Let the Sparks Fly!

The WOW Meeting

A few weeks ago, I walked out of a pitch meeting with an entrepreneur and the only thing I could think about was how to close this deal quickly and make sure that I scooped it from the competition. These meetings don’t come up that often but it is a great feeling when they do.

I then started thinking about what those WOW meetings are made of. It’s not easy to explain and I don’t think that there is a generic formula. It’s more about a combination of things, more an art than a science. 

• It usually is not a structured, Power Point, kind of pitch but an exciting and very dynamic discussion.
• The entrepreneur is completely passionate about his project and communicates that passion.
• He knows his sector inside out, well aware of competition or alternative solutions.
• He is very smart and confident but not overly pushy.
• Obviously, it is a clear and clever solution to a real market need.
• The entrepreneur shows a certain level of independence leading us to believe that he is not desperate and will succeed with or without us. 

In the middle of the meeting, I usually start thinking about how I can pitch Brightspark so that he accepts a term sheet as fast as possible. If the entrepreneur is really paying attention, he may even feel this change of mode, this sudden rise in interest. However, I have been a VC long enough to manage the poker face strategy! 

My two partners and I experienced a WOW meeting this fall. We ended the meeting in this very typical neutral tone: “We will look into it and come back to you within 2 weeks”. We then walked out completely excited about it. During the 15 minutes drive from this meeting to our office, we had already finalized our investment strategy, valuation, terms, negotiation tactics, etc. The entrepreneurs that had just pitched us had no clue that we were that excited about the deal. 

The greatest feeling is when the WOW effect lasts and turns into an investment. We see so many companies, ideas, and projects that although we may get excited about something, it may only last a day or two and then we move on to the next thing. The WOW meetings are the ones that truly maintain our interest and hopefully end up in our portfolio.

I can’t wait until the next WOW meeting!

Web 2.0. It may be 2.0 but it's not new

When we lived through the early years of the Internet, the huge revelation was realizing that we would be able to change everything. We could only dream of the application, and it was all because the network would connect everything. 

I remember the “aha” moments of the day in about 1994. Some of the realization was quite liberating – this industry is changing from a hobbyist 80 million PC market into complete mainstream. We were going to experience a seismic shift that would change the way people would communicate, the way people would access information, the way people would do business and would interact. Our imagination soared with the possibilities. (And some of it was a little daunting, especially if you were tied up in the precursor to email known as fax, but that’s a story for another day). 

Email would be used by everyone. The web would be the window to every company via the browser. All information would be immediately available and accessible because everything was now online. Media would all be changing – one to one marketing, personalized access would change newspapers, tv, movies. Internet packets would replace phone lines, ecommerce would replace shopping malls, advertising would change, business would shift to marketplaces and one-to-one would replace many-to-one. 

Within a couple of years, it did become mainstream, but then unfortunately it got a little ahead of itself. A lot of people were trying to get the dream to speed up. The stock market was rewarding those who could speed up the dream. And those that got ahead of reality started getting the biggest rewards. And, to those of us who were trying to “tame the beast”, it felt like the hucksters and the bankers were taking charge. Of course it came tumbling down. Hard. The market crashed, the hucksters and the bankers ran away as fast as they could to other markets and businesses. And the industry was left trying to recover. 

We all allowed it to get ahead of itself. We all became allured by the size of it and the opportunity. Someone compared it well to the cartoon character that runs off the edge of the cliff and keeps running. It was only when we looked down that we realized there was nothing beneath us and we all fell. 

Those of who did not run away had to start putting the pieces together. We had to try and deal with an investor market that wanted nothing more to do with this dream anymore. Entrepreneurs moved on. Consumers moved on, business moved on. 

But we knew that, like in every technology market, the disappointment wave is part of the cycle. And we knew that after the disappointment wave, the market delivers what it should have been in the first place. This is not unique to the Web, this is often true for technology – the cell phone, the database market, the mp3 player, digital cameras, Bluetooth – to mention a few examples that immediately come to mind. 

Since 2001, the web has been growing organically. In fact it has been growing really fast and pretty well. Broadband is finally a reality, computers are everywhere, and the platform is much more mature. 

And the dream is coming true. Email is everywhere, every company has a web site, we all use the internet for research at every level – travel, purchases, even romance. E-commerce is huge, marketplaces are real, communities are being used. Advertising is creating massive revenue and the Web is taking over from newspapers and TV. And it really is everywhere. 

And now that it works, new companies are delivering on the dreams. The market is delivering on the dream. 

