Billions With Zero Knowledge - Austin Hill, Entrepreneur & Angel Investor

Every year at Web 2.0 Summit, Mark Meeker presents the Morgan Stanley state of the Tech Industry research.   Given the incredible changes we are seeing the general economy with a recession having started, uncertain growth prospects and overall stock & economic fallout I think it is important for most companies to to understand how some of these global trends affect their industries.

Specifically if you look at what occurred in the last the technology recession to ad revenue on the Internet (Slide 16) you can get a good feel for both the opportunities and risks to some sectors of the technology industry.

The source presentation is at the Morgan Stanley website, but I’ve uploaded and embedded a copy on Slideshare.net.

On Wed 5 Nov 2008. 1 Comment

Silicon Valley loves risk taking and failure. Canadian investors are risk adverse and scared of funding real innovation.

-Many Canadian Entrepreneurs

This something I hear from many entrepreneurs who lament the challenges of raising capital in Canada.   It’s a gross over simplification, but a catchy idea when people are having a hard time raising funds.

It’s true that Valley based venture capital firms not only accept that failure happens, they celebrate it by recycling the best parts of the team, idea and lessons learned for a new project.

In Canada we don’t hear enough about our failures and the people who go on to find success with new initiatives.

I was thinking about these cultural differences when I read this post by Wade Roush “When Startups Fail” where he interviews entrepreneur Christopher Herot about Zingdom’s shutdown. 

Part of the reason high-tech entrepreneurs are attracted to Silicon Valley is the perception that it’s a place where risk-taking is encouraged. West Coast venture capital firms not only excuse failure, so this perception goes, but celebrate it: if a high-tech entrepreneur doesn’t have a couple of tanked companies on his resume, he probably wasn’t being innovative enough. By contrast, the perception about investors in New England is that they penalize failure, which therefore becomes a taboo subject.

Both perceptions are probably exaggerations. But whereas West Coast companies come and go like the butterflies in Santa Cruz, it’s still unusual to hear any of the details when an East Coast startup closes down. That’s why a blog post last week by Christopher Herot has been attracting so much attention.

I met Christopher at TED this year and read his post about shutting down Zingdom with a lot appreciation for his honesty in posting the details of shutting down his company.  I’ve had to shut down my share of companies and have had many failures that have contributed to my successes.

If you swap out New England & East Coast with Canada you have the same perception that investors penalize failure and attach a negative stigma to projects and teams involved in them, which therefore becomes a topic not often talked about.   

So it is in that vein that I ask Montreal local entrepreneur, Martin Dufort to answer some questions about his experiences with Kakiloc (a location based social networking web experiment that shut down in November, 2007).  I met Martin in the Barcamp community in 2006 and got to see the hard work that he and his partner Alain put into building Kakiloc.

They were innovating on a number of fronts and I enjoyed introducing them to various investors where they often impressed people, but ultimately were not able to secure funding.  (If you hadn’t seen their demo where you could watch them drive up to your meeting via the web - you missed something very cool).

I really would like to congratulate Alain & Martin for their failure. I can’t wait to see which eventual success they will be able to attribute this failure too. Their willingness to admit a failure, discuss what they learned and move on to new adventures is what true entrepreneurs do and they deserve a lot of credit for doing just that.

First I would like to thank you Austin for giving me this opportunity to tell the Kakiloc story. I’ve learned a lot from this endeavour and reflecting on it and the associated failures and the shutdown could be valuable for anyone trying to startup a business and being faced with the same challenges.

1) Tell me a bit about when you & Alain started Kakiloc and it’s original vision?

The inception and the ideas for Kakiloc were derived from an open source project I created in June 2005: Rufopode. This project still available on RubyForge, but no longer maintained, was a small library enabling the extraction of GPS receiver data in order to properly plot them in Google Earth. My goal was to view and visually compare multiple training sessions and provide insight into my training schedule. The ultimate goal was to provide a realtime view of other athletes riding the same course and compare performance accomplishments.

I quickly recognized this was targeting techno-savvy people and the audience size was very small. I then brainstorm on how to apply this to a broader audience: Locate friends and family members using GPS technology while on the move with your cell phone. After explaining the concept to Alain, Kakiloc was born and we started coding the concept.

2) How far along did you guys get in your development and what were some of the main challenges?

We started prototyping the concept in November 2005 at the same time that the Google Maps API was picking up steam. Within a week, we had a rough prototype using Ruby on Rails for the Web site and Python on the Nokia S60 mobile platform. We were able to retrieve the GPS coordinate from the phone and map it on Google Maps so we could follow our location in real-time. It was quite astonishing at first. We knew we had something interesting with a lot of potential so we went forward with the implementation without thinking about the underlying business model. At that time this was mostly another hobby project.

