You’ve Raised Venture Capital, Now What?

For many startup entrepreneurs, raising their first venture capital round is like winning the Super Bowl. It validates what they’re doing, their vision and all the hard work that’s happened. When the deal is signed, there are lots of high fives and the champagne flows. It’s good times, baby!

The funny thing is you wake in the morning with a whack of cash in the bank, and realize the work has just started. For all the effort that happened pre-deal, there’s even more work ahead post-deal because there’s another party (or parties) who have a vested and financial interest in how you operate the business.

For some entrepreneurs, it can be an abrupt wake up call. Suddenly, there are board meetings, regular updates to be filed, plenty of questions, and performance reviews. If you thought there was pressure before, it’ll come in waves now.

At the same time, entrepreneurs also need to get their head around the money. While it is being invested to grow the business, it will eventually run out, even if it does seem like a large amount at the beginning. I worked with an entrepreneur who seemed to think the money would last forever and, as a result, start spending it on products and services that weren’t a priority.

Here’s funny thing about raising your first round of venture capital: investors are happy to give it to you, and they’re happy to see you spend it.

Why? It’s because they know it’s likely you’ll to come back for more if the business shows traction. While there may be more suitors but your initial investors will more likely be involved and be assertive in making sure the deal rewards their initial investment.

The bottom line is raising startup capital is a terribly exciting and rewarding experience, particularly given it is like winning a lottery ticket in many ways. At the same time, it’s the end of one stage and the start of another with just as many challenges and demands.

More: For another angle on raising capital, Mark MacLeod has a good post looking at burn rates versus runway.

Shopify Makes First Major Acquisition

Armed with $15-million in venture capital to aggressively expand its e-commerce platform, Shopify has made two big moves – made its first major acquisition – Ottawa-based S3 – and moved into a new 17,000 sq ft headquarters in Ottawa’s ByWard Market.

The purchase of S3 is a key part of Shopify’s efforts to expand its mobile growth strategy, which will see the development of new applications on the major platforms.

A Mobile Company in a Few Years

Shopify CEO and founder Tobi Lutke said the purchase of S3, which was located in Shopify’s old offices, materialized after Shopify realized that an increasingly amount of business was happening using mobile devices.

“There are people on smartphones and tablets, and people sitting on couches makes purchases,” he said in an interview. “We really realized that in a few years from now we will be a mobile company. We did have a mobile application that was good and people liked it but it was tricky because our DNA is building scaleable Web sites, while mobile development requires a very different kind of craftsmanship.”

Shopify has more than 20,000 active online stores in 80 different countries, including more than Shopify’s stores in Canada. Last year, Shopify processed more than four million orders worth $275-million of sales, and more than doubled its workforce to 100 employees.

Tariq Zaid, S3′s co-founder and CEO of S3, will be joining Shopify with his team of over 20 mobile engineers and designers.

 

Extreme Startups Unveils Accelerator with $7M in Financing

As much as Canada’s startup landscape has been seeing more financings (Clio being the latest deal announced), there’s still a long way to go before we have a healthy and robust capital ecosystem.

So it’s good to see the arrival of a new accelerator, Extreme Startups, which is launching with $7-million in funding from Extreme Venture PartnersOMERS VenturesRho Canada VenturesBlackBerry Partners Fund and BDC.

Extreme Startups will have two cohorts of five companies/year. Each company in a 12-week cohort will receive $50,000 (in exchange for a 10% equity stake) and be eligible to receive up to $150,000 in a convertible note from BDC upon graduation.

“There is a great environment with a lot of talent and voracious entrepreneurs, so it’s a great space to be,” Andy Yang, chief innovation hunter with Extreme Startups, said in an interview.

Extreme University Rebranded

Extreme Startups is a rebranded and expanded version of the Extreme University accelerator program started by Extreme Venture Partners. In addition to having access to 29 mentors, the initial cohort will also have Dan Debow, who recently sold Rypple to Salesforce.com, as the “Entrepreneur Link”.

Yang described Extreme Startups’ investment approach as “agnostic”. The focus, he said, will be on entrepreneurs who are the “best and brightest…and have potential for leadership and great products”.

“I would say we’re looking for entrepreneurs and teams attacking large markets with disruptive technology and products,” Yang said.

Another key part of the program will be relationships and access to “leading technology companies and industry pillars”, which will be unveiled soon after negotiations are completed.

Applications open today and close March 1, 2012 for the spring 2012 cohort, which starts on March 15, 2012. Teams can apply at http://extremestartups.com

Snapshot of a VC Deal: Clio Raises $6-million

Who: Vancouver-based Clio, which offers cloud-based management tools for the legal industry.

How much: $6-million in a deal led by Acton Capital Partners, a Munich-based growth equity investor, as well as existing investors, including Berlin-based Point Nine Capital, an early stage investor.

The Quote: “The legal space is ripe for disruption,” Boris Wertz, Acton’s Vancouver-based venture partner and a member of Clio’s board of directors, said in a press release. “Although this industry has traditionally been regarded as slow to adopt technological changes, recent investments show it’s now ready to benefit from technological innovations like cloud computing.”

Keeping the Faith While Raising Venture Capital

I met with an entrepreneur for lunch recently who had just completed raising a modest series A round. Curious, I asked about the most challenging part of the process. His answer was maintaining the faith in your startup’s vision.

It was an interesting answer because you might expect the answer would be the preparations, the creation and constant revisions of presentations, and the meetings with investors that require you to be confident yet respectful.

When I asked for an explanation, he said one of the realities for startups when they raise money is investors are intent on picking everything apart – the vision, the business model, the opportunity, the people, etc. For some people, this can be a difficult exercise because it flies in the face of entrepreneurial enthusiasm and the dyed-in-the-wool belief in what you’re doing.

In some respects, it’s like an abusive relationship in which one party tries its best to please while the other party insists on picking them apart. The reality, however, is investors need to scrutinize, criticize, question, analyze and challenge entrepreneurs so they can make as good as a decision as possible. It doesn’t mean they have to be badly behaved but sometimes things can get testy.

Entrepreneurs can find themselves buffeted about and, in some cases, they may find themselves questioning their vision, which was rock-solid before the investment dance started.

While this could be a natural reaction when you are trying to please, it is also important for startup entrepreneurs to be strong about what they’re doing and where they’re going. While investors can highlight deficiencies and areas for improvement, entrepreneurs need to be careful about not their stripes simply because they come across people who don’t share the vision or the opportunity.

In an ideal world, entrepreneurs end up with investors who can provide insightful and constructive criticism, while providing the right amount of support and encouragement. It may mean, however, dancing with partners who don’t like your moves.

 

The Week in Startup Land: Edition #1

With so much happening within the startup landscape, I’ve decided to do a weekly recap featuring Canadian startup news, as well as interesting startup-related blog posts. If you have any suggestions or items you’d like to add, let me know.

1. Ian Sigalow had an interesting post – “A New Approach to Series A” – looking at Greycroft’s investment approach.

2. Polar Mobile raises $6-million from a group led by Georgian Partners ”to expand globally and launch MediaEverywhere, a new product line that will transform the media industry”.

3. IGLOO Software raises $5-million from RBC Venture Partners and the Ontario Emerging Technologies Fund to expand its enterprise social software business.

4. From Mark Evans Tech, which is mostly focused on startups these days, I had a couple of posts you may want to check out:

- Startups: What’s Your Wow Factor? What captivates new users or, at least, gives them reason to come back for another look?

- Getting Acquired and Then Getting Shut Down: A look at startups that get acquired for the people, while the product gets shut down.

5. On StartupNorth, Brydon Gillis looks at the need for incubators for adults. While incubators are popping up here, there and everywhere these days, I think they are also going to attract a lot more scrutiny about the value they provide.

6. Mark MacLeod (aka Startup CEO) on the need to focus, although, like him, I’m curious about the Code Academy.

7. In my Globe & Mail “Start” column, I took at look at Fantastical (software to make your calendars easier to use) and Sortable, which recently launched a pretty cool “decision engine” currently focused on consumer electronics.

8. A video in which John Ruffolo talks with the Globe & Mail’s Katherine Scarrow about OMERS’ decision to make direct investments. His tip to startups is “get to know us before you’re looking for money”.

9. KISSMetrics’ Neil Patel had an interesting blog post on how to create a demo video for less than $100. I’m a huge believer in demo videos but $100 seems extremely cheap.

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