But why call it Web 2.0? This is not something new. This is not anything more than the same dream that we have had since the early 90s. This is the way technology change works. We knew it in 2001. That’s why we hung in. that’s why we didn’t go to banking or real estate (or the beach) and why we’ve stuck with software and the Internet. This time it would take longer to deliver, but the bubble and the crash were bigger that ever before.   

It’s all part of the cycle. If Web 2.0 is the “second version” where you deliver the product that you originally promised, then Yes it is Web 2.0. But this is not something that we didn’t expect after the crash. We knew this was coming - and now the best news is that it has just begun. 

New communities are being created, citizen reporting is real, camera phones real. We are about to see mobile expand rapidly as that promise gets delivered. Standard devices with massive bandwidth, readable screens and decent input methods will open up another dream delivery. VoIP really works now and we’re about to see the promise of reliable, very cheap voice communication to be delivered. And then, standards will drive the home consumer market to delivery, automobile technology will flourish, new generations of PCs and laptops will flourish. 

And the traditional investors? The smart players won’t miss out because they have figured out that this time it is real. 

This is not a new phenomenon. It is the delivery of the dream.

Camp Startup

I have been asked many times to describe the differences between being an employee of an established “large” company and being part of a small startup. The best analogy that I can find is that being in an established company is like staying at the Hyatt while a startup is comparable to going camping. And when I say camping, I don’t mean a luxury RV with power receptacles and satellite TV parked at a full service national park.  I am talking about backpacking in the wilderness with just your tent, food, utensils and a collection of some of your closest friends. And remember, you are camping not because you want to, but because you don’t have any real money to spend, otherwise you would be staying at the Hyatt!

Now don’t get me wrong - I love camping and it can be very rewarding in terms of its experience, but it is “different” to being in a five star hotel, or for that matter, just being in ANY establishment with a fixed roof, running water and indoor plumbing.

As early stage seed investors we (at Brightspark) are constantly faced with the challenge of ensuring that the companies we invest in adopt the right culture and operate in a manner commensurate with their stage of evolution. There are certain behaviors that work best and make sense at a particular stage of development. For anyone who has gone through the experience, you typically understand what is expected at an early stage.  However, if you have not been there, it is left to your imagination as to what to expect.

The universe of employable people who have been through a true startup experience is extremely small. I often meet individuals who insist that they understand startups because in their previous company, they operated a separate division or that that they were part of a small business unit or that they joined a company when there were only 40 employees. After a short period of time “camping”, they realize that they were in fact just part of a group who lived at the Hyatt.

Initially you will notice a lot of similarities between the big hotel and your previous big employer. Here is a comparison of what you initially found there and what you will find when camping or at a startup:

 

The Hyatt	Established Business	Camping	Startup
Nice Address	An address	No address	No address (initially)
When you check-in you are shown to your room	On the first day someone takes you to your office	You pitch your tent	You have to find a location to house your new offices
Ornate Building	Nice building	Tent	A roof over your head
Reception and Grand Lobby	Receptionist	Tent	Don’t worry nobody is going to visit, yet
Phones, Fax, Internet	Phones, Fax, Internet	Tent	No communication infrastructure, you have to find it, buy it, install it, configure it, maintain it
Maintenance	IT department	You and your camping buddies	Er…, you and your developers
Room Service	Operations, assistants	Tent?	No Services

So, like camping, creating a startup requires that you setup the infrastructure yourself and maintain it on a daily basis. Many things you took for granted back at the Hyatt, or back at the big company, just don’t exist anymore. You have to take care of them.

Once you get over the infrastructure hurdles, you then have to realize that you have to change many of your habits, expectations and your overall outlook. In a startup you have limited funds and you have to make sure that you have as long a runway as possible to ensure that you don’t run out of money before you deliver your product or find customers or, in general, get to the point where other investors will put in more money because you have proved that you have great technology and are addressing a large problem with a huge marketplace!

Just as in camping, you take enough food with you that will enable you to have a great time, see the sights and not have to go and seek out civilization or the nearest 7-Eleven before you have to.

In a startup, you are competing with many other smart people, like yourself. All of you are in a race to get to market first, get the best publicity and be noticed by the major players. You cannot assume that you are smarter than anyone else or that you have the luxury of time. You are starting off from scratch, you have no credibility, you don’t work for the big company anymore, people don’t know who you are and you have to establish your name and gain credibility. It’s like meeting someone on the camping trail and saying that although you do live in a tent, a very nice tent, you used to always stay at the Hyatt. Sure.

