Let the Sparks Fly!

iStopOver – The next chapter

We launched the first version of iStopOver earlier this year. The basis of this internet business was straightforward: Some people have excess capacity in their home and office, and others are looking for short-term space. iStopOver connects people and provides a simple way to directly rent space.
To date, iStopOver has focused on the home rental market – a market we dubbed as Hometel = Home + Hotel.  Homeowners list their B&B style accommodations on iStopOver and travelers rent these accommodations directly on the site, iStopOver for Home Rentals. 

Now, we have launched iStopOver for Office Rentals. That means you can directly rent short term office/ business space. By business space, we mean an office, a desk, a meeting room, a boardroom, a warehouse, a studio or even a parking space.  No agents, no long-term commitment – directly rent over the Internet. 

We have reacted very quickly to the marketplace. Our customers told us that they really like the concept of peer-to-peer rental of excess space, but asked if we could expand the concept to business space – a marketplace that is virtually untapped.

So, if you have some spare office space, here is your chance to rent it out on a short-term basis really easily. You simply go to www.istopover.com/office , register on the site and post your listing. Our online wizard makes it easy – you tell the system what you are renting, how much to charge, upload some photos, and tell it when the space is available. iStopOver will find you renters (we call them guests), help manage the communication with guests and take payments from the guests providing you monthly payments. Go for it – rent out that spare meeting room, your extra parking spot, or even your boardroom when you aren’t using it.

And if you need short term office space, iStopOver is where you will find it. Next time you are travelling and need a meeting room, office or boardroom – iStopOver for Office Rentals is where you will find what you are looking for. Stays can be as short as half a day, or as long as you need the available space. If you work at home, and just need an occasional office, find it now on iStopOver.
We are very excited about this offering. It is part of our focus on creating Internet businesses that are right for the market and offer what people really need. The market has told us that the peer-to-peer market for excess capacity makes sense to Hosts and Guests (especially in the current economic climate). We are focused on building the bridge between Guests and Hosts and we are fanatical about customer service.

Please check out the site.  www.istopover.com/office  Remember that it is new so there may not be too many listings at first – check out Toronto for some good example listings. If you have any comments, suggestions or thoughts, please email us at info@istopover.com

We are busy! You will see our site change and improve as we learn more and customers tell us exactly what they want on the site.  Oh, and stand by for our next Chapter of iStopOver in the next short while……

Kickstarting an industry

Last month, I was lucky enough to join about 250 other attendees at Kinnernet 2009, a “Foo-type” Internet geek camp/ un-conference held on the shores of the Sea of Galilee in Israel. Kinnernet is a by-invitation networking event hosted by Yossi Vardi. If you have never heard of Yossi, he was the founding investor of ICQ (when I met him in 1997). Yossi has invested in well over 80 tech companies – mainly young Internet companies, and has often been called the Godfather of the Israeli web industry.

Yossi has an approach to the market that I think the Canadian startup industry can learn a lot from:
    - Startups need cash, and the biggest help you can give them is cash. It is said that Vardi invests a few hundred thousand dollars in his startups, that he takes common stock with simple terms and no negotiations.
    - If someone has failed before he’s even more likely to invest - “It makes them want to win even more,” he is quoted as saying.
    - He generally invests in young entrepreneurs.
    - Yossi usually hardly looks at business plans at all, and mainly invests in the individual. My favourite Yossi quote is: “Business plans are like sausages, if you knew what went into them you wouldn't eat them.” Another unauthenticated quote: “Judge the individual over the business plan”.

From what I saw at Kinnernet, Vardi has played a major part in stimulating Israeli startups. At every turn, I met another young entrepreneur eager to tell me about their startup. Full of positive energy and drive, it was extremely energizing to meet these entrepreneurs.

In addition to financing, Vardi orchestrates events like Kinnernet where all his startups can interact with each other along with many experienced and connected people from all over the world. And he relentlessly works on business development and finding opportunities for his startups.

It would be amazing if we had a similar process in Canada. If we could find a way of kickstarting 50 (or more!) tech startups with a few hundred thousand dollars each; if we could find a way to orchestrate ways for them to work with each other; if we could help them meet people ready to advise them on lessons learned. 

