I want some of whatever Union Square Ventures is smoking!

meetup I cannot recall when exactly I happened upon Meetup.com, but it seems like a long time ago. I thought it was a neat idea and signed up. I never got much use out of it though, as there weren’t many other users in the Edmonton area. I forgot about it for the most part. Eventually I checked the site out again when they announced that it was no longer free to organize a meetup. It’s been on my radar since then, but I still don’t pay it much attention.

Today they announced that they have accepted funding from Union Square Ventures:

So why take an investment? Because the world needs more Meetups — and more powerful Meetups.  We’re at-risk of living in front of screens, endlessly Twittering and not forming powerful local community groups. There’s endless possibilities to make Meetup  better able to help people self-organize powerful local groups! With a shaky economy, it’s best to secure and strengthen Meetup for the future with an investor.

I feel obligated to point out that “endlessly Twittering” can in fact lead to worthwhile and enjoyable face-to-face meetings with others, both individually and with a large group such as the EdmontonTweetup.

The justification for the deal makes sense from Meetup’s point-of-view. Frankly, I’m surprised they haven’t taken funding until now. The justification from USV made me do a double take though:

Organizing people online to make a difference offline has been the central mission of Meetup since the beginning. The team there has always understood that there was a difference between collective intelligence and collective action.

So we are thrilled to be an investor in a company that has been organized since its inception around the key insight that we believe will drive the next several years of innovation on the web – the need to solve real problems in the real world for real people.

I’m confused. A company that charges $19 a month in exchange for a glorified mailing list is going to “drive the next several years of innovation on the web”? I don’t think so.

I agree with the argument that Tim O’Reilly, John Battelle, and indeed USV themselves are making about harnessing collective intelligence on the web and using it to make a difference in the real world. I get that.

What I don’t get is how Meetup is supposed to help us accomplish that, nor how they are supposed to drive innovation on the web while doing it? Last time I checked, we didn’t need Meetup to organize the EdmontonTweetup, or DemoCamp, or BarCamp, or Northern Voice, or smaller meetings for drinks, or coffee, or lunch. I don’t think any of the major fundraising initiatives (such as the CIBC Run for the Cure) use Meetup, though all of them certainly use the web.

Granted, there are certain niches that Meetup is very successful in. As Brad points out, the company “organizes over 2300 moms Meetup groups in 1100 cities in 11 countries.”

Still, I’m confused. Meetup is taking the money basically to stay afloat during a shaky period in the economy, and hopefully to grow. USV is giving them money to make a difference in the real world and drive innovation on the web. Something doesn’t add up.

Either Brad and Fred know something the rest of us don’t, or they’re smoking something really good.

Finally a reason to like Stelmach, perhaps

Post ImageI’m not a huge fan of Alberta’s current premier, Ed Stelmach. Just like Chris, I miss Ralph Klein. There was no guessing with Klein, and certainly no extended periods of silence. You knew exactly what to expect, and he never disappointed. With Stelmach on the other hand, there’s just dead air.

In the past I’ve written that raising money for tech in Alberta sucks. I would have to say that it still sucks. But perhaps Stelmach will make it suck less. That’s what the Journal would have you believe anyway:

After years of empty rhetoric and inaction under Klein, a sea change may be underway. Alberta Premier Ed Stelmach and Advanced Education and Technology Minister Doug Horner seem intent on finally addressing some of the issues that have hindered development of the province’s tech sector.

The two established a task force back in March to examine tech commercialization in our province, and the report finally came on Friday. And before I say anything else, kudos to Horner and his department for making the report available online (pdf).

Among the findings:

  • Creation of a government-backed, $100 million Alberta Enterprise Fund with $200 million in projected matching investments from the private sector
  • Creation of a 25% investor tax credit
  • Creation of an Alberta-specific SR&ED tax credit to match the federal program

Other things include additional facilities and tech centres, and improved access to intellectual property. The Journal article quickly points out that “the recommendations outlined above are hardly revolutionary.” You can say that again! We need to implement each one of those things just to get on par with provinces like Ontario and B.C.

The thing to keep in mind is that a report is nothing more than words on paper. Stelmach and his government still need to act on the report’s findings before anything will change. Still, this is a lot further than Alberta has ever gotten in the past. Perhaps one day I’ll be able to write that raising money for tech in Alberta rocks.

