Skip to content
July 21, 2008 / Danny Robinson

Venture Capital is Broken, Let’s Fix It!

Those who know me would probably not describe me as an overly wordy person, but when I read Jevon’s post and had so much to say that it wouldn’t all fit in the comments section, so I decided to write it up here.

The title is “Why Startups Will Save Canadian Venture Capital”, and it doesn’t let anyone off the hook. It isn’t a criticism, but instead it is an analysis and a call to action for both Angels, VCs and Entrepreneurs. Things are pretty busted up right now and it is time to start talking about what we need to do to make a difference.” — Jevon MacDonald on July 16th, 2008

I, for one, am ready to stand behind you Jevon, and accept your call to action.  It’s up to us, the Canadian tech community, to fix this.  Nobody else is going to do it for us.

I just got back from a tech event in LA called Twiistup.  It’s very similar to our Vancouver based event, Launch Party.  I met all sorts of VCs, Angels, and Entrepreneurs from the LA tech community there.  Surprisingly, they reminded me more of Vancouver than I had expected.  They are a small, tightly connected and highly supportive group who shared the same exact problems as we do.  What I learned is that just because they’re in California, doesn’t make them part of Silicon Valley.  I spoke with one person at great length about the exact issues that we are experiencing as a small, non-valley, aspiring tech center.  It was as though I was a shrink and just articulated his frustrations with LA as if I was reading his mind.  I explained to him our model for Bootup Labs and how I feel it’s a big step toward solving these problems.  His response was simple, but so simple that it helped to clear my mind “It’s time to stop talking about it and just DO IT!”

That’s the attitude shift that needs to occur within our community as well, but the good news is that I feel it happening already.

So, Let’s get started…  First, we’ll break down the problem:

Problem (where we are)

From where I stand, in the trenches, I can see the problem very clearly.  The problem is that there aren’t enough new entrepreneurs starting companies because they need money, and there isn’t money because there isn’t enough entrepreneurs who can get far enough along to interest investors.  To be clear, the problem is not at the later stages, it’s at the very earliest stage, as explained so well by Jevon’s presentation.  I’m eager to hear any comments from anyone who disagrees with this assertion.

Desired results (where we want to be)

To have created the equivalent of a perpetual motion machine of new tech deal flow.  At first, it spits out many small fundable companies which can exit in the $20M-$80M range.  These are wins for Founders and wins for VCs. Hey a win-win!  Those founders then re-enter the ecosystem, personally flush with cash and ready to, both, be an inspiration to new entrepreneurs, and also take a bolder risk on that $100M-$1B idea.  Some will leave after being acquired by a US company, which is great!  We haven’t taxed or created any regulatory barriers that would prevent companies from leaving our Province. Because of this and the high quality deal flow, our eco-system attracts entrepreneurs and investors from all over the world to build their company in our supportive environment.  We gain more than we lose.  Our community competes on a global stage with ease.

Strategy (Solution to the problem)

So, now that we understand where we are, and where we want to be, we can focus.  We need to start by breaking the catch 22.  We accomplish this by feeding the bottom of the food chain — cultivating it.  VCs and Angels should invest in their deal flow, and government and universities have a lot to gain by helping as well.  Startups have always supported the VC industry, and the VCs reciprocate, albeit secondarily.  Startups are first and will always be first; It’s our role, and how we earn the title “Entrepreneur.”  So, doesn’t that make the VC dependent to Startups?  Let’s face it, if entrepreneurs stopped starting companies, VCs would eventually die off, but if VCs stopped funding entrepreneurs, it wouldn’t stop companies from being started, it just may slow it down.  Point and case: PlentyOfFishClub PenguinElastic Path are just a few examples of Vancouver based Internet companies who haven’t taken a dime of VC money and are only three of the west coast’s biggest and most recent success stories.  It’s simply where VCs exist in the food chain, and there’s nothing wrong with that.  Investors are starting to realize that supporting, enhancing, and cultivating deals at the earliest of stages is in their own best interest.  Doing so will enable them to play to their strengths, which is to invest only after the companies have achieved a certain level of maturity and need a larger amount of money to grow.  In fact, it just may be what saves the Venture Capital industry.  And these days it’s a CHEAP hedge.

Next, we need to celebrate failures and re-up our investment in founders with the passion and will to try, try, try again.