We have all the ingredients – great universities, superb talent, high enthusiastic young people with ideas. Now we need a way to get the right money to the right people and we may be able to create an industry…..

Building startups

Not that its necessary, but here is some background of my involvement in startups: I’ve been in the software startup industry for more years than I usually like to admit (ok, since the early ‘80s).  I was fortunate enough to work with some of Canada’s largest enterprises’ initial adoption of the IBM PC, with some great early personal computer environments (like Atari and Commodore) and with some of the early advancements into the graphics environment we take for granted (anyone remember GEM, or Windows 1.0?). I have been writing software, managing teams and publishing software since that time.  I was fortunate to have witnessed and been part of essentially every startup model; I’ve founded and run startups, public companies, and incubators; I have invested as an angel, been a managing partner of two VC funds; I’ve sat on boards of every size and stage software company imaginable. And I’ve been very involved in the growth of the VC industry in Canada.

OK, you get the point. I have some experience in startups and the Canadian marketplace.

It would not be helpful if I commented in any detail on the two blog posts or many twitters written by Mark McQueen at Wellington. I don’t recall ever meeting Mark, so I don’t really have any basis to understand his motivation in making these posts, but in general terms I do believe that one of the downsides of Social Media, (such as Blogs and twitter), is that they sometimes lead to pretty inappropriate social interaction which would not happen in person.

I just wonder why someone like Mark McQueen, who’s firm is in the Venture debt business – something completely out of reach for any startup company I have ever been involved with in Canada – spends so much time writing about my opinion regarding the dismal state of the startup industry in Canada? (And, sheesh, why the nasty tweets calling me a “failed VC” and quoting the Jeremy Wright imposter’s comments if he is not “taking pot shots” at me?). I personally put it down to “Social Media caused behaviour” and move on.

The opinions I have expressed in my blogs and comments and as (somewhat) reflected in the WSJ blog post, are not new. Neither are they unique. Does anyone really think that, in this flat world, we should be ashamed to discuss our industry’s problems with the US press? Does Mark really think that we should hold back on stating our issues because of fear of showing up (as he puts it) “in a Google search the next time a prospective international Limited Partner considers a first time commitment”? I’m pretty sure a reasonable prospective new LP will do solid diligence and won’t be scared off by a WSJ blog post.

Let’s not be fearful of openly discussing the problems and challenges in this industry to anyone who will listen. Its not as if the VC industry worldwide isn’t in crisis – Techchrunch spent the last week in an openly critical discussion of the relatively very healthy Israeli industry, and the US players openly debate their huge crises.

Let’s cut the petty attacks on me because I am willing to air our industry’s problems. Believe me, I am completely passionate about our industry and it pains me to see the current situation. But the solution lies in openly discussing our issues.

We have issues to deal with:

Our provincial and federal governments are struggling to help fix the problems in the industry and we need to keep responding to them with our input.

Startups are in deep pain because of the major crisis in early stage funding, especially in Ontario.

The traditional VC solutions don’t accommodate the new Web 2.0 marketplace. And, the existing VC industry in not in a healthy situation.

AND, I have been talking about these issues for years. I have been living them for years. And, I am doing what I can to fix them – yes, starting new Web 2.0 businesses such as istopover.com and agilebuddy.com is playing a part in nurturing new entrepreneurs, hopefully building new businesses that will grow and endure, and I hope will be an example to others looking to start new startups in Canada.

I look forward to continued deep involvement in the evolution of the Canadian startup industry. And I look forward to working closely with the people involved in this startup industry.

Say it like you see it – and get kicked in the ass

I guess it serves me right for caring enough to talk about it to a non-Canadian.

I’ve been blogging, twittering talking (and whining) about the fate of the Canadian software/Internet VC industry for a while now. Mostly, I get ignored.

But this time, someone from a US mainstream publication listened to me (sort-of), and Timothy Hay wrote a scathing Wall Street Journal article about the Canadian VC industry. I guess some of my colleagues in the Canadian industry didn’t like the article very much given the reception it got – from some really mean and nasty tweets from @Jevon and @markrmcqueen, to obnoxious blogs from Mark McQueen, and constructive blogs from Rick Segal. 

