This week was the last "normal" week in Techstars, before the pitch practice madness begins. The final week was full of workshops, with the last workshop on Friday, and the topics varied from selling techniques, to common VC (venture capital) pitch mistakes, to PR (public relations) strategy.Read More
Customer acquisition is usually the foremost topic on a founder's mind. This week was full of workshops, focused on various aspects of this topic. We also heard one of the most powerful Founder Stories of the program.Read More
While I didn't get to reflect on Techstars during the last couple weeks as much as I would have liked, given that I was traveling back to Montreal and Nova Scotia on the weekends, last week was yet another week full of learning. And while the title of this post is Fundraising, we aren't really there yet. But the workshops at Techstars were focused here this week, and they were so good they deserved the title.
We had fewer sponsors this week, which let all of us (including Associates) really get into our work, and we had another couple great workshops and Founder Stories.
This workshop, while perhaps not the most interesting of topics, was very useful. The workshop focused on modeling different investment and cap table scenarios and the resulting equity distributions. The bottom lines:
- You need to understand in detail all the implications all term sheets you consider, including the future consequences with your likely fundraising milestones.
- Beware taking a lot of convertible notes - this can kill you down the road.
- Pre-money vs. post-money has major implications for every deal you do, but make sure you know all the different situations it applies, as they're often wider than most people think.
- The combination of employee equity pools, equity guarantees (for things like accelerators), and high amounts of capped convertible debt can spell disaster for founders, so make sure you don't end up in this situation.
- The investors you're dealing with have done this a hundred times; get a mentor and/or lawyer who is equal to the task and has your best interests in mind.
The bottom line here is that with a few small mistakes in interpretation, you can end up with very little equity. Don't take fundraising of any kind trivially.
This workshop was given by David Cohen, and was the single best resource I've ever been exposed to on closing an investor. I'm still trying to find some public resources to share since it's so good, but for now here are some tips (keep in mind this is based on Techstars companies only):
- You should have an amount of money to raise as your target (call it 'T'), and should 'know' that you can exceed this target. In other words, the overask is the killer in fundraising.
- If you have a demo day coming up, you should be aiming to have at least 1/3 of T committed going in.
- Ask investors you have developed relationship with to "help you" by committing early.
- Don't ask them to lead, just to commit.
- Make it safe for them to commit (ie. no cheque required).
- "Soft commit": agreement to invest specific amount of money with specific, well understood conditions.
- Example of one condition: "I can't commit without the valuation." "Will you commit, assuming the valuation is ultimately acceptable to you?" - provide the "out".
- Practice active listening to get to commitment.
- Your job is to remove concern, not solve it.
- Once condition is mentioned, write it down, repeat, ask if you got it right, ask what else.
- Your goal is an exhaustive list of conditions under which they will invest.
- Ask clearly for the commitment at the end:
- "So, assuming [condition 1], [condition 2], [condition 3] are met, I understand you are willing to commit $[___]."
- Ask if you can use their name when talking with other investors.
- Enjoy having your lead investor!
Okay, so it's not quite that simple. But the active listening, and removing concerns was a huge revelation for me. Everyone will tell you that once you have a lead investor, things become considerably easier, as investors like to invest with others, but this is the best methodology I've ever seen for getting the soft commit you need to get other investors on board. Enjoy!
While the details of this story, as with all Founder Stories, are kept among those who are present when they are told, this was one of the more amazing stories. Tom Leighton from Akamai, a company which has been through a bunch of ups and downs on all sides of the business, from the valuation to the leadership, shared his story with us, and some of the most amazing takeaways I got were based on Tom himself:
- Being humble, kind, and extremely successful are not mutually exclusive. To the contrary, I think that a disproportionate number of great entrepreneurs are good people, and Tom is a great example of that.
- Leadership and the ability to be a CEO can be learned; the caveat is that it might take time. Tom himself was with the company for many years before stepping into the role.
- Culture and hiring is extremely important to the company; on the topic of navigating crisis, breaking bad news, or other general obstacles for the ups and downs of a startup company are often a non-issue when you have a great team made of great people.
- You have to be lucky to be good, and good to be lucky. This old cliché holds true for most aspects of life - but you need to always be positioned to take advantage of opportunities that come your way. Often they can be the break you need to get ahead, or to keep the company alive period.
If you're more interested in the story, check out this book:
- No Better Time: The Brief, Remarkable Life of Danny Lewin, the Genius Who Transformed the Internet - Molly Raskin
Airplanes & Productivity
I flew home this past weekend for a funeral, which while obviously a sad occasion, provided me some much-needed reading time during my flights. I was once again reminded how valuable carving out undisturbed time to read and learn can be. During one ninety-minute flight, and the last three quarters of a book (Traction, in this case), I had the best ideation session of the past several weeks (maybe even months), and no doubt it was the lack of distractions aside from my book, notepad and pen.
Whenever you can, make sure to escape somewhere to take some time to read and think. And don't just hope it happens - schedule it in your day.
The books I finished recently:
- Traction: A Startup Guide to Getting Customers
- The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
Until next week!
This was the last week of Mentor Madness at Techstars Boston, and for the most part, everyone was breathing a sigh of relief. Usually investors are the last ones to participate, so despite being near the end, you still have to on your game. That also meant that Workshops began; Workshops are often lead by mentors on topics in their area of expertise, and generally follow the focus of the program: Build Team, Build Product, Growth.
