The Farm Team Problem

[Note: If you aren’t from Canada or dealing with the Canadian VC/Entrepreneurial world, you might want to skip this.]

Mark Skapinker has a blog response up which reflects his clarifications and corrections regarding the WSJ blog story I blogged about.  Mark makes some good points and I believe it is worth your time to read it.  (Thanks for the kind words, Mark)

In Mark’s post, he maintains the use of the word broken with respect to the software/internet component of venture capital and goes on to give an explanation that pretty much says if you attempt to play by established rules/metrics of VC land (10x returns, lots of capital out the door), the world has change and that dog don’t hunt.  Narrowing our collective focus, he has a point.  While I believe there is much that works, much that isn’t ‘broken’, there are some new realities which need to be addressed.

I believe there is a central problem which leads to many of the issues Mark attempted to talk about.

Where we are broken

In my opinion we are screwing our collective selves if we don’t invest in a Canadian farm team.  Consider Jevon MacDonald, Ali Asari, and Marc Gingras.  I know all three and we (JLA) have invested in one (Marc).  Jevon has a company called Firestoker; Ali has Well.ca, and Marc’s up with Tungle.

Let’s start with Jevon. I love this guy.  He works 24x7, has co-produced a must read blog for the Canadian Start Up scene, developed camps, conferences, meet-ups, and is trying to get a company off the ground.  What do we (the suits, aka VCs) do with this guy?

Then we have Ali, the founder of Well.ca, Canada’s largest online health and beauty store. They stock more stuff than most pharmacies, give you free shipping, and is made up of truly nice people.  Company is text book. First, it is out of Dad’s pharmacy, then we move out, and then move up, and now it’s the player in Canada.  Ali is a serious success on all the measures you’d expect in business.  We (those suits again) haven’t put a dime into the company. A problem here?

Finally, we have Marc Gingras, the founder of Tungle. Tungle kicks serious ass when you have endless rounds of meetings to deal and are sick of the mindless back and forth of how about this date or that date but not that hour, etc, etc.   Marc got some coin from JLA, Commonwealth Capital Ventures, and Desjardins Venture Capital.  Marc has been previously successful at founding and selling a company, has been in the no business (a VC), and has lived through the RIS customer nightmare.  The guy rocks.

Jevon needs a little seed capital to flush out the idea(s) and see if there is a pony in there. He’s not going to get millions out of the gate nor should he.  He is a classic take a shot, see what pops and if it fails, okay, let’s see if we get ourselves an experienced guy we can have ride a winner.

[Memo to everybody: Let’s take some risk, embrace a little failure, and use it as it should be used; as experience.]

Ali needs expansion capital to take advantage of the extraordinary opportunities he has before him. He’s proven the model, is making money, has rabid customer loyalty, and a very smart team. He needs to explore, think big, and take this puppy to the next level.

Marc needs the suits to kick his butt up one side and down the other for success. And I mean this in a good way.  We already know he has an amazing idea, we already know customers love it and would chew off their left leg before going back to email hell trying to schedule a meeting.  So we need to properly bet on the guy, make sure he gets top talent into the company and goes for it now. He needs a flying wedge of support, trust, and rolodexes not CEO 101 training.  Marc, as a CEO, is in the fit –n- polish stage. Tungle will be successful and at the end of that rainbow we (Canada) will have a tier one, multi-time successful CEO who can take an amazing idea over the finish line.  High fives all around.

You can take all the founders (talent) in this country and put each into one of my Jevon/Ali/Marc buckets.  Each of those buckets has different needs over time and we collectively suck at a) not recognizing this problem and b) programmatically fixing it. 

Farm Team Fund (FTF)

Right now, Ontario, Quebec and likely all the Provincial Governments are coming up with various plans to toss money into the VC system.  What we need to do is intelligently grow the farm team and bulk up the VC community so the A players from the farm team can get mainstream VC funding and be off to the races.  This is not the same as giving the VC community money/matching funds/whatever and let business press on as usual. Yes, bulk em up for Series B, C, Mezz, etc, but start at the beginning with the farm team.

To make this work, we get VC firms to cough up people, LPs to accept this is an important issue, and the Government to match monetary commitment; then get out of the way.

On people we recruit from, among others, these folks:

From JLA: yours truly, I volunteer.  I love the smell of burning code in the morning.  I’ll spend hours with the Jevon’s, Ali’s and Marc’s of this country. Give me an Air Pass and I’ll be right over. In addition, my partners John, Tawfiq, Pierre, and Marc all have forgotten more then I know, so grab anybody, you’ve got A-team material.

From Edgestone: Michael Hollend/Derek Smith.  Brilliant, successful, hard working, professionals.

From Growthworks: Scott Pelton/Roger Chabra. Geeks, hard core business types, smart, professionals.

From RBC Venture Partners: Robert Antoniades/David Unsworth. These guys are not stiffs from a bank; far from it. They are successful, smart, hands on, get it, kinda guys.

From RHO Canada: Jeff Grammer. A successful CEO, smart, connected, hard working, off the charts class act.

From Vengrowth:  Peter Carrescia.  9 years of VC Voodoo, Microsoft AND IBM veteran; adds up to serious brain matter around the table.

From Tech Capital Partners: The whole team. They live for this stuff, go to this page and this one; then memorize both.

[There are many others no slight(s) intended this is immediate top of mind.]