From there, we showed it to people and they were really enthusiastic. Our first public demo was at the OGRE meeting [http://location-based.blogspot.com/2007/08/looking-for-windows-mobile-beta-testers.html] and an iPhone version [http://montrealtechwatch.com/2007/03/31/the-future-is-mashups-and-mobile-services/]. Also it’s much harder to raise money in Canada if you are ill-prepared on the financial side or if you business plan is not rocket solid. The large number of VC funds in the US and especially in the Valley, allows you be much more successful and gather interest at a much earlier stage even if you are ill-prepared. We are still missing that initial commitment spark here to ensure very early-stage companies can continue to innovate and move forward within the Canadian ecosystem.

Companies like Loopt (with $12M in funding), Plazes ($2M Euros), and others are also exploiting the location-based aspect. However they started with a very focused goal and built on it. Plazes even tailored down their mobile functionality to respond to user’s criticism about being too complex. However, the market is still open and we are seeing more of these companies shifting their business model: Loopt is now providng Location-Based Ads (LBA) in collaboration with CBS. You have to be agile and follow the market wave. If you have a clear understanding of your roadmap and your capability, that’s easy to do. We did not have that 20/20 vision and that’s why the uptake on our service was pretty low.

6) One of the most important things I see entrepreneurs not knowing, is when to stop and move onto other things.  What went into your decision to shut down the Kakiloc experiment ?

We were maintaining stats about registration versus usage level. We had a very low usage rate. People registered, specified their initial location and then expected something return. For most of them, there was no reaction because none of their friends were in close proximity. The fundamental action-reaction paradigm was broken. We were unable to achieve a sustainable user base. At that point, we needed to take a huge decision. Either we re-launched the site to be more focused and easier to use or we shifted our business model to explore a specific vertical (a business model shift). Still with no funding available and nothing in the medium-term pipeline, if was very difficult to do either. We discussed the future roadmap, the re-shift, we weighted the pros and cons, we read the seminal book by Seth Godin “The Dip”.

After a number of days of insightful introspection and discussions, my partner Alain and I decided to split. We made an agreement that I could continue to use and operate the Kakiloc intellectual properties. This was a very friendly split. However, the service quietly died as a consequence. It is impossible for a single person to handle everything. That’s the reason why, starting a company solo is 95% of the time a big no-no. You have no one to bounce ideas to, discuss issues, promote and demote stuff. Kakiloc was shutdown on November 6th, 3 days after the death of my mother. The official announcement was actually sent on November 29th to all our contacts [http://location-based.blogspot.com]

The Kakiloc technology is still alive and I’m looking at the right fit for it. I’m also evaluating other options in the real-estate business where it could be applicable. Lately, interesting things are slowly starting to surface and I should be able to potentially announce something interesting very soon.

I’ll keep you posted. Thanks for the opportunity Austin.

Happy location reporting - Martin

Thanks Martin for participating in this interview. I’m looking forward to your next adventure as an entrepreneur.

Ben Yoskovitz wrote a post about celebrating failures that also mentions Kakiloc.

On Tue 8 Apr 2008. [7] Comments

Interlogiq is holding a conference this Wednesday on Angel and technology financing.

I’ll be speaking that afternoon alongside Dan Mothersill from the National Angels Organization.  I’ll be speaking about some common myths of entrepreneurs & angels that I’ve encountered to try and shed some light on why these two groups so often fail to connect with each other.

In addition Le Reseau Anges Quebec will be holding a cocktail in the evening following the presentation by a number of companies looking to raise financing. (Disclosure: I’m a board member of Les Anges Quebec, but haven’t updated my disclosure & bio page yet)

If you are looking for funding for your startup, or are an angel looking to network with other investors I would encourage you to come to the event.

On Tue 11 Mar 2008. 1 Comment

Despite the cold weather, Montreal is hot for young entrepreneurs. La Jeune Chambre de Commerce will this Thursday the 28th of February host its 13th edition of Les Anges Financiers. This fast paced evening will give a unique chance to some lucky selected Start-Ups to show off their talent in front of the Montreal Angel community. There is also $25,000 in grants available to winning companies.  I attended last years event where I saw an interesting mix of local companies.

Unfortunately I’ll be travelling this week and miss the event, but I was in touch with Alexandre Teodoresco who is in charge of the event and asked him to answer some questions about the event.