Finally, we need to start the perpetual motion machine.  We do this by investing in the community around us, encouraging smart people who have great ideas to give it a shot.  Also, we reach out to our networks in Silicon Valley, Europe, and other parts of the world and offer support to come to Canada to build their companies.

Tactical plan (Executing on the solution)

Break the catch 22

  1. Create a facility that allows ideas to be tested and formed into fundable companies. – DONE
  2. Raise money from angels, institutions and governments who benefit from such a facility.  (Share in the risk.) – IN PROCESS

Start the perpetual motion machine

  1. Assist first time founders with business model formulation, and basic business operation skills. – IN PROCESS
  2. Test idea in the marketplace.  Get customers. Prove it.
  3. Introduce the company to the investor community for larger growth financing.
  4. Distribute excess proceeds to shareholders.
  5. repeat

(Hopefully it’s obvious by now that I’m explaining a lot about what Bootup Labs’ does.  But, we’d absolutely welcome some competition.  The more people help to build the local ecosystems, the better it is for everyone.  And we’re really competing against other areas of the world anyway.)

This plan does require a bit of a paradigm shift in the way we think:

It requires some changes to the common definition of what it takes to be an entrepreneur.  The entrepreneur should be able to build something first and then ask for money later.  That’s what separates the founders who will do whatever it takes, from the less committed, thereby reducing the risk for the investor.  Right?  Maybe not.  Maybe a person’s ability to take a personal financial risk is not a prerequisite to building a valuable company.  Maybe the person who tests the idea doesn’t have to be the risk taker.  If the product is accepted by customers/users, isn’t that all that matters?  One VC I worked with used a term “founderitis” which I interpreted as a founder who thinks they know it all, isn’t willing to take advice, and makes poor decisions based on of fear of losing control.  Maybe we can avoid founderitis by removing the old process of natural selection and replacing it with a new one.

SIDE NOTE: It should be noted, that the last thing I want to do is create any more animosity between founder and funder than there already is.  VCs play a vital role in boosting our economy and helping our tech community compete on the global stage!  But, It’s a relationship that requires mutual respect and balanced terms.  Both entrepreneurs and investors need to master these skills, and if you’re one of these people, and the first thing you wanted to do when you read this was forward it to your investors or founders, respectively, then you’re the problem!  Look to yourself and make sure you are helping the other side succeed.  Make sure there is enough incentive left on both sides to stay engaged.  Don’t “control” something out of fear that the other side is going to screw up.  After all, you will get what you focus on.

The old VC model is simply broken for companies in the digitally distributed technology sector of tech.  The problem though is that there are still huge exits in that space, and will be for the foreseeable future.  Internet, casual gaming, mobile and new enterprise 2.0 deals no longer require the capital that they used to.  VCs simply couldn’t manage the size of their portfolio if they only invested $100k into each company.  It also means it’s easier to get companies off the ground and tested, and much harder for VCs to pick the one who will win.  But, one thing that will never change is that VCs will always compete over really great deals, or said differently, Startups who are fundable will always be able to pick and choose who they take money from.  That’s why the added services that a VC can offer, (connections, credibility, advice, etc) will make or break if they get good deals.  This is how we we will attract the Tier 1 VCs out of the valley to syndicate with the local investors which juices the ecosystem at the upper end of the food chain and just makes everyone happy.

Go!

Anyway… I don’t see failure.  It’s not even a possibility.  I am diligent about pushing doubts out of my mind anytime I’m tempted to consider them.  I have no time or patience for anyone who is skeptical.  Vancouver WILL be a globally recognized tech center.  It’s a fact! “It’s time to stop talking about it and just DO IT!” together.

If that’s not enough.  We’re actually late to this game.  Other regions have already figured this out and have working models running.  TechStars based in Boulder, Colorado (~12% the size of Vancouver), for example, started up last year and helped 10 companies get started.  8 out of 10 have already closed subsequent VC rounds.  How about not being late for once Canada?  It’s time to show some leadership.

