access to fund from bank loans and venture capital is seen to have deteriorated.

2. Less mature VC/PE (venture capital/private equity) market than the U.S.

Without enough capital to support the development of ideas and jump-start growth, it is difficult, if not impossible, for Canada to become a “startup paradise”.

As I’ve mentioned in previous posts, there’s a lot of positive things happening within the start-up community, even if things do appear to be getting dangerously frothy.

The market is more active and exciting than it’s been in years, and, as important, there is a growing group of seasoned entrepreneurs who can walk the walk rather than talk the talk.

It’s all good but there is plenty of room for improvement so that perhaps one day Canada can become a startup paradise.

For more, TechVibes has more thoughts.

 



	
	

	
		
	


					
				
									
	



	
						
	

	
						
Is “Just” Blogging Going to be Enough?

		 
	    
	

	
	
 
					
		
						By Mark Evans
				in Blogs
				7 Comments
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As someone who spent nearly 15 years as an ink-stained newspaper reporter, my passion is writing, which explains why I produce lots of content for this blog, the Sysomos blog and my Globe & Mail “Start” column.


I pound out the words, find an interesting image, and hit “publish”. Done.


I’m starting to think, however, it might not be enough to simply write blog posts. In many ways, I’m starting to feel my content needs to have more variety to engage readers and deliver different types of stories.


It’s one of the reasons why I have been actively exploring the idea of video recently – a hat tip to Marcus Sheridan who contends the only way to get good at making videos is by doing them.


Truth be told, I haven’t done many videos because it’s not part of my “reporting DNA”. I’m a notetaker, not a video guy.But I think that is going to change for a few reasons: Video is sexy content. People like videos, Google likes videos, and it is a different way to tell stories. Video is also easy. I just got a iPhone 4S, dug up my Kodak Zi6, and started mucking around with iMovie.


My interest in exploring the world beyond words was captured by Trevor Young in a blog post for Edelman Australia. He talked about bloggers becoming “micro-publishers”, who deliver content in multiple ways: blogs, videos, newsletters, photos, etc.


Perhaps this represents the evolution of blogging as opposed to Young’s suggestion “it’s the end of blogging as we know it”. As blogging matures, it needs to become a richer, more compelling and engaging experience. Social media has changed how people consume content, while video has become ubiquitous and user-friendly for both consumers and creators.


The challenge for many bloggers is shifting editorial gears. Those of us happy behind the keyboard will have to adopt new tools, embrace the idea that video is as powerful a medium as words, and look to tell stories differently.


For some of us, it may not be an easy transition because we’re so used to creating content in a particular way. For others, having new ways to tell stories will be a positive thing. It will be a refreshing editorial challenge, it will force us to learn new tools, change how to “report”, and provide audiences with new insight and perspective.


Personally, I’m excited about becoming a multi-dimensional storyteller because change is good. While I will continue to be a hard-core  blogging advocate, blogs that stand out from the crowd will have different editorial angles. This is not to suggest people who stick to words will be left behind but I do think offering posts and other kinds of content is an attractive option for bloggers and blog readers.


What do you think? Is text enough for bloggers?


	
	

	
		
	


					
				
									
	



	
						
	

	
						
Startup Incubators: Here, There and Everywhere

		 
	    
	

	
	
 
					
		
						By Mark Evans
				in Startups
				3 Comments
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Every time you turn around, there seems to be a new Starbucks opening…and a new start-up incubator – something highlighted earlier this week by David Crow in StartupNorth.


For entrepreneurs looking for a helping hand – real estate, advice, cash, mentorship, friends – incubators can be a great resource. But you have to wonder if there is such thing as too many incubators and what, if any, downsides there may be.


I ran into a couple real examples of the incubator-palooza. I had coffee with someone today who went from the idea of creating an incubator to launching an incubator in eight weeks, including the raising of capital to get it off the ground. Another person told me about a lawyer who wanted to start an incubator to serve his clients – and saw no problem getting money to do it.


We’re living in fascinating and confusing times. There’s lots of start-up activity, enthusiastic entrepreneurs, a growing amount of capital and an evolving and maturing ecosystem. This is happening in parallel to volatile global economic conditions that suggest we may be teetering on the edge of a recession.


As someone who makes does a big chunk of my business with start-ups, the activity is awesome – not only for business but it’s great to see more Canadian entrepreneurs willing to go for it and build something, rather than just talking about it or the reasons why they can’t or won’t do it.


The growth of the incubator ecosystem is encouraging on one hand but it also raises questions on the other. If, for example, you get promising start-ups emerging from incubators how many of them will be able to get capital to take it to the next level? Unless, there’s financing to support them, many startups could see their potential wither on the vine.


In the scheme of things, these are probably good problems to have because new players will hopefully emerge to take advantage of exciting opportunities.


In the meantime, I suspect the incubation will continue to be a growth business, although, like, startups some of them will come and go before you know it.


	
	

	
		
	


					
				
									
	



	
						
	

	
						
Do Startups Need PR Agencies?

		 
	    
	

	
	
 
					
		
						By Mark Evans
				in Startups
				1 Comment
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One of the first questions a start-up asks when they’re seeking the spotlight is whether they need to hire a PR agency.


The answer is: “It depends.”


It depends on:


- Whether a startup is ready for a PR agency. Is your product or service ready for prime-time and the scrutiny of bloggers and reporters that a PR campaign will attract?


- Does a startup have the budget to hire a PR agency? Hiring a PR agency on a project or contract basis can cost thousands of dollars a month. A startup needs to ask if it makes sense to spend money on a PR agency, or whether it’s better allocated for other activities.


- Does a startup have a story it needs to tell? Hiring a PR agency without having something tangible for them to do make no sense.


- Are there internal resources that can handle PR until a startup needs to make a bigger and aggressive push? It could be a startup needs a modest or targeted amount of outreach that can done without hiring PR agency. It could see the hiring of someone on contract or a freelancer.


PR agencies can do a variety of things for startups but their most valuable asset is their relationships, which can be leveraged to deliver well-crafted pitches to reporters and bloggers.


Based on the goals, objectives and budgets, it could make sense to hire a PR agency. But before that happens, a startup needs to ask themselves a series of questions to determine if it’s a decision that makes sense strategically, tactically and financially.


As important, a startup needs to realize that hiring a PR agency doesn’t ensure coverage. PR is part-art, part-science. Getting coverage is sometimes a matter of being in the right place at the right time, having a compelling story, strong relationships, or simply being lucky.


This is why “It depends” is a fact of life when it comes to how, if or when startups should dance with a PR agency.




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