This week we had two:
- Customer Interviewing: this was a detailed presentation of how to set up customer interviews, the right questions to ask, and the questions to avoid, with an example interview done in the middle. Super useful.
- The Power of the Network: a summary of how to leverage the Techstars network, and the associated tools, which include LinkedIn. Again, super useful, and Techstars does a great job of utilizing their network in general. While the opinions I've received on the topic are obviously biased, many would argue it's the most valuable network for entrepreneurs globally.
So, we'll start with those.
I think this is probably one of the most overlooked skills in the entire of entrepreneurship. Not only can customer interviews help chart your product development, sales strategy, and basically every consumer-related aspect of your business, but this is where you can find out if your startup idea is worth something in the first place.
The key takeaways:
- Surveys can serve as validation tools, and that's about it.
- Be as vague as possible to start - don't tell them what industry you're in, even remotely what your startup does.
- Good interviewing is good listening - you want them to tell stories.
- Stay away from 'shallow' (yes/no) questions.
- Avoid "have you ever had ____ problem".
- Always go for more "tell me about the challenges you've had with _____" (ex. note-taking).
- Interviews should be conducted with two people, one who is clearly in charge and one who is taking notes - can enter conversation occasionally by asking "do you mind if I ask a question?".
- You always want to dig deeper and get the stories; good follow-up questions include things like "why?" and "how often does this happen?".
- Wait for the other person to speak and elaborate themselves - using silence is important.
- Get people to demonstrate their stories and experiences if possible - you can then ask questions based on the demonstration.
- Approach interview as "how can I disprove my core assumptions?" - don't be married to your value proposition.
- Try and find the current way this person is solving your problem.
- Can source interview people from Craigslist, Taskrabbit - you should be getting valuable information after 2 or 3 if you're doing it right, and you shouldn't have a problem filling more than 45 minutes.
Power of the Network - Techstars & Otherwise
While some of this workshop spoke about how to best leverage the Techstars network specifically, there was a lot to be gained from the LinkedIn and general networking advice:
- Spend 10 minutes every day responding to points of contact (on LinkedIn) - congratulate people on new jobs, introduce them to someone you know in their new city, comment on their post, etc. (Go to My Network > Connections to see updates).
- Publish blog posts on LinkedIn - particularly if you post elsewhere too; it's a great way to show off your skills to people, and to dictate your own specialties and positioning.
- Little-used feature - you can keep notes that are private to you on first-level connections - just look at their profile and you'll see the option below their header.
- Use Conspire to get introductions. Look for lowest number of people in pathway, not necessarily strongest.
- Go to My Network > Connections > Settings to integrate with other services.
- University affiliation is a great way to turn a conversation from cold to warm, and is underutilized; check out the Advanced Search in detail.
- Use My Network > Find Alumni to source talent, or VCs/investors.
- Search former employees of a certain company to get intelligence and background information.
- Look at who has viewed your profile - if you don't have the right people viewing it, change your profile.
- Use your skill endorsements as a gauge for how other people view your skill set and expertise.
- Look at who is the most-viewed in your network - they have the highest social influence and capital; utilize this.
I won't say much about the Founder Stories this week, since they were so personal and emotional. That being said, they did really drive home a few key points for me:
- There is more to life than startups, or career success, or pretty much anything except family and loved ones. Never lose perspective.
- Desperation is a great motivator; use it as a tool (and by this, I mean implement it artificially whenever possible).
- The arguments against immigrants in any country are stupid. From an economic standpoint, they create disproportionate value. Aside from that, see point 1 - these are all people seeking the same things as you are.
- Obstacles are just that - obstacles. And yours are probably much less daunting than many that many, many, other people have faced and overcome. In other words, if you think your life is hard, it probably isn't.
- People are amazingly resilient.
I'll use the opportunity to point back to one of my favorite articles from Paul Graham, titled Life Is Short.
The end of Mentor Madness is a net positive for me, and I'll probably dedicate a separate post or two to the whole process. In the meantime, you can refer to Deb McGargle's post about it.
Cofounder conflict was the reason I recently left the startup I'd spent 11 months of my life building, which you can read about here. I've heard, asked and read about how to select a cofounder, and usually the advice comes down to two things:
- Only found with people you've known for a long time (professionally or otherwise), who you know you work well with (ie. friends).
- Don't found with friends, as this can cause conflict down the road.
I think the answer is a combination of both.
My First Cofounder Experience
When I was in my last year of university, and had started to explore entrepreneurship, I was looking for cofounders. The problem was, I didn't really know any. Those that I'd spent time working with in school were all mechanical engineers. My roommates were in the sciences, or other engineers. My friends were from class - mechanical engineers.
I was looking for the typical startup team: hipster, hacker, hustler (though I think these terms are almost cliché now, and I dislike using them).
Being a mechanical engineer, at the time I hadn't really figured out my role - hustler I guess? Anyway, I had the ideas, and knew I could pitch and solve problems, so I wanted to lead a team.