So, I want to set the “record” straight about what I said and didn’t say, and what I meant and didn’t mean.

First, the Canadian VC industry is broken (it is not dead).  I am referring to the software and Internet VC industry. Some of it is a syndrome of the VC industry everywhere :  No IPOs, mergers or exits mean lower returns. LPs everywhere are having major issues – remember, many of the LPs are banks and pension funds struggling with the market downturn.

VCs need to invest meaningful dollars in to businesses that give great returns. They want 10X returns in order to be successful. Fees and structure don’t let VCs make many small investments. But reality in the market has shifted from investments of $15m-$20m : there are lots of great $200k+ investments leading to profitable businesses or sub $10m exits, and these don’t work so well for VCs. In some places (like Silicon Valley), you find innovative solutions such as the YCombinator, but this works best where there is critical mass of startups.

Some problems are VC issues that are unique to Canada: Meltdown for some major late stage VCs, not enough infrastructure and critical mass, Canadian LP issues, and an Ontario industry that has been ignored by government for too long. The industry is struggling - there are almost no established seed VCs in Ontario anymore. Read the CVCA reports – there is little optimism.

This does not mean that it won’t recover or is dead. This also does not mean that there are not some great VCs with hugely talented VCs in Canada or Ontario – there are. Funds like RBC Venture Partners, JLA Ventures, Edgestone, Rho, The Blackberry Partners Fund, and Tech Capital are solid, innovative players.

But I really fear that, without some serious stimulus and nurturing, the infrastructure will suffer badly and our ability, (especially in Ontario), to be a real center for VC investing may go away for a long time.

Secondly, I have long complained about where government money is spent. As my blog entries repeat over and over, I think that the government should stimulate the industry and not compete with it! I have tried encouraging the Israeli model for years without anyone listening. I think it is very sad that Israel has recently doubled its VC commitment while Canada shrinks its commitment (although there may be some change coming in Quebec and Ontario).

Third, the talent pool in Canada. Here, I was simply misquoted.

Yes, I said that we don’t have enough "career repeat VC CEO's" like there are in the US – this means that many of our startup CEOs are first time CEOs. My real quote was "there is great expertise, but not enough experience". VCs like to invest in serial, repeat entrepreneurs who have been CEOs before. This is because it is far less risky than investing in a new, unproven CEO.

Fact: In the early stage/seed software and Internet industry in Canada (particularly Ontario), there not enough serial, repeat entrepreneurs, and this is a problem for VCs.  That doesn’t mean there are not any serial entrepreneurs – in fact, we have invested in some great repeat entrepreneurs at Brightspark – mostly recently in people like Mahshad Koohgoli (Protecode), Marcel Lebrun (Radian 6) and Fred Lalonde (Openplaces). And I meet great repeat entrepreneurs in Canada all the time –veterans like Osama Arafat, Stuart Lombard, Alan Lysne, Randy Busch, Rick Dalmazzi, Salim Teja, Elliot Noss and Jack Milunsky, to name just a few.

There is no negative message here - I agree completely with Rick Segal when he says “the talent in Canada rocks”.

Every startup entrepreneur faces the same problem. If VCs only invest in experienced CEOs, how do you break into the cycle? The good news is that new, great entrepreneurs like Ali Asaria are establishing themselves without having to rely on the VC industry. I am hugely encouraged by the non-VC backed startups that I meet in Ontario and are written about in Startup North. The good news is that the early-stage alternative model is growing and is not dependent on the VC.

Fourth, we will do it ourselves. The bottom line here is that, at Brightspark we are entrepreneurs. We love starting and building software and Internet companies. And, we believe that by doing so, we can best create value at this time of the market. We have started four new Internet businesses.

We have a great team at Brightspark and we really do believe that we are contributing to the Canadian technology industry by creating what we hope will be enduring, solid technology businesses. We have a very innovative intern program, and we think we are providing hands-on, valuable experience to new grads in operating Internet businesses. We fully expect many of these interns to go on to create and be a major part of the backbone of an emerging industry.

We hope that we are showing the market that great tech companies can be created and grown in the face of a brutal VC and financial market. We are part of a new emerging model of startups: Tech businesses that don’t need traditional VC money. It is exciting to be part of this vibrant new market.