Read: Edmonton Journal

Do you really need a business plan?

Twitter announced a round of funding last Thursday, from Union Square Ventures and a few others. Michael Arrington did some digging and is fairly certain the amount was $5 million on a $20 million pre-money valuation. That’s not too bad, especially when you consider that Twitter is perhaps most famous for not having a business plan.

No business plan?! It’s true. At least no formal business plan. Biz Stone tried to assure everyone last week that the company has in fact thought about a business model, but I am not sure how many people bought it. The investment started a small “you don’t need a business plan” meme in the blogosphere, and it really got me thinking…do you need a business plan or not?

Paul Kedrosky says you don’t need one, and thinks that “business plans are overrated, and profits perhaps even more so.” Don Dodge says that “investors invest in people not business plans.” Fred Wilson, one of the investors, admits that they “don’t know yet” what the business model will be for Twitter. He claims they have time to figure that out. Charles Hudson says the meme is “crazy talk” and thinks it is worth writing some ideas down. Robert Scoble says that “if you REALLY think you can get funded without having a business plan you’re probably smoking something illegal.”

After reading dozens of these posts, and looking back at what I learned from the business plan competitions we competed in last year, I’ve come to the following conclusion: I think business plans are useful for internal use, and mostly a waste of time otherwise.

I think what Charles says in his post makes a lot of sense. There are certain questions that entrepreneurs should answer and write down. Really though, no one needs to see those pieces of paper. When it comes time to market your business or your idea to someone else, you’ve got to tune your message. And you’ve got to market yourself more than anything else. That’s why it’s a waste of time to have a complete, polished business plan (unless you’re in a competition I guess). If no one is really going to read it but you, does it matter what it looks like?

I think the trick is to remember that investors are people too. You need to relate to them, and you need to excite them. A heavy, thick document is probably not the best way to do that.

We haven’t really updated our business plan since the competitions in 2006. That’s partly due to the fact that it’s tedious, and partly due to the fact that we haven’t had a need to. A smaller executive overview, a quick slide deck, or an actual conversation are far more useful.

There’s a difference between a business plan and a business model, however. I still think it’s important to have some ideas about how you are going to monetize your product or service. And it’s important to know that there really is someone out there willing to pay for whatever it is you’ve created. Even better if you know who that someone is.

The realization that a traditional business plan is useless simply reinforces the idea that getting face time with investors is important. And for technology, that generally means the United States. Or perhaps BC or Ontario, but definitely not Alberta.

Anyway, just some thoughts. Congrats to Twitter on the funding!

Read: Twitter

Raising Money for Tech in Alberta

Post ImageAn incredible number of tech startups have been created in the last year or so, as evidenced by the existence of blogs like TechCrunch and The List to track them all. Despite this, or perhaps because of it, some people are starting to get turned off. Caterina Fake, co-founder of Flickr, recently suggested that it’s a bad time to start a company. She outlined six reasons:

  1. Everybody else is starting a company.
  2. Your competition just got funded too.
  3. Talent is scarce again.
  4. You can’t operate in obscurity anymore.
  5. Web 2.0 isn’t all that.
  6. There’s too much going on.

With the exception of number five, I have to respectfully disagree. And judging by the comments she received on that post, many others do as well. More and more companies are being launched every day, and while not all of them will succeed, some will.

The vast majority of these companies are located in Silicon Valley, or at the very least, in the United States. For a while it seemed that Canada was missing out on this time of growth in the tech sector, but thanks to conferences like Mesh and the odd VC deal, that perception is starting to change. We still have a long way to go though, before Mark Evans will be satisfied:

What I want to know is when is Canada’s Web 2.0 party going to start? When can I start writing about super-cool start-ups strutting around with a multi-million dollar VC deals? When do I get to attend parties with an open bar, a great band and a nice “loot bag” when you finally decide to leave?

I have been wondering the same thing, especially given the fact that I have been creating a “cool startup” here in Canada. Through VenturePrize, Wes Nicol, and all of the people and organizations we have met along the way, I have learned a lot about investment and raising money, both here in Alberta and elsewhere.