Eventually, I founded with a friend who I'd met through social events for scholarship students who was working on his CS degree, and we searched for a graphic designer. Eventually we found one, and she was actually great. But the result of that team? We had different priorities, and both the other members went off to work. We still remain great friends, but our startup didn't go anywhere.
So what were the problems with that team? Well, we had zero experience. Or very little anyway. And our goals and expectations weren't aligned. I'd built up some personal runway from summer jobs, while one of our cofounders had student debt to pay off, and the other wanted some experience working. We ignored this to start, but our future was doomed from the beginning.
My Second Cofounder Experience
While you can read the details here, my second cofounder experience didn't work out either.
This time I founded with a team that, on paper, had great complimentary skills, and way more experience. Early on, we agreed on general areas of responsibility, which were based both on our interests and our perceived strengths, which were essentially based on our resumes. We hadn't worked together before, but we got to know each other a little bit, and everyone seemed pleasant.
In the end, our responsibilities started to overlap, we had different expectations for the level of work we produced and the attention to detail, and the trust that is essential for good partnerships began to deteriorate. The result was discomfort for other team members, and ultimately I stepped away when there was disagreement about rearranging roles.
Who's a Good Cofounder?
So who do I suggest you found with?
Found with friends, but be prepared to lose them.
What is essential for a good founding team?
Trust and respect
Confidence in the abilities of each other
Personalities that blend well
Complimentary skill sets
To truly evaluate most of these characteristics, you're going to have to spend some significant time with each other. In my case, some of the current friends I would consider founding with are old hockey teammates, or longtime friends. I wouldn't consider someone I just met as a cofounder, regardless of their pedigree. Employees you can fire - it's much more difficult with cofounders.
So why do you have to be prepared to lose them? Because at some point, you may need to make a decision that is best for the company, and that might mean something bad for them. Like being removed. If you can't separate your business judgement from your ties as a friend, you'll be screwed. It's happened to me. If they're really that great a friend, then they will understand anyway.
Finding Your Cofounder
So you're like me 18 months ago, and you want to found a company, but you don't have any potential cofounders. How do you find them?
An unfortunate truth for a young wannabe founder: you can't just find them. You're going to have to put some time in. The time you spend building a great network and getting to know cofounders is going to be much more valuable than starting with someone you don't know, and then ending up killing the company a few months later.
Step one: put yourself in a position where you are working with a bunch of other like-minded people.
For me, this breakthrough came with The Founder Institute. 50 of us started, and only 14 finished, most of them founders of their own companies. So how did that help me? Well, I found my cofounder there, and while it didn't work out, you're immediately in a group of 50 people who are interested in entrepreneurship, which is a start. Second, these people didn't all drop out at once - they dropped out over time, and during the process, you get to work with them, see their work habits and abilities, and generally get to know each other. The reverse is true as well - people will be much more likely to want to found with you when you demonstrate your value. I was great at pitching during The Founder Institute - this impressed a lot of people, and got them past the fact that I was a young guy with seemingly little experience.
Other areas to get this type of experience? For students or recent grads, try The Next 36. Try getting a job with a startup company near you (http://www.builtin.com/). Try getting a job as an analyst or an intern at a local accelerator or venture capital firm (in Montreal, try FounderFuel or Real Ventures). You will immediately be exposed to people interested in entrepreneurship and get to demonstrate your value to them, and evaluate their value too.
Step two: network like crazy.
There are a million (okay, not quite) meetups and events centered around tech and startups in cities worldwide. Need a technical cofounder? Go to the Ruby meetup and try to make friends. Need a marketing guy? Go to the digital marketing meetup. Go to Startup Open House. The key here is that these are relationships you are going to cultivate over time - don't expect to immediately find your cofounder. And make sure you follow up with these people. Go out for coffee occasionally, stay in touch, go to more networking events together, maybe even go out for a beer (or five).
Step three: reach into your past.
Though most of the friends I graduated with were getting the same degree as I was, some of my old friends from home, or those that I grew up playing sports with, and generally those who were old friends, graduated with complimentary degrees. Some of them had even expressed interest in entrepreneurship. When you're a year or two out of school, you should have plenty of friends around your age who have graduated from university, but are maybe in a different location, or already working. Reach out and see what they're up to. Eventually tell them what you're up to, and see if they've ever thought about entrepreneurship. Again, make sure to follow up. Ambitious young professionals, particularly if you are (or were) friends, will move cities for a great opportunity (ie. your future startup together).
Don't forget: you're going to have to put some time into this. If you're still in university, and thinking about what you'll be doing afterwards, that's even better! You can be all ready by the time you graduate. The same rules apply to you as above, you can just look in some different places as well - go to the CS events and hackathons, and find those that are interested in starting a company after graduating. Go to the business competitions and find the marketing and sales people who are interested in really developing that product they sold to judges in the pitch competition. Hackathons are also a great opportunity to work together and get to know each other
Startup Weekends are another hackathon-like experience which you can use to get to know other people interested in entrepreneurship, or evaluate how your potential cofounders work.
Here's a great link summarizing a bunch of resources for entrepreneurs in Montreal which you can use to help you, and Google can help you if you're in other cities.
Don't forget: found with friends, but be prepared to lose them.
Why Does A Startup Fail?
What are the biggest reasons for startup failure? Market? Product? Sales ability?