This doesn't negate the VC industry - it just shows that there is LOTS of other opportunity in the industry right now. I believe that there is space for many new investment and startup models, particularly in Web 2.0 businesses. I completely agree with experts like Sara Lacy who says “One of the main themes [in my book] about Web 2.0 is the comparatively low-importance of big money in this wave of companies”, and Yossi Vardi who says that big venture capital money shouldn’t be funding Web applications.  

But, don’t let anyone forget that we have a IT VC industry in Canada that is in a dismal state – we have a VC industry in crisis with very little startup support, led mainly by people with financial, and not operational, backgrounds. Even without the financial downturn, this industry had huge issues – the financial downturn has turned a problematic industry into a crisis industry. And there is very little light at the end of this particular tunnel.

Moving on. Lots of emotions were stirred by the WSJ article, but the positive part is that it shows that people really do care. These are people who want the Canadian tech community to thrive.

But, let me warn anyone out there who cares enough to say it as you really see it: all you need is someone in the press to "slightly" misquote you and you find yourself in the dogbox. As I learned a long time ago, you need to keep repeating: "The press do not always write things the way you said or intended them, The press do not always write things the way you said or intended them".

I come out of this knowing that you can’t go wrong by being a straight shooter, caring like hell about this industry and saying it from the heart. Just be careful - you may get a few stones thrown at you along the way. Stay true to yourself, and make sure you have a thick skin.

Living back in Startup-Heaven

I have been spending a lot of time over the last few weeks and months on our new Internet business iStopOver.   www.istopover.com

What a nice change! It has been an incredibly creative experience.

I will post other blog entries regarding the business itself, and why we are so excited about the opportunity, but this is all about reliving in a startup.

As I described in a tweet last week, it sometimes feels like being a sculptor molding clay. Everything is immediate – you make a decision, and then you implement it, and then you see the result. It is all so “right-now”.

I have been reminded by what we always describe as the difference between a startup and an established company. In a startup, you have the luxury of immediate reaction and implementation. And in a later stage company, you don’t wonder how you can possibly do everything that has to be done.

We slipstreamed the launch of the site last week, and already we have modified the home page based on feedback. If you have a chance, please go to www.istopover.com and give us any input you can. In the near future, we will have a full launch.

This is the time to put all of our experience to work. For us, it is like second nature to do everything that has to be done – we have done it so many times in the past. Build, test, launch, market, legals, business dev, sales, customers, graphics, PR, marketing, SEO, listen carefully to all input, zig, zag; and then do it all a second time build, test, launch, market. Focus on details. Adapt, learn, experiment…

A lot has changed since the 90’s when we launched retail software. Take QA for example – in those days, you tested and then sent the product to manufacture. “OK – build and dupe 10,000 copies of WinFax. Copy 50,000 diskettes”. And if there was a small bug, it meant recalls, tech support headaches (and cost) – after we shipped, we sometimes never heard from our customers. What a nice change this is – launch a product on the Internet – make a change – and everyone sees the change next time they log in! Whew, some things do get better.

The marketing terminology has changed – now, it is all about social networks and social media, SEO and analytics. But fundamentally, marketing is still all about understanding market needs and offering value that people really need.

It has been awesome providing a product that is so right for these market conditions. It is so amazing focusing on a world-class service rather than bitching about the pathetic state of the market.

I wouldn’t swap this job for anything! And, please just do me a favour – tell 10 people about iStopoOver so that they can each tell 10 more…

Input to the Canadian government spenders: Spend on the future - not the past

Those of us that ‘lived’ through the first market crash this decade – the Internet Nasdaq crash – learned a few lessons. Most of those lessons seem to have been forgotten and/or ignored as we go through the second market decline. But, if we try and apply some of those lessons, we may just come out of this market ahead of the game.

The biggest lesson from the Internet crash was when we realized that “it wasn’t coming back”. If you thought that it’s a roller coast and what goes down must go up, you were wrong. Yes - the market will go up again, and yes - the recession will end, and yes – value will be created again, but it may well be a whole new set of businesses that end out being the winners.

