Failure to launch

STARTUP
Failure to launch
Why too many Atlantic startups are losing – and
how they can get back on track
By Quentin Casey
As
general partner at Build
Ventures, Patrick Keefe has
spent the past few years listening
to pitches from entrepreneurs and,
occasionally, investing in their
businesses.
In the three years since its founding, Build Ventures has made eight
investments in Atlantic Canadian
companies, with more deals expected to close soon. The $65-million
Build account — funded by the
four Atlantic Canadian provincial
governments, other public sector
entities and private individuals,
including Keefe — was created, in
part, to address a common East
Coast lament: the region lacks venture capital.
But in doling out cash, Keefe discovered another problem: East Coast
startups are growing too slowly. In
the startup race, a slow mover often
ends up a loser.
Keefe summarized his findings
in a blog post on the Build website
in November. He argued the region
offers many benefits for startup
founders, including lower operating costs such as salaries and rent.
Keefe notes that when Build was
launched, there was an “unques-
38
tioned” assumption that it is far
cheaper to launch and run a startup
in this region, compared to other
parts of Canada and the U.S.
“Source of advantage — right?” he
wrote. “Actually no.”
In his post, Keefe admitted the
fund’s organizers made a “significant omission” in their startup
success equation: time.
“Our observation is that companies in Atlantic Canada are taking
longer to find product market fit,”
he wrote. “This more than offsets
the operating cost advantage.
“Put another way, startup companies here are taking too long to
grow.”
Why? Keefe hypothesizes that
the “feedback loops” for East Coast
companies are longer than in many
other places. Local startup creators are simply not exposed to the
customers, partners, competitors,
and investors needed to help refine,
improve, and fund their business
plans.
Are local startups failing as a
result?
“That’s a good question,” Keefe
says in an interview. He pauses
to ponder it. No, he concludes, but
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they are severely handicapped by
it.
“I think you can build worldclass companies in Atlantic
Canada,” he said. “However, it
will take more time and more
money.”
Fixing the situation is a
long-term mission, but in
the meantime Keefe offers
a relatively simple solution.
“You’ve got to get on a plane
and spend time in the markets
you are attacking,” he said, pointing to San Francisco and New York
as two key examples.
“There’s just so much interaction when you’re in those markets,
whether it’s investors, customers,
competitors, potential employees,
partners… When you’re out there
you’re in a nutrient-rich soup of
stuff to help you accelerate your
business.”
Soaking in that soup has benefited many of the Build Ventures
portfolio companies, including
Halifax-based Affinio.
Tim Burke, Affinio’s founder and
CEO, secured his company’s seed
round from Build in October 2013.
Three months later he took part in
the Canadian Technology Accelerator (CTA) in New York. The program provided access to mentors,
networking events and, ultimately,
contacts at the companies Burke
needed to begin assembling his
client roster. He later took part in a
CTA in San Francisco.
Burke’s push into those American
hubs of venture capital helped him
secure big name clients, including
Sony Music, Universal McCann, and
L’Oréal.
Affinio’s software helps marketers and advertisers pull intelligence
from social media. In October, the
company raised a $4-million Series
A round, which included money
from Build Ventures, Toronto’s
Whitecap Venture Partners, and
San Francisco-based Social Starts,
a $20-million venture fund. This
year, Burke expects to double his
number of employees to 50.
Burke says his clients, investment
cash, and overall growth have all
been secured as a result of venturing into key cities. “Face time is
critical,” he said.
The company has a permanent
employee in New York, and Burke
travels to New York and San Francisco every two to three weeks. He
says regular visits to those cities
boost the “rates of collisions” he
has with key contacts, particularly
potential clients.
“Don’t restrict yourself to this
region for your early adopters,” he
advised. “If you’re going to build a
global startup in this region, it has
to begin with validating against
global customers.”
Jevon MacDonald is currently
working on a new as-yet-unannounced startup. But he has little
interest in trekking from airport to
airport in an effort to entice potential clients and early adopters.
The Halifax-based entrepreneur
and angel investor sold his previous
startup, GoInstant, to Salesforce in
2012. He stayed on with the San
Francisco-based cloud computing
company as a vice president until
last year.
This time, with two kids to
consider, MacDonald has altered
his approach. “I don’t want to build
another business where I have to be
out selling,” he said in an interview.
“So I need to think about products and software I can build that
acquire users organically, without
having to show up at their offices to
sell it to them.”
His outlook is also shaped by his
time at Salesforce, where he saw
the resources required to build the
sales side of a large business.
Halifax is not San Francisco, so
MacDonald is carefully considering
You can’t. Not going to happen. It
doesn’t necessarily mean there’s
a deficiency, we should just build
different types of businesses there.”
In other words, MacDonald is
hoping to again create a prosperous
company with a small team.
“How do I be more of an Instagram — 10 engineers, billion-dollar
outcome, or WhatsApp — $20-billion outcome, 22 engineers, and
“Our observation is that companies in Atlantic
Canada are taking longer to find product market
fit. …Put another way, startup companies here
are taking too long to grow.”
Patrick Keefe, general partner, Build Ventures
the constraints presented by building a company locally, including
geography and the availability of
workers.
“You can’t ignore those factors
in Halifax any more than you can
anywhere else. It’s important to not
sugar coat it and pretend you could
hire 5,000 sales people in Halifax.
less like a Salesforce — 18,000
people, 8,000 engineers?” he said.
The sale of GoInstant, for a
reported $70 million, followed
the sales of Radian6 and Q1 Labs,
which fetched a combined $1
billion.
MacDonald is unsure why other
East Coast companies have failed
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Date:16-02-17
Page: AB_39.p1.pdf
39
“If you’re going to build
a global startup in this
region, it has to begin with
validating against global
customers.”
Tim Burke, founder and CEO, Affinio
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“There are some great companies
who I think could have grown two
times as fast or three times as fast
in half the amount of time, and haven’t,” he said. “They’ve decided to
take a more long-term and low-capital approach to things.”
Part of the problem, he argues, is
a lack of early stage capital in the
region. There is capital, but it flows
from too few players. Thus more VC
competition is needed.
Even more critical for startup
development, however, is the need
for successful entrepreneurs and big
companies to emulate.
MacDonald points to Ottawa’s
Shopify and California-based Uber
as companies that illustrate the
quick growth and impact that startups can deliver. Atlantic Canada
requires its own examples.
“The scale and speed at which
Uber has done things has sent people’s heads spinning and realigned
expectations,” MacDonald says.
“You can have all the accelerators
and incubators in the world, but
until people see (success) and see
world-class entrepreneurs executing on it, it’s never quite as real for
them.”
MacDonald’s position is unique.
He possesses a large supply of
Silicon Valley contacts, and eager
potential investors. Some investors
have told him: “Whatever you’re
doing, we don’t care. We’ll invest.”
Thus he has the flexibility to
travel less and instead tap his existing resources from the East Coast.
Patrick Keefe says most other entrepreneurs have a simple option: buy
a plane ticket. “Don’t hole yourself
up in a garage and ignore what’s
going on around you,” he says. “Get
out and spend some time in other
markets.” •
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