To some extent, all of them. One of the biggest reasons for a startup failing (and least talked about) is cofounder disputes or the wrong team. Don't believe me? Just look at these statistics or listen to Paul Graham.
I recently dealt with this problem, and that's the reason I left my startup - an unsolvable conflict between founders.
So how did I get myself into this situation?
The Founder Institute
In February 2015, I was starting The Founder Institute (FI). I'd just admitted that the startup I was working on - instead of graduate school - wasn't going to work, and I wasn't the most confident. But, I was enthusiastic, and when I got to the first FI meeting and met someone else with a similar idea, 10 years experience, and the resume to match, along with an experienced technical friend, I was all but sold.
I wasn't completely impulsive, of course, and over the next several weeks, we consulted on some of the FI assignments, met several times, and went out to play some pool and generally get to know one another. Both potential cofounders were friendly, enjoyable social company and generally pleasant. We didn't share the first same language, country of birth, or upbringing, and a variety of other traits, but bringing some diversity to a startup is never a bad idea...is it?
We continued to work together on the FI assignments, and agreed to develop a company together. I no longer had to worry about how we were going to develop an MVP (Minimum Viable Product) and FI assignments could be a joint effort, reducing some of the workload.
In May 2015 we officially incorporated, and signing our stock restriction agreements sealed the deal. I was now a 1/3 owner in the new company.
Things were generally groovy...in July 2015 we officially graduated from The Founder Institute, as one of 12 companies, and 2 of 14 individuals (our third member wasn't officially in FI).
At graduation/demo night, I let my cofounder pitch; I had the highest pitch ratings of the cohort, but trying to be better at delegating responsibilities (I'm generally a control freak), I let my cofounder pitch. Unfortunately, accentuated by the fact he had a migraine that day, it didn't go exceptionally well. Many asked me afterwards why I didn't pitch, and I wish I had. But, not a big deal, lesson learned.
Life After Founder Institute
We all took some time off, working remotely through most of August, and then coming back to Montreal in early September. This time, I brought along a friend who I'd been keeping updated on our progress, and he had agreed to join the company as a late founder.
Work generally progressed well through the following months. We met on Sundays as a team to plan our weekly sprint, and sometimes three of us would work together at the coworking space where we kept a couple desks through the week. Our lead technical cofounder still had his job, which he would later leave in December.
Our product kept getting better, until the point where it was fully functional. I was dealing primarily with our marketing, which included developing our stand for the InterDrone conference in Las Vegas in September, maintaining our social media and blog, and generating and sending out our press releases. I was also generally leading the product development priorities, doing graphic design for our mockups and revisions, and getting our sales process going. New to sales, this consisted of targeted cold calling in the early stages, and eventually progressed to a volume-based cold email system which automated follow-ups and brought in early-adopter prospects.
I also consulted a bit on strategy, though generally I tried to leave strategy and financing (loans, accelerator applications, accounting, etc.), as well as partnership acquisition, to my cofounder.
The Turning Point
As we worked more and more together, there began to be some conflict. Now, don't get me wrong, there is always conflict within a team of any kind, and even more so within startup teams. But for me, this wasn't the right kind of conflict - it was based on what I perceived as missed details, or poor interpretations (stemming from lack of understanding, I think) of our market and customers. I got nervous when we talked to customers or potential investors (basically, anyone important) about the company, because I was worried about what might be said or how questions might be answered.
Early December, I'd been discussing this issue with some friends and mentors, on the way to a pitch in Ottawa for what turned out to be a very perceptive, major Canadian angel investor. I'd put up the team slide and spoken two sentences, when he cut me off and said something along the lines of "I've seen too many companies fail because a lead cofounder is too theoretical or sciency-y. Tell me why this isn't the case with you guys" (paraphrasing). Of course I responded that we balanced each other's personalities, blah, blah, blah, but really, I was thinking "if this guy can pick up on this when I'm the only one in the room, how on earth are we going to fund raise with the whole team there?".
So, I decided to check in with our third team member. During our end-of-year review, I asked him whether he thought there were any issues within the team or how we might work better. The only comment? "I find the overlapping of responsibilities between you and our cofounder strange - I think we need to resolve this".
By this point, I'd consulted with several of my personal mentors, who were also familiar with my cofounder. The consensus: something needs to change, otherwise it's obviously not going to work.
The problem? I didn't feel there was another role in which this person would fit.
So, during late December, I met both one-on-one with this cofounder, and then as a group of three cofounders. The discussion centered around where I felt the problems were, with examples, in the hope that I could convince this person to step down. Did I really expect that result? No. It takes a very realistic and humble person to face their own strengths and weaknesses and step away from something they created. Realistically, I highly doubt that in the reverse situation I would be able to accept it. It could also be that I was wrong (but obviously I don't think so).
Ultimately, the situation was untenable, and I believed that if not faced now, we were going to face the issue in several months when we needed to fundraise (and with our business model that was inevitable). Do I regret the experience? Definitely not. We gained a bunch of experience, and the partnership got me farther, quicker, than I would have been capable of otherwise. Will I be more careful in the future? Definitely.
A testament to the character of my cofounders: despite our (very) frank discussions about results and work that had been done by each of us, we all remain on friendly terms.
So how do I suggest young (or old) founders find cofounders? Read about that here.