LaunchBoxDigital image
Website: launchboxdigital.com
Location: Washinton, District of Columbia, United States
Founded: December 1, 2007
Funding: $250k

LaunchBoxDigital is a Washington, D.C. based startup incubator that launched in early 2008. It has a similar model to Y Combinator – they invest at the earliest stages of an idea, and take a… Learn More

Y Combinator image
Website: ycombinator.com
Location: Mountain View, California, United States
Founded: April 1, 2005

Y Combinator is a venture fund which focuses on seed investments to startup companies. It offers financing as well as business advice and other opportunities to 2-4 person companies looking to take a great idea to a product. Y Combinator looks for… Learn More

Seedcamp image
Website: seedcamp.com
Location: London, United Kingdom

Seedcamp is a week long event in London, September 3-7, 2007 for twenty young entrepreneurs to showcase their early-stage strategies and product concepts. The idea is similar to the early stage startup programs… Learn More

TechStars image
Website: techstars.org
Location: Boulder, Colorado, United States
Founded: August 1, 2007

With the motto “the geeks shall inherit the earth”, TechStars is truly motivated to getting good ideas off the ground. TechStars is a seed fund similar to Y Combinator. It offers $5,000 per founder to companies that make its list for up to 3… Learn More

Information provided by CrunchBase
Advertisements

36 Comments

  1. Taylor Davidson / Jul 21 2008 7:58 am

    I, for one, agree that there is a dearth of seed-stage investing. And I’m a huge fan of what Bootstrap is doing to bridge that gap and create great opportunities for entrepreneurs.

    What has happened is not just that VCs won’t fund seed-stage anymore; it is that seed-stage doesn’t mean the same thing it used to.

    Traditional VC will find it difficult to fund a lot of new web startups simply because it will be difficult for them to accept this shift; that founders don’t need big money to start, that ideas can be tested for cheap, that value can be created in short amounts of time, that companies can succeed without intellectual property or defensible barriers to entry, that entrepreneurs may not need their money to figure out if something works. Traditional VCs just aren’t built for that type of thinking, and it will take an expansion of the “cheap test incubator” approach favored by the Y Combinators et. al. to fuel this market.

    The most important point you make is that it’s important to re-think about what being an entrepreneur means. It’s also important to think about the eventual goals of “being an entrepreneur”, and what defines success. Do we need big exits to be a successful entrepreneur? While VCs need the exits to make their economics work, entrepreneurs might not.

    I’ve been thinking about this space for awhile, and would love your comments on my own thoughts: http://www.unstructuredventures.com/uv/2008/07/21/venture-capital-for-the-long-tail/

  2. Daniel Gibbons / Jul 21 2008 2:10 pm

    I said some of this in my reply to the Techvibes post, but here goes again… I thought Jevon’s presentation (which I didn’t see live — just the deck) was complete nonsense.

    The problem is much simpler: The ideas and execution aren’t good enough to warrant outside funding.

    In fact it all seems to be all about getting starry eyed from the TechCrunch myth about outside funding being the right way and the only way. The truth is there are small epicenters of this activity, of which no Canadian cities are close to be being a part. Beyond that most businesses fund their pre-revenue days with credit cards, personal loans, etc. No idealistic rant is going to solve what actually isn’t even a problem in need of solving.

    There are endless successful Canadian start-ups, it’s just that not very many of them are part of the web 2.0 freetard bubble. And the problem with that bubble is, like any bubble, it encourages the perspective that it’s about a “great idea” not the actual hard work of building a real business.

    Let’s also think about the definition of “early stage”. For the average person who attends DemoCamp that’s considered to be “hey, I just thought of this, like, awesome idea, someone should fund it so I can get rich by selling it to Google in nine months”. But the companies in the US getting early stage funding have often been around for 18 months and have actually built something that people want. Ycombinator’s “early seed” model is a blip and evidence that if you’re in the epicenter you can address funding niches.

    As long as potential entrepreneurs keep believing that their inability to get started is someone’s fault other than their own, then they’ll just continue having great ideas that go nowhere. And in fact, getting money too early is almost certain to be counter-productive for most first-time entrepreneurs. It simply encourages them to ignore the only feedback that really matters: whether the market actually wants what they’ve got.

    I’m sympathetic to the Bootup Labs approach, but increasingly I’m much more drawn to the 37signals approach: build a real company on the back of its revenue.

  3. Boris Wertz / Jul 21 2008 2:49 pm

    I am with Dan on this one – IMO there is enough money available for start-ups but what is really missing are great ideas and great entrepreneurs. Over the past 9 months since I started W Media I have not seen a single example where a great team with a great idea didn’t get funding in the marketplace – the problem is just that there are not enough of these success stories. So if we want to become more successful in Canada in the start-up world we need to attract more experienced business and engineering talent to make a difference – no money in the world can replace this. I really hope that BootUp labs makes a difference in this respect – getting extraordinary people to beautiful Vancouver so that we can start building tons of exciting companies!