I think you get the picture; actually, I am sure you don’t. On your next vacation, grab a tent and a backpack and you will understand what a startup is all about. And enjoy it, because when you do begin your startup, you are not going to have time for any vacations for the next few years!

 

 

What’s so great about Canadian software developers, anyway?

I have often spoken about the fact that we have great developers right here in Canada.

At Brightspark, our model is predicated on trying to grow more Canadian software companies and, in the process, make lots of money for these developers, our investors (and ourselves).

 

So, what is the “secret sauce”? Well, it's not a secret, it's simply a combination of factors.

1. Schools - We have great universities which create great software developers. Why do you think Google and Microsoft keep advertising here? Why are Google and Microsoft competing to hire
Waterloo grads? Simple – our grads are the best.

 

2. Attitude - Our developers are not looking to change jobs every week. They are not looking to hop from company to company. They are looking for a great environment, which is challenging, interesting, fun, fair, lucrative and with the right value system. Too many developers in “hot areas” like Silicon Valley and Seattle spend a lot of time proving that they are superstars, hop from company to company looking for the next pot of gold and burn themselves out very quickly.

 

3. Focus - We have seen that Canadian companies are able to see an opportunity and then seize the opportunity. So, they spend their time and effort creating great products. They don’t spend too much time making great demos for the CEO to prove that they are great, but instead spend their time making great software.

 

Our opportunity is to capitalize on this. Instead of our graduates being lured away to Google and Microsoft, let's find ways to create more local opportunity. I am not suggesting that we can have companies here that can compete with Microsoft or Google, I am suggesting that we can create GREAT parts companies. The trend is for the large companies to acquire the smaller players. And, in many cases the development teams today stay in their location. So, the opportunity is to create great small companies with incredible developers right here and prove that even if they are acquired they should stay here.

 

I have countless examples of seeing this work. So, don’t get lured away too early. Create your own opportunity right here. And remember, productivity here is high because its too cold to go outside anyway……

To VC or not to VC

Much has been written about the challenges many startups face in finding seed and early-stage investors for their ventures.  The Internet crash indeed scared away many Angel investors while forcing many venture funds to shift their focus to investing in more mature companies.  Even to this day, Canadian VCs who call themselves “early-stage” investors are more likely to gravitate towards companies with experienced management teams, a mature product and a business model with a proven path to revenue and profits.  To me, this does not define “early-stage” investing. 

Entrepreneurs often find themselves frustrated with the financial community and the lack of risk tolerance that comes hand-in-hand with the startup process.  Are there other alternatives?  Do the risk-takers still exist?  I’ve always tried to get out our message out that a viable financing alternative does exist.  Our team strives to find these very early companies with passionate entrepreneurs or technologists who believe in a market opportunity.  Do we need an experienced management team?  Not initially.  Do we need a completed, scalable solution?  Not yet.  Do we need a proven business model?  Eventually.  That doesn’t sound like a typical VC talking, does it?  I’m proud to say that our firm is far from typical. 

At Brightspark, our bets are placed on world-class technology which, we believe, forms the heart of any great software startup.  The reality of focusing on seed investments is that we quite often meet domain experts who are world-class experts in technology, but who don’t often have the skill or the desire to be the CEO of a company.  Without a management team or a revenue stream, these experts are generally turned away from traditional venture capitalists for being “too early”.  I like companies that are “too early”.  To me, that is what our whole business is about - finding and supporting the best and the brightest and helping them to get started. 

We need the next Canadian success story…and it all starts by taking a risk and placing a bet.  We’re up for it…are you?

Welcome to the Brightspark blog!

Hello and welcome to Brightspark’s blog.  My name is Mark Skapinker and I am one of the Managing Partner’s of Brightspark Ventures, a Canadian seed-stage software venture fund.  I’ve been hoping to launch Brightspark into the blogosphere for some time now in order to share our team’s personalities and provide some unique perspective on the startup experience and our views on the technology industry.  Having been in the software industry for many years now, I’ve certainly seen many fads and bubbles come and go.  But the allure of exciting technology mixed with the adrenaline of the startup adventure is what keeps my passion alive about this industry.  My partners and I launched Brightspark in order to help cultivate the startup industry in Canada. 

I’m hoping to use this blog to invite the other members of the Brightspark team to also share their thoughts, as well as inviting the CEOs of our portfolio companies to share their views on their own startup experiences.  So buckle-up, get ready – let the sparks fly!