In the Venture Capital industry, we used to refer to the term “the walking dead”. These are businesses that we know will not survive, and should not survive. Continuing to support them or finance them simply pays a few more payrolls. The best course of action for everyone involved is to “move on”. Invest in winners, invest in businesses that will create new value, new jobs and returns for investors.

When Nortel spluttered in its final days recently, surely we all knew it was over seven or eight years ago! When our recent Canadian government budgets feeds money to sunset industries like automobile companies that make cars that nobody wants to buy, surely we all know that we are just delaying the inevitable? For sure, desperate times call for desperate action, but does anyone really think that creating sort-term jobs by building bridges, roads and marinas is going to fix this economy? It’s politicians with no imagination for what we can achieve remembering how some well known politicians from last century spent themselves out of economic trouble. What they don’t see is that bridges, roads, infrastructure was the new technology that would give North America an economic advantage at that time.

Now, government needs to invest in technology that will give us opportunities for the future – high Internet bandwidth, more low cost wireless, alternative energy. Instead, are they being driven by interest groups of the walking–dead?

A Brief (sad) history of the Canadian hi-tech industry

There was a time when software businesses, Internet companies and entrepreneurs were influential in the Canadian business market. During the 90’s, Nortel, Cognos, Delrina and Corel were company names that shifted the Canadian market. By the height of the Internet “new economy” of 2000, Canada looked like it would be part of the new market. New businesses were being created, funding was increased, the ranks of those calling themselves entrepreneurs was growing and there was recognition that the Canadian market would flourish by innovation as much as from its traditional natural resource base.

Then, in 2001, the Nasdaq/Internet market crashed. Many of the entrepreneurs (especially in Canada) stopped being entrepreneurs. We used to joke that B2B and B2C, which meant Internet “business to business” and “business to consumer” suddenly turned into “back to banking” and “back to consulting” as the entrepreneurs fled the Internet industry. Obviously, it turned out that these were not entrepreneurs that would “stick through it in thick and in thin”, but entrepreneurs that were in it for timely expediency.

After 2001 in Canada, the hi-tech industry never really came back. As hard as many businesses and individuals (such as the laudable efforts of the Quebec government, and CDP) tried to stimulate the market, the Canadian technology market (with the exception of RIM) created very few winners. By 2009, the VC market in Canada has all but gone away, the recent government budget almost completely ignored the high tech industry in its announcements of massive planned spending and there are almost no new technology companies on the horizon.

Canada is no longer a meaningful player in the high tech industry. Fortunately for the few remaining entrepreneurs, the Internet is a phenomenon that spreads over the border.

Its enough whining and complaining, lets focus on opportunity

Counting myself amongst the whiners and complainers, quite a few of us have been bemoaning the state of the technology industry in Canada for quite long now without achieving any results. I’m done with whining and complaining. It’s enough with looking backwards. Instead, we really need to capitalize on new opportunities.

At Brightspark, we’ve been spending time focusing on how to create value in this market. New approaches – with low spend, businesses that generate cashflow, and Internet businesses that cater to the current marketplace.

It’s all about positive energy. Instead of bemoaning how bad the market is, how the Canadian tech market is in trouble, how the new budget snubbed the hi-tech industry – it is far more productive to focus on where the new opportunities are, how new markets are being created and how best to function in this market.

Using this approach on refocused energy, in the last few months we launched Collectionbuddy, Brightspark Studios, our first iPhone app called “My Golf Swing”, and Agilebuddy with our fifth Internet business launching in the next month.

In the next few blog posts, I hope to write about how we are doing this, what we are focusing on, what lessons we have learned and keep reporting back what we are now learning.

What’s really up at Brightspark?

I have heard about five different rumours in the last few weeks about what Brightspark is up to (and not up to).

To quote Mark Twain in his famous 1897 quote “The reports of my death are greatly exaggerated”.

To be absolutely clear, Brightspark remains dedicated to the Canadian software and Internet startup market. The Brightspark team believes that there are many opportunities to create lucrative and successful Canadian Internet and software businesses.
Brightspark remains focused on running its VC Funds. Brightspark Fund 2 has made nine VC investments; is making a few new investments and the team continues to work closely with its portfolio companies.