Working in Techstars
I jumped at the opportunity to become an Associate with Techstars because it seemed like a few assumptions would hold true:
- Generalists welcome: the job essentially involves helping however you can, which lets you develop whatever skills you like, and makes you useful if you know a little bit of everything.
- Quick learning: I expected the three months to be intense on the work front, which translates quickly to extremely fast learning when you’re working with awesome founders and even better mentors.
- Network: there are few names in the tech accelerator world bigger than Techstars, and like many networks, they make sure to keep theirs tight – as an Associate I get access to this network for life.
After the first week, I’ve confirmed all the assumptions above.
Given how quickly I’m learning, I’m planning to post once weekly on the main points I took away from the week. I’ll try and keep them general but actionable, as all great advice should be.
Lesson 1: Mentors provide disproportionate value and an unfair advantage.
Really, this shouldn’t be a lesson for anyone in the startup world, but I was reminded of it again this week. Particularly those with vast startup experience can make a huge difference in your business with an outside perspective and tried and true methods and systems. Just consider their years of experience as testing time that you won’t have to burn.
Valuing yourself is also hugely important when it comes to mentors. The best mentors will be willing to help you without first receiving any compensation. A warm introduction always helps, but be wary of mentors who demand up-front compensation (whether equity or otherwise), and if you want to be sure about their commitment, ask them to put in a small investment.
Lesson 2: Names matter.
Don’t think that Y Combinator (YC) and Techstars and 500 Startups and other big names in tech matter? All I needed to convince me was the attitude of the mentors during the first Mentor Dinner for Techstars. Being through the selection process for an exclusive or high-profile accelerator gives you a big, reputable stamp of approval – whenever you mention the experience, you will automatically get a second, interested look from experienced investors and mentors. Anyone who thinks differently is probably naïve.
Lesson 3: Names aren’t the only thing that matters.
Okay, this isn’t directly related, but names only get you so far. One of the ways to convince your potential investors and stakeholders of your value is to provide the investor update. The update provides (like mentors) disproportionate value compared to the effort required to put it together. In fact, it should be less than half a page (ish), and should be easily readable in an email browser without scrolling.
The format? Special Thanks, Good, Bad, Ask, KPI graph of the OMTM (one metric that matters), and honesty is key. As 50 Cent so wisely said, “Joy wouldn’t feel so good, if it wasn’t for pain”; showing your downs gives stakeholders context for the ups, and in the end, all that matters is the graph of the OMTM trending upwards. Take care of that, and honesty will actually help prove you can overcome adversity.
Lesson 4: Workplace makes a huge difference in overall quality of life.
When I say workplace, I mean the space itself, the general work policies, and the coworkers you’re with.
The current Techstars Boston space is managed by CIC (the whole building is), and so far, I can’t say enough good things about them. Management is always available, friendly, accommodating, and generally makes life easy.
Access passes give you freedom to roam to all the common kitchens (on 7ish floors), where the cupboards, fridges and freezers are filled with healthy (and some unhealthy, but always delicious) snack food.
There’s a gym on our floor which costs virtually nothing per month, with shower rooms and towel service, and many of the toiletries included.
The work policy is flexible – try not to miss the daily standup meeting, but otherwise do what you like.
Obviously the people are great – everyone is highly motivated, very friendly, and generally willing to do whatever they can to help each other.
The result? We go for team runs a few times a week, I don’t pay for lunch but still eat healthy, most people work 12 hour days (at least), I get to the gym every day, and I can even have a free standing desk if I want!
The difference in lifestyle is huge – everyone is happier, healthier and generally more productive.
Work hard to get great mentors in place for your startup, and keep your standards high.
If it’s the right time, make a concerted effort to get into a prestigious accelerator – it will make a big difference long term, and at the very least the process will yield connections and feedback.
Make sure your stakeholders are updated on the exact same day, every quarter or month, with the same newsletter. It will work wonders.
Whenever possible, work in an awesome space. WeWork and others are offering awesome coworking spaces around the world for cheap, and the dividends in satisfaction and quality of life will boost your startup and morale greatly.
Read about Techstars Week 2 here.
PS. If you liked this post, please share!
Building a Great Startup Ecosystem - Where to Start?
This post is one of the requirements of my final Founder Institute assignment, and while it is meant to be about growing the startup system in Montreal, I’m going to use it to talk about some of the lessons I’ve learned from those who have built Montreal’s now thriving startup ecosystem, and how they might be applicable to my home province of Nova Scotia, and the Maritimes in general.
There has always been debate about how to grow a great startup ecosystem. One great piece was written by Paul Graham in 2006. He suggests several things required to build a great startup city: great university(ies), a city with great personality so investors and nerds/hackers alike want to live there (particularly young nerds and aggressive investors), and time.
LP Maurice, one of the directors of The Founder Institute here in Montreal, and one of the major players in turning Montreal into the thriving startup ecosystem it is today, has written both about peer-to-peer support from entrepreneurs being key to growing a startup ecosystem, and how cities attract top talent. He concludes that investment – time and mentorship, as well as financing – from other entrepreneurs is key to developing new entrepreneurial talent, and that creating a city which supports talent means attracting immigrants and supporting top graduates, both in keeping them in the city to develop, and if they make the decision to return home.