  4. Danny Robinson / Jul 21 2008 2:50 pm

    Hey Dan

    You’ve done a great job reiterating the catch-22 without suggesting a way to solve it other than to say to everyone “hey, just change your ways and everything will be better” Unfortunately changing a city’s startup culture through any sort of “rant” (yours or mine) is simply not going to happen. At Bootup Labs we’re taking the first step (of many) toward systematically transforming our community into one that supports innovation and encourages new founders to give it a try. I reject the argument that taking money too early can be “counter-productive” If that is the case, than it’s the entrepreneur’s fault, not the investor’s. Our specific role here at Bootup Labs is to help founders avoid making those mistakes. That’s why we chose this model over a Y Combinator type model. We’ve started by helping to build smart companies that have real customers before they raise money. (hence our slogan “Taking founders from Zero to Fundable.”) Fundable means that they have achieved some traction, usually in the form of customers.

    So, there is a time and place for VC funding. It can’t be denied that having a well connected VC, who doesn’t have control of your company, can add an enormous amount of value. Besides providing capital to grow faster, they open business development doors, and help negotiate M&A deals in ways that you couldn’t do on your own.

    In all, I think we’re in agreement, more than we disagree.

    Thanks Dan, Love the dialog!

  5. Daniel Gibbons / Jul 21 2008 3:33 pm

    @Danny: First of all, it was Jevon whom I felt was ranting, not you ;). And certainly it was his presentation that I felt really missed the mark.

    As to the solution, I think it’s far simpler than creating new funds, particularly for the relatively simple web apps that most tech entrepreneurs are focused on. It’s (a) build a great product (and if you have to go into personal debt or borrow money, etc., then so be it); (b) get market data as you grow revenue; (c) decide if you need additional capital to grow. There’s no catch 22 there.

    I believe it’s something like one out of 4,000 start-ups that get venture funding in the US, which hasn’t stopped the US from becoming the most successful economic power in world history. Historically this funding has been fantastic for businesses that are creating new markets in a way that requires lots of capital quickly. But now it’s ideas that really only need a tiny amount of capital to get going and prove their model that are seeking outside investment.

    I guess I’m saying that I just haven’t seen a compelling case for why the entrepreneur benefits by getting started at the concept stage with the safety net of someone else’s money. UNLESS, that is, they’re building massively innovative technology that is very capital intensive. And in those cases, I’m not sure that micro-funds or incubators can offer any real value. For better or worse the system we have is pretty efficient at flowing capital to where it can best be utilized.

    • @valto / Jan 26 2010 7:48 am

      One could also argue that new web 2.0 entrepreneurs today can be so young that they simply have no access to even loan enough money or use credit cards.

  6. Workpost Foreman / Jul 21 2008 3:47 pm

    Power investors are rarely going to be interested in early, small-stage companies with unproven management. They take calculated risks and, from their perspective, anything new and unknown has good chance of failing (and they’re right).

    If, as you describe, the role of Angels could be expanded, perhaps that would be a better source of funding for early-stage companies. It’s hard enough to get a business going that will attract the interest of even serious angel investors (50-100k ).

    Perhaps venture capital is broken but there’s people out there who might say that the entrepreneurial path many startups take (creating a business before a proven business model) is also broken.

    Good article, thanks.

  7. Aaron Hilton / Jul 21 2008 6:54 pm

    Danny,

    You really hit it on the mark here, and CellMap is a great case in point. We don’t NEED investor money anymore, we merely want it.

    I’ve been looking for investment from the very early developmental stage to present day. This project has been in the works for about 18 months now (Oct 2005), and continues to increase in relevance as we see a shift toward cheaper wireless data. We survived on barter agreements and our own personal savings with phenomenal success. We’ve managed to survive on <$20k, two (to four) employees, Internet services that make hosting ultra-cheap, and co-location agreement that assures continued survival. Now we are revenue positive, products in the pipeline, contracts on the table, and exponential growth issues looming.

    Why on earth would I spend an excessive amount of time facilitating a _deal_ when we’re seeing revenue growth that exceeds our needs?

    It’s not too late for a higher level of funding but if my experience raising money is any indication I would rather spend that time scaling up our people and infrastructure.