At the same time, Brightspark has started a new business called Brightspark 3.0 Inc. Brightspark 3.0 is in the process of raising funds via private placement from accredited investors. (Due to the nature of the legals round private placements, we are not marketing the fundraising or soliciting public interest. If you would like information about the placement, please email me at marks@brightspark.com).

Brightspark 3.0 Inc is a corporation that will create and operate new Internet businesses. The plan is for these to be cost-effective, cash generative Internet businesses. Brightspark 3.0 will share resources amongst the new businesses. The goal is for these to be mostly Web 2.0 businesses based on advertising and freemium business models. These businesses will be driven by the Brightspark founders – Tony Davis, Sophie Forest and me. We plan to be involved in the new businesses on an active day-to-day basis. As those who have followed us over our careers, you will know how much we like starting ad running new Internet and software businesses. We believe that, considering current market conditions, this is the best way for us to capitalize on the opportunities in the Internet industry.

These are exciting times as we see the evolution of the venture capital market. We believe that we are leading the market into these new areas.

But, to make sure that the rumours are corrected: We remain VERY active in the Canadian startup market. We are actively running our funds. We are actively “pushing the envelope” in new projects and businesses. Going forward, we intend remaining a leading force in the Canadian software industry.

The evolution of the Canadian emerging technology market

So, word is out that the Canadian VC industry is in crisis. Investments in funds and consequently portfolio companies is down dramatically, particularly in Ontario. 

For those of us who have been at this for a while, this is no surprise. We have watched the industry shrink around us, particularly in Ontario. Today, Brightspark is about the only seed/early stage private VC fund remaining in Toronto. We have watched the Labour sponsored funds being decimated, other funds unable to raise monies or fleeing the market, the fund investor market shrink progressively over a number of years. As I have spoken about in other posts, the Quebec market is holding its own because of the positive moves made to encourage outside funds to move there and establish a strong base. Meantime the Ontario effort has been to keep spending lots of dollars on Mars (great building by the way, but the absolute wrong way to create an industry) and we still hear talk of the $90 million coming for the VC industry – soon to be too little too late. 

The reality is that this is not just an Ontario or a Canadian issue. The VC industry is evolving and rationalizing itself on a global level. The only (relatively) healthy VC markets are Silicon Valley and Israel, each for their own reason. In Silicon Valley, you have an entire industry with an infrastructure, critical mass, momentum and a “working system”. With repeat entrepreneurs, startup culture, sophisticated investors and an industry round it, other areas have not been able to replicate this success. In Israel, you have the support of an economy and government along with great training, which is underpinned by entrepreneurs who understand that startups are the hugest growth area of its economy. This too cannot be repeated anywhere else. 

Other markets have tried to replicate the Silicon Valley/ traditional VC cookie cutter model, including the Canadian market. The US market has always been our curse and blessing in Canada – on the one hand, we have access to this huge marketplace; on the other hand we don’t have the underlying infrastructure to compete. 

And even in the US marketplace, we see many attempts at evolving the model, in particular the early stage/seed model of starting up companies and seed investing in companies. Good examples are Y-combinator, Hitforge, and Charles River’s “Quick start program”. 

The market needs to evolve. We need to find the models that are right for the Canadian market. Because, we have great opportunities to startup technology companies, software companies, Internet companies. We have incredible talent coming from our universities, and we have a population that understand and embrace technology. The angel market is active and the buyout market is active. And there are many players in the VC industry who want to see a successful Canadian investment market and Canadian technology market. While our economy is so buoyant, and while real estate and natural resources are driving the market – now is the time to invest in technology, now is the time to invest in the emerging opportunities that will create the balance that we need. Just as any private investor needs a balanced investment portfolio, our economy needs the same balance.

In my next posts, I will focus on the strengths and weakness of the Canadian market and ways that we can fix it by adopting some new models. 

At Brightspark, we know we are very fortunate to be able to keep raising traditional funds because our portfolio companies are thriving. But, just as we tell our portfolio companies, don’t choose a direction because it the easiest road, don’t just follow traditional business rules – develop your business to maximize your ability to create high value for investors and founders. Lets see if the local market, particular the Ontario market, adapts to the opportunity or if it withers.