I agree with most of the points each suggest. However, there are some elements to build a startup ecosystem that can be changed relatively rapidly, and some which can’t.
Cities for a Startup Ecosystem
Creating a city like the ones that Paul Graham suggests – liberal cities with vibrant downtowns, culture, and history - isn’t easy, unless most of those things already exist. Here in Montreal, the blend of English and French language, the influence of European culture, and the extensive history of the city creates a great atmosphere.
Montreal has historically been a very liberal city, and the abundance of quirky shops and restaurants, among many other things, make it attractive for rich investors and talented young graduates alike.
So why has Montreal’s startup ecosystem boomed in the last five years?
I believe the key elements are all related to the entrepreneurial support LP mentioned when talking about peer-to-peer entrepreneurship, and can be broken down roughly into three categories: entrepreneurs, companies, and investors.
Building Around Entrepreneurs
Great entrepreneurs are essential. They are the ones who have the courage to build companies from scratch, and ultimately create the jobs and economic value that every city desires. So how do you attract great entrepreneurs? Well, as I mentioned, start with a great city. If you don’t have one, things are going to be much harder. However, if we’re looking at Nova Scotia, I think Halifax satisfies most criteria; the city is beautiful and has a rich history, and the North End is booming with trendy restaurants and shops while downtown is busy and new living space continues to be built. Even Lunenburg, my home town, has lots of quirky shops, awesome restaurants, and a great downtown – the school, tennis courts, swimming pool, rink, golf course and main restaurants are all within walking distance.
Universities are another way to kickstart innovation. Talented and ambitious researchers will often create new technology that can be commercialized. Nova Scotia has roughly the same proportion of students to overall population as Ontario, and only about half a percent less than Quebec. Halifax itself is home to six universities, and Dalhousie was ranked 7th in Canada last year by Macleans in the Medical-Doctoral category, while Saint Mary’s was 5th in the Primarily Undergraduate category. Other Maritime universities, like Acadia, UNB and Mount Allison rated highly as well.
Personally, I came to McGill for a few reasons, but was originally attracted because it’s the top university in Canada (we can debate specific departments, but overall I do believe McGill is the top university in Canada). Many other students come here for the same reason. I also love Montreal, for all the reasons I mentioned before.
How else can you kickstart entrepreneurship? Immigrants. Various sources show that immigrants are more likely to be entrepreneurs than those born in North America (the Kauffman Foundation, for example, claims immigrants are 2x more likely to become entrepreneurs than US-born Americans).
Unfortunately, the solution to increasing immigration relies partially on the government. However, universities can help improve immigration by encouraging international students – Dalhousie currently has 14% international students; by contrast, McGill had 24.1% as of Fall 2014. Immigrants also bring with them diversity in food, culture and language, which enhances the overall culture of a city, and therefore the startup ecosystem.
So what happens once you attract great entrepreneurs? They build great companies.
Startup Ecosystems Require Great Companies
Great companies are critical. The term ‘Silicon Valley’ originates from some of the early companies in the valley being involved in making of semiconductors. But the real contribution of these companies was the successful, entrepreneurial talent they created who bred spinoff companies and created an entrepreneurial atmosphere that has grown to what we know as Silicon Valley today.
Last spring, I attended a talk given by John Ruffalo, the head of OMERS Ventures, who I would currently consider the biggest player in the Canadian VC industry. He spoke about growing the entrepreneurial communities and startup ecosystems across Canada, and attributed the growth in areas like Ottawa, Montreal and Vancouver to the ascension of huge startup successes like Shopify, Hootsuite and Lightspeed. Companies like these, who become huge successes, bring wealth and experience to a huge number of employees who subsequently become entrepreneurs. He called these hotspots ‘nodes’, and said the key to growing the entrepreneurial ecosystem in Canada is connecting these nodes so that great entrepreneurs get together and talk about ideas, and eventually form companies. On a smaller scale, connecting the communities in Nova Scotia, or the Maritimes in general, is key. And as for companies, well if we again look at Lunenburg, HB Studios, which was founded in 2000, now boasts a staff of around 80, and produces some of the top video game titles in the world. With support, companies like these could spawn a wave of new startups.
Investors Are Necessary Too
The creation of great companies also attracts capital. When great companies get funded, other VC firms pay attention. In a recent chat with a prominent Montreal-based VC, he said there have been many cases where inexperienced VCs will offer to investment to companies their firm is looking at, simply because they believe if they’re looking at them, they must be a good opportunity. So once a great entrepreneur creates a great company, in a great city, investors will show up.
The critical step, and the one which I think is lacking most in Atlantic Canada, is the conscious, public effort from successful entrepreneurs and investors to give back their time and expertise to their startup ecosystem by mentoring new startups and entrepreneurs. I don’t mean to knock anyone that is doing this – there are lots of great mentors and entrepreneurs giving their time and energy back in the Maritimes - there just needs to be a broader, more organized, and more advertised, effort.
There have been some awesome exits in Atlantic Canada – just look at Q1 Labs and Radian6, which both sold for hundreds of millions to IBM and Salesforce.com, respectively.
But I believe what is lacking is the widespread organization and initiative from successful entrepreneurs and investors in the area to educate and mentor those new, talented graduates to become entrepreneurs and stay in Atlantic Canada.