    Maybe that’s the real reason VC and Angels are hurting for deals right now, us start-ups are getting the raw-end of the deal when we need help most, at the seed level. So, now we’re geared for self-survival. Go figure.

    Great article, I’m looking forward to this shift of thinking.
    – Aaron.

  8. Basil Peters / Jul 21 2008 8:14 pm

    Danny, thanks for adding more momentum to the debate that Jevon started. It’s encouraging to see the contributions on his blog and the responses you’ve already received.

    I agree with your assertion that the goal for most entrepreneurs should be an exit in the $20 to $80 million range. My numbers would have been more like $20 to 40 million. I wrote about this being the ‘sweet spot’ at http://www.angelblog.net/Exit_Strategies_Acquisitions_are_Usually_Under_30_million.html

    One of the challenges with these exit values is that they don’t work for traditional VC funds. In the vast majority of cases, traditional VCs need to invest at least several million dollars in each company. If you do the math, it means that if a traditional VC is faced with an exit opportunity in the $20 to $40 million range they will have to block it almost all of the time. Yes, they will actually prevent a sale at those valuations. I know its counter intuitive – I am happy to show you, or anyone who is intersted, the math.

    I believe the optimum financial strategy for most 21st century tech startups is friends and family funding, then angel financing, then an exit in the ranges you suggest. That math works for everyone.

    I also agree with Boris, there is NO shortage of capital. Seriously, both Boris and I run funds, many of my friends also run funds – there is no shortage of capital.

    Danny, I think you are right about Bootup Labs being part of the solution. Today’s tech companies need mentoring and help getting from “Zero to Fundable” much more than they need money. Your examples above clearly show that even the most successful tech companies today can be built on clost to zero capital.

    Above all, I agree “Just do it.”

  9. Dustin / Jul 21 2008 11:47 pm

    If you want to change the startup culture here, focus on the universities. You’re well positioned to get the top picks from a variety of good western canadian unis. Pumping out unwashed brains with low overhead costs year-after-year.

    Plus, students have zero real business experience. Perfect for bootup labs to provide their know-how.

    “Venture Capital is Broken, Let’s Fix It”? Um…. no. Venture Capital (as we know it) is not as relevant as it used to be for tech startups, you need to develop entirely new systems for packaging smart people into companies.

  10. Danny Robinson / Jul 21 2008 11:56 pm

    @Dustin You’re right. VC is not as relevant as it used to be, and that’s why it’s broken. We hope Bootup Labs will be that “new system” you talk about. RE universities. I agree that there are many students who would be perfect candidates for Bootup Labs. I’ve been in discussions with the local schools and the response has been welcoming to say the least.

  11. Bret Conkin / Jul 22 2008 2:02 am

    Cool dialogue and perspectives all – thanks for getting the ball rolling Danny – I enjoy our discussions on this! We have observed, researched and lived the gap between the entrepreneurs at one end of the funnel and the VC at the other for awhile now. Our opinion is that camps and events are part of the solution, incubators like BootUp another part and online mechanisms like fundfindr an additional part.

    The magic will come from connecting the dots so that we can insert a promising entrepreneur in one end of the funnel and connect them to the right resources at the right time including VC when desirable. Something enduring and convenient, not just restricted to when the next event is or when the entrepreneur can get face time with an investor for feedback.

    Boris and Basil, who we have great respect for, have indicated that it is the lack of quality deal flow not lack of capital – many entrepreneurs have shared with us their challenge with identifying the right partner and support mechanisms. Is it not then a lack of “system” or “process” for entrepreneurs then that is the gap? I read that as part of Danny’s message, I believe.

    Our take on this was to try and create apps, tools and resources to:

    a) provide education to entrepreneurs in as widely available a fashion as possible
    b) to embrace collaboration and openness – a more democratic, public forum
    c) to partner, serve and work with as many players as we could to create efficiency and synergies

    At fundfindr, we are committed to innovative, new approaches some of which we highlight below and we welcome the opportunity to collaborate with everyone to achieve Boot-up’s call-to-arms:

    a) We have published or taped and will publish interviews featuring advice, tools and success snacks with many of the community in this open call including Danny, Basil, David Raffa, Boris, Mike Volker, Tod Maffin, Robert Lewis and Dave Thomas on fundfindr.tv
    b) We have published free pitch pages and demos for many entrepreneurs including our collaboration with Mike Volker to video the last VANTEC angel meeting to create an online extension to the event for investors and a valuable feedback and networking channel for the entrepreneurs
    c) We have launched an “expert pitch review” mechanism that currently features fund managers Boris Wertz and Basil providing invaluable commentary to entrepreneurs on their pitch. We welcome expressions of interest from others who are interested in participation or have any comments to bret@fundfindr.com

    Let’s build a hyper-local solution for Techcouver that can scale and adapt to other markets and really make an impact! Hell, we’ll get some of it wrong but as somebody said, “success is failing faster and evolving.”