Next, each firm from above cough up/carve out 2 million bucks and ‘the Government’ matches it.  Presto, you have a 28 million dollar fund.  Or 1 each for 14.

We assume ZERO IRR.  Start your hearts back up, I’m kidding.  We need to address Mark Skapinker’s point about expectations and the existing/traditional rules.  With this fund you design for lower dollars in, smaller exits, but a rinse –n- repeat mentality of growing serial entrepreneurs.  While the mainstream Canadian VC team focuses on the core, there are some of us working the farm team development.

We take the best ideas from Y-Combinator, Tech Stars, and every other successful program and get them going in Canada.  This isn’t charity, it’s a fund so let’s get the ideas that work and apply them.

We dip into our A-Team resources to assemble an advisory board/investment assistance team made up of our best. We get from the likes of: Austin Hill, Osama Arafat, Peter Schwartz, Stuart Lombard, Alan Lysne, Ken Nickerson, Matt Golden, Albert Lai, Randy Busch, Elliot Noss, Heather Reisman, and Jonathan Erhlich to name just the ones that immediately pop into my head.

The devil is in the details, I know, but I think my point has been made. If we’re going to talk broken, okay, let’s fix what we can fix. My first two boys can benefit from this type of program while Marc already has graduated into main stream.

To sum it up, we need a farm team or we will never, ever, really maximize the possibilities of our entrepreneurs, our Venture Capital industry or the country’s true potential. 

Let’s do it.

Call, write, or twitter your Congress.. sorry, your MP today.

Comments

[matt roberts]

Great post. Hopefully we can get back to figuring how to get the sub 150K market moving again.

[Fred Ngo]

Glad to see things (hopefully) moving in this direction! Montreal Start Up does this very well in the Montreal area, but the wider entrepreneurial community needs more of these kind of "at-bat" opportunities to make things happen.

[Danny Robinson]

Great post Rick! Your plan is actually well underway our here in the west. Bootup Labs is a "TechStars for Canada", with slight modifications for our environment here. Here's our deal:

1) Take money from angels, VCs, and Govt to create a micro-fund ($5M-$10M) (this is in process, but one Canadian VC has committed to $1M already) In my pitch to them, I literally used the words "Farm Team" to get my point across.

2) Based on TechStars success, we're expecting a better IRR than 0

3) The fund has no management fee because 2% on $5M isn't meaningful enough to operate.

4) Bootup Labs accepts 6 companies every 4 months, producing healthy consistent deal flow to our VC friends.

5) Companies have 8 months and $100k in cash to get some sort of traction, in exchange for 5%-15% of common stock. (depending on how much of the $100k they want)

6) During the 8 months, we match founders with world-class mentors, and pay for their legal, accounting, rent, internet, SR&ED & IRAP filing expenses

7) After 8 months, the good ones with either be funded directly by our LPs, carry on as going concern, or pack it in.

We accept applications for founders from anywhere in the US and Canada. Some will come to Vancouver just for the 8 months, and some will stay longer.

Sound like what you're thinking about?

[rick]

Tungle lost me at its TOS and privacy terms.
they will process info offshore and circumvent canada's privacy laws.
Nope, don't want spam or overlords.

[Marc Gingras]

Hi rick, thanks for taking the time to read our TOS and privacy terms - although I am not sure you read them carefully. To make it easier for you, you can find a summary of these terms on our security page:

http://www.tungle.com/Home/Security.htm

Here's an even shorter summary for you to digest:

1. You own and control your data.
2. We will not spam.
3. We keep your data safe.

Side note: Thank you Rick (Segal) - I hope to live up to your kind words.

Keep on Tunglin'

[Farhan Thawar]

I can't agree with you more. You not only have to create this sort of fund so folks can get the seed money to work on some of these ideas full-time, you need to make it very easy to receive the funding. It's well known that raising money (while necessary) is not a low time investment activity.

Make it easy (and let the folks work on the business).

[Chris Arsenault]

Rick, I’m all for it!

iNovia has invested, and we continue to invest, with and into great Canadian entrepreneurs (new & recurring), to name but a few: Garner Bornstein & Andy Nulman (Airborne), Pierre Le Lann (Tribal Nova), David Nault (Callio), Geoff Lyon & Jason Myers (Coolit), Derek Ball & Dayton Foster (Tynt), Zbigniew Barwicz (Sixtron), Ben Yoskovitz (Standout Jobs), Chris Sukornyk, Austin Hill, Pat Lor.... We also have a few great US CEO’s/Founders I must add :-).

But specifically regarding our home made entrepreneurs, the VC community can definitely do more! And as a result, see more benefits.

We didn't invest in every deals presented to us (even by a great entrepreneurs or recurring CEO) because we don't have the knowledge dept nor the resources to feel comfortable in every deal we look at. But I do believe that we need to foster our relationships and support our best entrepreneurs.

So take it for granted that we are one of the farmers!

[Jim Murphy]

Love it! The notion of a Farm system for entrepreneurs is why the valley and Boston (amoung others) have vital startup economies. There are no(very very few) overnight successes from these places despite what you may hear/read. If you know the people involved you learn that they are they have tried, failed and had help from supporters all along the way.

Instead of waiting for lightning to strike, your horse to come in or your numbers to match: do the hard work. Build the people, the infrastructure, relationships that will eventually deliver the hits.

Love it, Rick.