If you can raise money for a tech venture in Alberta, you can raise it anywhere.

The main thing I have learned about where to raise money is that in Alberta, raising money for a technology based venture is next to impossible. Alberta sees something like 3% of all tech funding done in Canada, which doesn’t jive with our incredible economy. The problem is that the Alberta economy is really a one-trick pony – we’re almost entirely dependent on oil and gas (and real estate which becomes valuable because of the oil and gas). And with generous tax and royalty programs like the Innovative Energy Technologies Program and the Generic Oil Sands Royalty Regime (more on these here), why would an investor put money into anything but oil? They can get a significant portion of their investment back through these and other royalty programs. I have been told that in some cases an investor can get almost half of what they invest back in credit!

One advisor I spoke with suggested that the way our provincial economy is setup is really “punitive” for technology based firms. It’s bad news for the future of our province too, as oil and gas are simply not sustainable over the long haul.

This web page appears to have been written in 1996, and yet the three issues identified at the very top still affect technology commercialization in Alberta (not to say that nothing has been accomplished in the last decade):

  1. The shortage of financing for SMEs, primarily for seed or early stage companies with a capital requirement of less than $500,000.
  2. The lack of financing options related to commercialization and early growth situations, where public offerings or other forms of institutional financing may not be appropriate.
  3. The lack in Alberta, relative to other jurisdictions, of tax related incentives, to stimulate investment in the technology sector.

They match up with everything I have learned thus far anyway. More recent publications seem to confirm things as well, such as Ernst & Young’s Alberta Technology Report from 2004:

“Limited funding is an issue that needs addressing,” says Ian Robinson, who as team leader of Ernst & Young’s Technology, Communications and Entertainment group heads up the report. “Locally based angel investors are improving the picture-in 2003 we saw a quarter of companies supported by angels, an increase from 17% the previous year. But few Alberta companies are receiving support from venture capitalists, and small companies-the majority of Alberta’s technology sector-are not able to access funding from these sources. Not surprisingly, perhaps, 38% of companies suggest a willingness to leave Alberta, in part to gain better access to capital,” he says.

So what can you do to raise money for a tech venture in Alberta? Turns out there are still a few options, one of which is of course to simply look elsewhere! In addition to personal or family and friends capital, debt funding, and the other traditional methods of raising money, here are some of the programs available in Alberta:

  • Alberta Deal Generator
    “Alberta Deal Generator (ADG) has established the largest network of accredited investors in Canada who are actively pursuing opportunities in Alberta’s early and growth-stage companies. We work to facilitate investment in high-growth Alberta technology companies.”
  • VenturePrize
    Having gone through the competition, I can confirm that it is a reasonable way to attract investment. At the very least you will likely be introduced to some of the individuals and groups in Alberta that might be interested in investing.
  • Scientific Research and Experimental Development Program
    “The federal government provides income tax incentives to Canadian taxpayers that conduct scientific research and experimental development (SR&ED) in Canada. The program encourages industry, including small business and start-up firms, to develop technologically advanced products and processes in Canada.”
  • Industrial Research Assistance Program
    We have consulted with IRAP here in Edmonton, and it turned out that we just weren’t at the right stage for funding (though they have helped us in other ways). If you’re getting started with a technology based company, make sure you talk to IRAP early so you can plan to use their services and funding.
  • Tech Focused VC Firms
    Organizations like Venture Alberta and SpringBank TechVentures are focused on technology based firms, though I have no idea how successful they have been.
  • Venture Forums
    There are lots of forums that are open to any company in Canada, no matter where you are located, such as the Canadian Venture Forum. There are some local ones too, like the Keiretsu Forum for Calgary and Edmonton.

Hopefully that gives you a good overview of the funding situation for technology companies here in Alberta. There is lots of room for improvement, and until things do improve, I would not be surprised if we end up losing some good technology firms to other locations.

That said, I guess I should point out that starting a company in Alberta is not all bad. There are many advantages to being here, such as excellent access to labor, reasonably good tax rates, and very little threat of natural disasters (such as flooding destroying your data center or something).

In terms of funding though, if your venture is oil and gas related, Alberta is the place to be. If instead your venture is technology based, you might be better off elsewhere unfortunately.