  12. Leonard Brody / Jul 22 2008 10:13 am

    Dan the man…good for you for posting this. Much has already been said above, so I won’t add much more except for one thing…

    The problem with venture money in the web and content space is not just one of economics. The issue ties to value add, and, the sad truth is that for the most part VCs truly don’t add any.

    At NowPublic we have taken a lot of VC money and we have good relationships with our investors. However, entrepreneurs should not delude themselves that VCs will bring much other than money. What you are taking in at the funding round is a new set of founders and partners. The company is no longer your own. Be clear about that.

    With the exception of a few funds around the world…value add is a pipe dream. Is also gets worse…many of them, when they sit on your board, breach their fiduciary duties and don’t do what is best for the company and merely do what is best for their LPs. It is a broken model. Good news is, there is a lot of ways to fix it.

    I applaud you and Boris for trying something different. Booyah.

  13. JY / Jul 22 2008 3:31 pm

    @Dan, totally agree with your sentiment “build a real company on the back of its revenue”. Need to shout this out loud and clear for all would be entrepreneurs to hear. You’ll appreicate the quote from this post, http://gigaom.com/2007/06/06/outcomes-vs-activity/

    “In 2002, we were down to just four weeks of cash and about ten employees. It was during this most difficult period that we had little choice but to focus on absolutely the most critical element of corporate life support – cash flow from operations.

    Against all odds, we were able to drive the company to profitability with less than two weeks of cash in the bank. And in that moment, I realized that our DNA had changed forever…and we would never again confuse outcomes with activities.”

    Often times not having the cash is the best thing that can happen to an entrepreneur!

  14. Danny Robinson / Jul 23 2008 10:43 am

    Thanks JY! I have learned the “too much money” problem the hardest way possible. Watching it happen to my own company but powerless to stop it because of pressures from the board. At Peerflix we raised $10M and in the process, I gave up control of the company. Without raising too many heavily repressed emotions, it’s safest to just say that having too much money was not healthy for the company.

    All that said, if the money was used responsibly and doesn’t come at the cost of losing control or over-diluting, then I don’t think there is such a thing as too much money. In many cases you can raise $5M for the same dilution that you can raise $2M.

    That’s why Bootup Labs is focusing on strong, disciplined leadership, and coach as heavily as we can to prove the business model. (proof=paying arms-length customers) This culture is also built into the way we structure our agreement with the founders. Every time they take a dollar out of the bank, they feel exactly what that means in terms dilution. Hopefully, Bootup Labs will be a good place to make mistakes, so that you can avoid them when the really count.

  15. Guy Kawasaki / Jul 23 2008 5:16 pm

    Danny,

    It’s true. That’s why we created Garage. I like what you guys and Ycombinator are doing.

    Can I ask you to look at my new site? It’s an “online magazine rack” of popular topics. These might interest you:

    http://news.alltop.com/
    http://venturecapital.alltop.com/
    http://startups.alltop.com/
    http://egos.alltop.com/

    All our topics are shown here:

    http://alltop.com/

    If the site is slow or down, please try it again later because we’re getting swamped with traffic. Even the shortest look will help us.

    All the best to you,

    Guy

    (Ed: sent via email, posted here with permission)

  16. David Cohen / Jul 23 2008 7:28 pm

    I would generally disagree that “venture capital is broken.” I think this is just an easy thing to blame. VCs invest their LPs money in the way they see fit. They get to choose what they invest in, so arriving at the conclusion that it’s broken because not enough startups get early funding seems to be looking at the issue from a strange position indeed.

    What’s “broken” is that there is lots of isolated innovation, and no amplifier for the signal that begins to be set apart from the tremendous amount of noise. in other words, there might be 500 startups, and ten might be really, really interesting and could potentially be large companies. but they don’t get the mentorship, help, advice, and connections needed to amplify the potential. this isn’t the VCs fault – it’s the fault of the community itself.