As LP Maurice mentions, to see why Montreal has been so successful in recent years, we need look no further than:
“…the 100+ mentor-entrepreneurs who give their time on a pro-bono basis to support the young entrepreneurs of the start-up accelerator FounderFuel led by Real Ventures, or 50+ mentors who now support the accelerator Founder Institute Montreal co-led by Sergio Escobar. We can also observe this in the willingness of experienced entrepreneurs to give their time as part of mentoring activities or programs through organizations such as the Réseau M, the École d’Entrepreneurship de Beauce, Next 36, Startup Next, the JCCM and Défi Montréal, amongst others.”
Formal programs like Founder Institute or FounderFuel are essential – many of those who are brought on to mentor end up becoming formal advisors or angel investors, and realize how much they enjoy giving back their knowledge and time. Investors enjoy a closer, longer-term relationship with startups, and become happier and more confident with their investment.
The keys to building a great startup city, or province, are not simple. But the results of combining many of the elements are being borne out here in Montreal; now we just need to convince entrepreneurs and investors in Nova Scotia and Atlantic Canada to follow suit.
(PS. The featured image is my colleague Marc Boscher, CEO of Unito - check out his business here).
Founder Institute Experience
I think the first time I went to a Founder Institute (FI) information session was in the spring of 2014. I had just started a company with a friend from McGill, and we had gotten as far as competing in a couple of pitch competitions and creating a business plan. Founder Institute sounded interesting, but, to be honest, it wasn’t going to fit my schedule. I’d already made plans to go back home for the summer and work with the Coast Guard for the fourth summer in a row. But, my cofounder applied, and I helped him a bit with the application process. He didn’t get in.
That was about the last I had heard of it, until the fall came around, when I had made the decision not to attend graduate school, and instead pursue the venture we had started in January. I was back in Montreal, and attending just about every networking event I could, one of which was a Founder Institute informal drinks meetup, where there would be some previous founders and the program directors.
I decided to apply, and got my application in nice and early, including the optional short video.
Fast forward a couple months, and I’d also applied to The Next 36, a summer entrepreneurial program in Toronto targeted specifically at undergraduates. I’d been selected to attend Selection Weekend, for the second time (I wasn’t selected the first year). I spent quite a bit of time during December and January networking with others going to Selection Weekend. Sometime in mid-January, I received notification that I’d been accepted to Founder Institute. It was nice, but I didn’t think much about it at the time.
Well, the outcome of Selection Weekend for The Next 36 (at the end of January) was about the same as the year before – a great weekend, and great people - but I wasn’t one of the ones selected. So Founder Institute it was.
Until that point, I hadn’t really researched Founder Institute a whole lot – I did this during the few weeks leading up to the program start instead, and I began to be more and more intrigued. The program is targeted at professionals who have work experience; it now has chapters in over 40 cities worldwide; the attrition rate is around 60-80%. As we got closer to the start date, it was revealed that this cohort of the Founder Institute had received the most applications of any cohort, worldwide, ever. Things were getting interesting.
After being read the riot act by the program’s director, Sergio Escobar, on the first night, I wrote down my goals for the program, as I do with most things, professionally or personally.
They were as follows:
impress mentors with work ethic
be one of few to make it through program
establish relationship with some top entrepreneurs
gain network that could lead to jobs with their startups or others
jump start new business
gain network of potential co-founders
All pretty reasonable I think. I thought that this would be a quick jump into the entrepreneurial scene in Montreal, and perhaps address one of the biggest problems I was facing as a young, new, entrepreneur – finding good cofounders. I was also seeking some structure, after spending four or five months living in Montreal making completely my own schedule, and doing the things I thought best to move the company forward, without any real experience.
As it turns out, the Founder Institute was all that and more, and if I sat down now to consider the goals I should have set at the beginning of the program, they would be much different. More on that later.
My first few business ventures, have been, without a doubt, failures. I was going to say ‘complete failure’, but if that’s the view you have on any failure, then it actually was a waste of time – mine certainly haven’t been.
The attrition rate for Founder Institute is usually mentioned at being somewhere around 60-80%. I know for our cohort, we started with over 50, and we are now down to 14. So it’s not an exaggeration.
So why do so many people fail to reach the end of the program?
The first reason: it’s hard.
Some assignments seem initially impossible, unreasonable, foolish even. A large number of dropouts will rationalize dropping out because of them, saying things like “well, this isn’t the best thing for my business right now”, or “I should be spending my time on other aspects of the business”. The analogous situation for me growing up was the guy on every sports team I ever played on that always seemed to have an injury – he couldn’t play that day because of a hip flexor, the next because of a knee tweak, and he didn’t want to make it worse; you really knew that he was just looking for a rationalization not to face something tough.
The solution: find a way to get things done, no matter what, and be conscious of rationalizing your decision to get out.
The second reason: life gets in the way.
I hated to see some of the founders in this cohort drop out. They were great people, with great ideas and the skills to execute them. I probably would have invested in their company (if I had the money, or the time to follow up). But the Founder Institute is not a part-time commitment. I think they bill it as a 30-hour-per-week commitment; that’s just not true. If you have a full-time job, expect to work less on that than on your Founder Institute work. If you have kids, prepare and plan to schedule time with them, likewise for a spouse or girlfriend.