Q: Tell us about the event. What is it exactly?

Les Anges Financier is a contest where 20 innovative Start ups from all over Quebec are selected by a jury made out of some prominent business people. These finalists then have a chance to present their business in front of the Angel community during the Gala of ‘les Anges Financiers’

The event has been organized by ‘la Jeune Chambre de Commerce de Montreal’ for 13 years in collaboration with the ‘Fondation du Maire’ and Economic Development Canada.

The event itself is a bit like a ‘Dragon’s Den’ but larger. The Angels can meet the entrepreneurs at their booth and then the finalist have 2 minutes each to come on stage and impress the community. 2 minutes that can change lives, you can feel the tension. 

Q: What is its mission and its vision?

Our mission is to help young innovative start ups in Quebec raise the capital they are seeking by giving them a unique visibility in front of the Angels community in Quebec. It is also to help the Angel community have access to first rate start ups in Quebec. Our vision is to be one of the most recognized events in Quebec when it comes to mixing up young entrepreneurial talent and Angel funds.

So far we have been lucky to benefit from great media coverage and great support from different governmental organizations as well as the business community. 

Q: How has the event helped young companies in the past?

The event has helped dozens of young companies raise money and get great visibility in the Angel community. We have witnessed great success stories in the past and some great ones are still in the making. Some past winners include, Liquid Nutrition, Pakwa Technologies, Arianne Controls, Opto Security, Emovendo, etc. these companies. Its especially rewarding for us to see some of those finalists come back now as Angels and investors.

Q: How can people participate?

The event will take place on the 28th at the Centre Mont Royal. At the moment, we are finalizing all the invitations for the Angels. So if you are an investor and want to spend a fun and inspiring evening with other Angels, it is very easy to register. Simply go on the web site, www.angesfinanciers.qc.ca .

On Sun 24 Feb 2008. 1 Comment

Instead of trying to answer the Aquinas like epistemological question of how many angels fit on the head of a pin, this post is about the changes that are occurring in the Canadian angel community for high-tech startup funding.

For a community of angel investors to be effective, there needs to be a density of intensity that creates, attracts and supports healthy deal flow and investment activity.  This density of intensity acts like a vacuum drawing entrepreneurial talent, mentorship, other investors and VCs providing a series of experiences and market data on what is working.  We see which deals & people attached to deals are worth re-investing in and it helps create the proper farm system for later stage investing and success.

Done right it creates a system that achieves escape velocity and can continue with its own momentum giving birth to many high tech success stories, that in turn feed talent, capital and mentors back into the community.

Historically there have been a lot of problems with the various attempts to organize the angel community in Canada.

While not the only example, a visible sign of these problems was the Toronto Angel Group and Toronto Venture Group suspending operations.  I only had cursory run-ins with these groups, but I know from many other angel investors and entrepreneur friends that these organizations failed to galvanize the community and service either the angel or entrepreneur communities effectively (despite a lot of volunteer effort by many people I respect and consider friends).

A healthy angel community that provides such a farm system for venture investors is becoming even more critical in todays market where rapid development and the lower cost of building web applications puts most deals below the venture capital radar. 

There is currently an oversupply of early stage capital in Quebec, with more then a billion dollars of new venture capital going into VC coffers in the last 5 years targeted at early-mid stage investing. Despite this we do not have enough companies reaching the threshold of being ‘venture ready’ to access this capital.

There are many exciting developments occurring in the Canadian early stage technology community, with Montreal seeing it’s fair share of that activity.

Beyond Montreal across Canada I’m seeing the seeds of an active community of early stage angel investors. One such example is the new Toronto-based angel group Maple Leaf Angels who are building a community of angel investors and have been quite active in doing deals in Toronto.

The National Angel Organization is working to focus some of this activity and last year published a great reference document on creating angel groups. Bryan Watson and Daniel Mothersill are actively helping seed and advise networks of angel investors on banding together.  People interested in angel investing (either from the point of view of an entrepreneur, or investor) can check out their document of best practices that explains many of the in’s and out’s of angel investing.

The role of angel investors is critical in Canada’s innovation ecosystem, and one that has been often overlooked.

Randy Komisar (entrepreneur, VC partner with KPCB and author of a great fable on high tech startups, The Monk & the Riddle) in this interview with Brown Hen points to a critical aspect of the Silicon Valley culture of innovation.

Successful people also reinvest in innovation; they want to be a part of the next big thing; they want to help mentor, guide and support aspiring entrepreneurs. This reinvestment is probably the most significant reason Silicon Valley is so prolific in terms of innovations.

To create this community we need to bring together the entrepreneurs and angel investors from successful companies that feed the density of intensity (i.e. Lot’s of deals with experienced mentors occurring quickly within the same geographic area).  Some of these deals with fail, but if the pace continues and a few succeed we will begin to see more of a cohesive investment, talent and technology community emerge with all the benefits that other geographic centers of technology innovation have created (NC-Raleigh, Denver, Israel and some of the activity out of Europe all come to mind).

This ecosystem also requires successful exits.  What would happen if Canada had a bunch of exists like Club Penguin (In the Gaming industry, Canada has a critical mass of talent and an ecosystem that we should be seeing more independent web-based game developers going out on their own)? What if we had a number of web-based exits like Flickr & StumbleUpon that find the mentorship, capital & management talent in Canada without choosing to go to the Valley?

That is what the valley has developed over the last 50 years, a very focused and rapid cycle of innovation & failure that creates expertise, learning and reached a critical mass of activity to achieve its own velocity to support new innovation.

This is not going to occur overnight.  It will take time, and the work of many dedicated individuals willing to put their own money, time and effort into building the communities of innovation that attain their own escape velocity.

This is not something any single person can do (people with more resources, time & experience than I have tried). My own contributions need to be measured given that I have a startup working towards launch and another team I support as Chairman & co-founder having just launched.

On my own part creating successful, high profile projects that our teams, investors and the community can be proud of is part of how I can best contribute to this ecosystem.  Given my focus on these projects, I’m no longer doing any direct new angel financing deals for the foreseeable future.

I am however involved in a number of initiatives to help support this type of ecosystem.

I am involved as an investor, and on the board of directors of Montreal Startup, a new early stage investment fund comprised of angel investors as the limited partners.  I am also serving on the board of directors of Les Anges Quebec, a new angel network being created in Quebec. 

With the help of my friend & local angel investor Patrick Lauzon, we organized & hosted a dinner called Founders & Funders last fall to bring together VCs, Angels and Entrepreneurs. This event was also held in Toronto, hosted & organized by Jevon McDonald and David Crow.  We are going to be hosting more of these across Canada with the help of other local groups.

I’ll be posting more details on these initiatives over the coming months.  Each initiative approaches the problems of early stage funding, creating exciting opportunities in different ways, but I feel they are all complimentary and provide me with an outlet to support early stage entrepreneurship while allowing me to stay focused on my day job

On Sun 24 Feb 2008. [3] Comments

I wanted to congratulate my Standout Jobs partners Ben and Fred on the recent announcement of the angel round of financing for our project.

I’m also pleased to welcome our new partner Garage Technology Ventures Canada who is joining me in the financing of the project.   As Ben mentions in his post we didn’t originally set out to raise this money when we started the project.

Part of what makes a startup so interesting is how many times it changes, and how quickly. We didn’t start out looking to raise such a large amount of money, but the opportunity to move quickly and change the game in recruiting was too important. And Garage’s interest in working with us as a team, and in our product ideas, means we just added a great partner.

“Go big or go home,” is the philosophy behind Standout Jobs. It’s not the way every startup should be imagined or run but it works for what we’re doing.

What’s critical for any startup is to find your own philosophy and approach. Believe it. Focus on it. Live it. Drive everything towards it.

I couldn’t agree more.  Although I provided the initial financial support for Ben and Fred to get going, we were going forward on a plan that required very little capital.   Both Ben and Fred has made strong financial commitments to the project with their own savings, and we were moving forward with our plans in a bootstrap mode.

As we began to understand the opportunity and got feedback on our early prototypes we saw the opportunity to do something much bigger then we had initially thought.

With the large changes occuring in the online recruiting and job marketplace (this is just a few of the changes) we decided to explore raising some additional financing to allow us to get a core team together faster to build a product that was worthy of the opportunity.

I’ve raised a lot of money for my various companies and unfortunately the angel technology market in Canada isn’t active enough for rounds to come together quickly.  

Tom Sweeney and Louis Desmarais at Garage Canada recognize this fact and are working to develop new programs to help early stage companies like Standout Jobs accelerate raising angel rounds.

The ability to move quickly and work with Garage made our discussions quick, and we ended up not shopping the deal around with other investors.   I’ve done auction sytle fundraising in the past where I’ve maximized valuations by spending months getting competing term sheets to be sure I got the best deal. 

I know the market for this stage of financings and have sat at both sides of the venture capitalists table enough recently to know that there was a good fit and deal with Garage.

The speed at which Standout Jobs is moving made it an easy to decision to work with Garage and not spend the normal time associated with fundraising.  

To put this in context, we took about 3 weeks to sign the term sheet from our first meeting with Garage and Standout Jobs.  My partner at Akoha, Alex and I spent about 5 months working on a smaller sized angel round last fall when we brought outside angel investors into Akoha.

Unfortunately the density of angel investors in the Valley allows these angel rounds to occur quite quickly as syndicate of experienced angel investors can close up to a million dollars in about 2-3 weeks for a qualified deal with the right team attached.

In some markets, speed is critically important and Canadian companies are at a disadvantage if they can’t raise the capital to execute as rapidly.

I’m really excited that Standout Jobs is on this track, and happy to be working with Garage Canada on this project.

Look for more news this Fall when the company launches our offering.   In the meantime if you are interested in how companies are using video and social media to improve their employment brand check out the Standout Jobs blog. 

Here is a video that wasn’t done by us, but is a great example of showing the team and culture of a company.

Michael Arrington (who I had a great time with at Mesh) picked this up and mentioned “…they should use this as one of their primary recruiting tools.”

We wholeheartedly agree.  What a great idea for a company

Side Note

Ben and Fred were both great in the fundraising process. 

I coached them on how to present the company, and assisted in how we describe the offering, especially in planning how to approach to market.  All I really did was coach though, they became experts in financing decks on their own which lead Fred to joke that he can always rent out his newly developed powerpoint skills on eLance if things didn’t work out and we needed to bootstrap

Thankfully things worked out just fine.

On Tue 5 Jun 2007. [4] Comments

Stories aren’t just for kids, or storytime at daycare.

I love a good story.  In fact we all do.   Stories are the means that we entertain, learn, teach, explore and play out the adventures of our lives. 

In business we have the stories we tell ourselves in our heads, stories we tell investors, customers, employees and co-workers.

A great story can change the world, or the way you percieve it.

Stories are about change and the best ones affect the audience of the story, and create some meaningful impression. 

A leaders job is to create stories that are worth believing in.  A vision, a series of small successes that give confidence and a story that carries passion and is worth figthing for.  Passion is something you can’t pay for, it has to be something that is shared - and stories are the ways we have shared our passions since we grunted our way out of our painted caves.

What are the words of your organizations story? 

Do the words you use include fullfilling your brand promise to reward employees and shareholders.  Please, kill me quickly before your story bores me.  I’m tired of boring stories.  I’ve heard entrepreneurs pitching me who can’t tell their stories, candidates applying for jobs who can’t tell their story and surprisingly many CEO’s I know can’t tell their story.

Stories need adventure, good guys and bad guys, drama and danger.   Most of all they need hereos, they need some epic injustice being addressed or help being offered to the needy.

You have as much luck finding passion in many companies as you would find a hollywood blockbuster based on the story of a CEO who increased shareholder value by implementing six sigma management techniques lowering operating costs while increasing market share by double digits over a five year period.   If that’s your organizations story then you need a new storyteller.

As an entrepreneur if your story is about how you can use mashups and the wisdom of crowds with a new AJAX api for a relationship management tool that used web 2.0 techniques and user generated ……….. sorry - the story was borying me too.  You can guess the result this story gets with investors, media or even employees.

Most organizations have great stories, but lousy storytellers.  Every struggle, sacrifice, win with customers or change in direction is rife with drama and opportunities to create stories and legends that shape culture and build your organization. 

Every story in business needs to follow the hearts, minds, wallet rule. (My version is win the heart, challenge the mind, and the wallet will figure itself out easily).

Here is a great story from Kodak that made me laugh. It’s great marketing and has people sharing Kodak’s story.

The power of blogs and social media is being able to tell your story with employees, partners, customers, competitors and the whole world.  In fact the more people you share your story with and the better you tell your story, the more you succeed. 

With the dropping cost personal publishing I’m continually surprised had how few companies, employers or leaders take the time to tell stories to their market.  

Ask youserlf, is your organizations website still a corporate brochure or a tool for telling your companies story?  How often do you update it?  Who writes the content?  What story does it tell week by week, month by month.

Here are two of my favorite articles that I found on Google on the role of storytelling in leadership.  

• Harvard Business Review - Telling Tales - from Steve Denning, Organizational Storytelling author
• Harvard Business Review - Storytelling That Moves People: A Conversation with Screenwriting Coach Robert McKee

On Tue 17 Apr 2007. [11] Comments

Respect.

On Wed 15 Nov 2006. No Comments