    Bootup Labs is doing something about this, and it’s a great thing. It’s what TechStars has done, I’d like to think.

    In short, I think your arrow points to the right place in the timeline. The problem is at the start. But VCs don’t live at the start! The community does.

  17. Bob de Wit / Jul 24 2008 10:43 am

    PASTED from email with permission from Bob.

    On 21-Jul-08, at 6:34 PM, Bob de Wit wrote:

    Danny,

    Thanks for this — I’m with you in spirit, if not on all the points of your article. There’s definitely a dearth of funding and support for early stage tech companies in this town, especially Web 2.0 companies. In most cases it’s simply because investors here don’t understand the opportunities in front of them, but it’s also because in most cases these new ventures have a trifecta of challenges: introducing a new technology/product in a new/non-existent market (technology AND market risk) with inexperienced teams (people risk).

    I noticed that Rory Holland is on your distribution list. I’d be interested to hear his take? Although I like what you guys are doing at BootUp labs, it’s eerily similar (at least on the surface) to what the “Accelerators” of the late ’90s were trying to do. To my understanding, all of them failed (Rory and Dave’s, garage.com, etc, etc). How would you distinguish yourselves from those past efforts?

    Also, as for local support for start-ups, I’m surprised you discount (or not consider? not know about?) some of the things that *are* happening. New Ventures BC (www.newventuresbc.com) among them. I’d appreciate your brutally honest take on why that’s not part of your picture.

    Cheers,
    Bob

  18. Jon Husband / Aug 5 2008 7:07 pm

    Really good post outlining the issues clearly along with strong suggestions as to what actions to take .. now or very soon. My sense over the last couple of years is that VC’s (as a generality, and in Vancouver .. I haven’t any experience pitching and listening elsewhere) don’t want to take much risk at all, so it’s not really “venture” capital but more like “managed somewhat risky capital”, “managed” being defined as if everyone else thinks it’s more or less a good chance.

    As in …

    They get to choose what they invest in, so arriving at the conclusion that it’s broken because not enough startups get early funding seems to be looking at the issue from a strange position indeed.

    What’s “broken” is that there is lots of isolated innovation, and no amplifier for the signal that begins to be set apart from the tremendous amount of noise. in other words, there might be 500 startups, and ten might be really, really interesting and could potentially be large companies.

    The first half of the above statement doesn’t help much .. of course they get to choose, that’s part of the issue re: such new territory as digital aggregation and distribution and a general lack of deep understanding about possible new business “logic” (see Umair Haque’s stuff) combined with skimpy proof leads to little risk-taking.

    The second half is bang-on, I think, and there is a role for both local VC’s and the tech community to identify and encourage less isolation, more (potential) consoldation, and solid and consistent amplification.

  19. […] When I moved to Vancouver almost three years ago the city was described to me as a ‘branch’ town. What this meant then and still does today is that there are not too many big Corporate Head Offices based in Vancouver. […]

  20. Ross McDonald / Aug 11 2008 5:00 pm

    Danny

    Interesting post and I agree with some, but not all, of your expressed sentiments.

    You suggest that VCs have a dependency on entrepreneurs and so somehow have a duty to give-something-back to the entrepreneurial community.
    In my view, this is corkingly simplistic. The relationship is one of co-dependency. There are many, many entrepreneurs and relatively few VCs. Good entrepreneurs will likely find good VCs, and vice versa. The trick for Canadian entrepreneurs, in my view, is one of geographic mindset.

    But all too often, Canadian entrepreneurs implicitly build domestic – or even provincial – limitations into their business plans/ambitions and also in investment searches. This narrow mindset not only restrains value-creation (smaller business size) but can be a self-defeating spiral, with small ambitions not attracting investment.

    By international standards, the Canadian VC market is of modest size and – at best – modest average returns. That said, there are some very successful domestic VC firms. And some Canadian VC firms are increasingly taking an international viewpoint – such as Chrysalix offering energy venture capital to international companies.

    So I’d suggest to you that that entrepreneurs should not ‘stop starting companies’ so that the ‘VCs would eventually die off’, but rather than Canadian entrepreneurs should be remove geographic shackles and be empowered to have greater international ambition. Big, bold ideas of commercial substance (and revenues) get plenty of investor interest. Modest ideas and seed financing are best suited for the, well developed, angel market.