Out of 14 founders about to graduate the program, only a few still have full-time jobs, and of those, I don’t think any have a family, and most, as far as I know, are single.
Solution: if you want to finish Founder Institute, you had better be ready to commit full-time to your company, and the program, before the end. The old “quick, cheap, fast: pick two” cliché could be applied here in a new form: “FI, family/social life, full-time job: pick two”.
The third reason: your idea isn’t good.
This is probably the most difficult obstacle to overcome. In theory, you should be able to figure this out in the first few weeks – the program is set up so that you actually start with three ideas, and through talking to potential customers you figure out which one is interesting. But what happens if none of them are interesting? Then you’re behind. And you have to come up with new ideas, and complete the customer validation again, and still keep up with the assignments, and then re-do the assignments once you find a new idea, and then finish the special assignment you got because you’re behind, and…you get the point. Once you get behind in the program, it’s a struggle to get back in front. The upside of this happening? You’ll be able to re-enroll in the program next time, and until then, you’ll have a ton of time to think up new ideas, and test them.
Solution: spend time prior to the Founder Institute coming up with ideas, and research customer development methods to try and get some feedback. Ask for a coffee with the directors to chat about ideas – usually their intuition for idea quality is valuable.
Completing Founder Institute
So why do I think I was successful in completing the program (bar an improbable exit in the next two weeks)?
Most of it has to do with the few points on why people failed.
First of all, I have a chronic fear of being someone who leaves things unfinished; it’s probably unhealthy actually. I’m still hoping to finish, this summer, the remote-control sailboat I started building 7 years ago. But it is going to be the best damn remote control boat around; and the best part – next time I build one it will only take me a tenth of the time, and probably a tenth of the money too.
The result of this fear is that I will do whatever it takes to finish something that I’ve started and committed time to. I also have a competitive streak, so when they told us the first night that 60-80% of people drop out, I took that as a challenge. The combination meant that I never saw an assignment as impossible, and I found a way to get everything done. Sometimes entrepreneurship is about finding a more clever way of doing things – cynics would perhaps sometimes call this cheating – but finding a way to get things done is what entrepreneurship is all about.
Second, I didn’t let life get in the way. Going into the Founder Institute I put all my focus on completing the program. I ended the previous startup I was working on. I traveled home and then didn’t plan any significant trips in the near future. I sorted out my living situation for the next few months, and I accepted the fact that I might not see my friends as much.
Now, I’m in a pretty fortunate situation to not have any commitments that can’t be shoved aside – good friends, and soon-to-be-graduates in the Founder Institute have wives and/or multiple children – you can’t just sit them down one day and say “right, well, I’ll be back in four months”. But they’ve still had chats with their partners and kids about what they are undertaking and why, and have their support. They make a conscious effort to schedule time to spend with them, and I do the same with my family and friends. But you have to be ready for that.
Third, I spent a lot of time prior to FI coming up with, and evaluating, ideas. I’d like to think my nose for good ideas is getting better – I don’t think I’ve experienced a steeper learning curve than the past 10 months, part of which is related to idea evaluation – and I managed to come up with some good ideas before heading into Founder Institute.
How do you get good ideas? That’s a topic for another post, but quickly, my guidelines would be try and stick within your areas of interest or passion, think about emerging markets, and most of all, get outside input. I sat down multiple times with friends, other entrepreneurs and family to brainstorm and evaluate ideas.
Founder Institute Benefits
Now that I’m at the end of the program, I can reflect a bit about what the program gave me, and whether or not my goals at the beginning of the program made sense.
Some did: there is no doubt that the program gives you relationships with top entrepreneurs, a great network in which you could definitely find a startup job, and a network of potential cofounders, as well as the places to find them.
But it also gives you so much more. Instead of just relationships with top entrepreneurs, I now have relationships with top entrepreneurs, venture capitalists, angels, bankers and lawyers from the top firms in Montreal, and further, even Silicon Valley. If I don’t, I probably know someone who does.
I no longer want a startup job – I believe it’s totally possible to build my own company. If I did take a startup job, it would be because I believed very strongly in the company or product, and I’d want to play an important role.
The value of the network of like-minded individuals and entrepreneurs is huge. I can’t overstate how important it is to surround yourself with great peers, and that’s become so much more evident over the past four months. The days when you feel overwhelmed, someone else just closed a sale, or added a new hotshot mentor, or released a beautiful product revamp, and all of a sudden, your motivation is back and you figure things out. And vice versa. And at the end of those brutal days, you can all go get a beer, or a whiskey, or maybe a few tequila shots if it was a really bad day, and laugh about all the dumb things you’ve all done so far, and once the hangover goes away, you’ll feel much better.
Perhaps the biggest benefit of the program, however, is raised expectations. Personally, professionally, from your peers – everything is higher. I’m no longer thinking about whether building a successful company is possible – I wonder whether we can build it to a hundred million or a billion. I wonder if we are going to raise a million or more for our seed round. I wonder about which person in the cohort is going to be the first to get acquired, or go public.
And even if we don’t manage to raise a million dollars, or we do fail, I know that one day I will reach those milestones. After all, if the Founder Institute taught me anything, it’s that persistence, above all else, will create success.