    To the extent that BootUp Labs helps stimulate ambitious, promising success stories of the future then you have my complete support.

  21. Todd Tessier / Aug 12 2008 9:33 pm

    Danny,

    Thanks for the opportunity to participate on this thread.

    As a student of the venture capital scene and public policy, many of the comments that I have read resonate with me.

    1 – the importance of angel investing and lack of value-add being provided by VC funds in the overall scheme of things

    2 – the optimal exit strategy and value for an entrepreneur.

    On angel investing….I’m a very keen supporter of any model that assists and encourages both “check book” and supreme angels. I subscribe to the view that Angels are often best to turn 10kt companies into 24kt opps….a great quote from Jim Fletcher. I’ve seen a number of companies come through our programs such as Aspreva that began with a business plan, committed entrepreneurs (a key feature) and yes…angels with a penchant for risk.

    On exit values….I remember being part of a UBC exit value…and I was amazed how quickly BC companies exit….the nubmer…and the relatively low value…though a good multiple for founders. Hmmm….the house…the condo…the boat…and I’m good…. as oppossed to building the next Crystal Decisions.

    As for fixing the marketplace. Policy wise I think there is still much to do involving X Border investments and clearance certificates. Also, the Cdn tax laws on foreign LPs investing in Cdn VC funds are repressive.

    Fact is I believe that BC does have a healthy angel marketplace…and thank good for that particularly for those companies in the Digital Media field. But with the “clean tech” phenom…we do need well capitalized VCs…since this space is more equivalent to project financing.

    Cheers,

    Todd

  22. Martin / Dec 4 2009 7:30 pm

    Great post venture capital is broken thats a fact we need more angle investors and people who are not scared of this so called recession.

  23. how to make beats / Oct 13 2010 5:39 pm

    This is helpful, thanks for the post man…

  24. palletdoos / Mar 15 2011 3:19 am

    Thank you so much for this write-up. That’s all I can say. You most surely have made this blog into something special. You clearly know what you’re up to, you’ve got covered numerous bases.Cheers!

  25. Alesis MultiMix 8 Line / May 27 2011 7:44 am

    Hello there. I simply want to say that what you give us here is really respectable post so I m going to post http://blog.bootuplabs.com/2008/07/21/venture-capital-is-broken-lets-fix-it on my Facebook profile so everybody can have the possibility to enjoy. I was happy when I saw this tittle, Venture Capital is Broken, Let’s Fix It! | Bootup Labs Blog, on google search, and i was so becouse in the end I found what I was looking for. My regrds

  26. Hy. I only want to observe that what you share here is really nice post so I m thinking to post http://blog.bootuplabs.com/2008/07/21/venture-capital-is-broken-lets-fix-it on my Digg profile so everybody can have the opportunity to enjoy. I was happy when I saw this tittle, Venture Capital is Broken, Let’s Fix It! | Bootup Labs Blog, on google search, and the reason is that at last I found what I was looking for. My regrds

  27. Vox AC 15 C1 / May 30 2011 12:30 am

    Hy. I just want to observe that what you share here is really the best information so I will post http://blog.bootuplabs.com/2008/07/21/venture-capital-is-broken-lets-fix-it on my Facebook profile so everyone can have the possibility to enjoy. I was glad when I saw this tittle, Venture Capital is Broken, Let’s Fix It! | Bootup Labs Blog, on my google search, and i was so becouse at last I found what I was looking for. All the best

  28. Evelyne / Jun 21 2011 9:03 pm

    I really appreciate articles on your site. You’re doing a fine job! Thanks a lot. 🙂

  29. girl sllep with you / Jun 22 2011 6:26 am

    Hey there, You have done an excellent job. I’ll certainly digg it and personally suggest to my friends. I am confident they will be benefited from this web site.

Trackbacks

  1. Strutta Visits LA to Promote White Label Service, Bootup Lays Down Strategy & Enthusiasm | Techvibes Blog
  2. Bootup Labs - Venture Capital is Broken discussion | fundfindr.tv
  3. Financial Storyteller
  4. Venture Capital is Broken, Update | Bootup Labs Blog
  5. Techvibes|Blog|Calgary,Edmonton,Kitchener-Waterloo,Montréal,Ottawa,Portland,Seattle,Toronto,Vancouver,Victoria
  6. VC is not broken - Anymore. Digital Media’s new funding models | Bootup Labs Blog

Comments are closed.

%d bloggers like this: