t t t t t
e - t rends / i an h a r vey
If you build it, they will fund it. Maybe
Stories from the funding trenches
Ideas by themselves are worthless without the ability to execute. And that ability is what attracts money. Even then, the real secret to business success is not the cash itself, it’s finding the right people to invest in your idea, said Ben Bittrolff, chief financial officer at Cyborg Trading Systems, which makes automated trading software for the financial services sector. Built and designed by Bittrolff and two other derivatives traders, the company started with a $100,000 angel investment five years ago. It generated revenue within the first year. They snagged $2 million in VC funding from New York investors last spring with an assist from the Canadian Digital Media Network, a national collaborative and support entity for entrepreneurs, which hooked them up with a beachhead space in Manhattan. “Going to New York was huge for us,” he said, “because it’s a world financial services hub. We would have had to go eventually, but we were able to go early. It allowed us to scale up and scale down without getting tied up in leases. We had no idea how much space we’d need or for how long.” Bittrolff said the real gold is in the mentoring and networking investors bring to the table, so it’s better to get the relationship off to a good start. “The money is out there, but you’re going to be married to these guys, literally, so you want to get to know them,” he said. “So it’s not just any VC, it’s the right VC, and there are a lot of different ones out there, ones that want to fold you into another portfolio a year down the road and don’t tell you that.” The investor search is like dating. “We’d sit down and say, ‘Why don’t you tell us about you and, if we like you, we’ll tell you about us.’ You spend a lot of time dating but you don’t, and you shouldn’t, take the first dollar offered to you.”
illustration: vin ganapathy
The money is out there Indeed, there is enough money out there. “Companies are still getting funding,” said Steve Currie, vice-president Venture Services at Communitech, responsible for the new $30 million Hyperdrive, a program that introduces companies to a network of investors with a goal of going from seed money to Series A financing in 24 months. “The VC community may be smaller than it was but the good companies get funding.” Getting that funding is the trick. There are many ways to turn off investors, from having no revenue, no feedback from
34 b a c k b o nem ag. com
/
m ar ch / ap ril 20 13
potential customers, over-estimating the market, being too complex or simply being oblivious to the competition. Getting the right investor on-board is about the basics. First, they want to see something that has commercial viability and can be easily conceptualized. “We would only explain parts of it, so it didn’t get too complex,” Bittrolff said. Next, investors like teams, because that suggests bench strength, but they also want a team leader to take the beating if deliverables aren’t met. “The question is also how long have you known each other and can you work together,” said Michael Litt, CEO of Vidyard, a secure Web video platform aimed at companies that want control of their content and audience beyond what sites like YouTube can deliver. A serial entrepreneur still in his twenties, he has two partners and warns the stress of a start-up can fracture even the strongest relationships. “We’ve already been through a founder breakup.” Having revenues also kindles interest, Litt said. Vidyard started as Redwoods Media, making video content for clients before shifting to building a platform and shifting clients to the new model. Litt and his team won a coveted spot at the Y Combinator, Silicon Valley’s top incubator, and from there caught the attention of YouTube co-founder Jawed Karim, who ponied up $1.7 million. Litt is no stranger to the world of entrepreneurs. His former Waterloo housemates Rahul Bhagat and Eric Migicovsky first thought up a smartwatch that connects by Bluetooth to an iPhone or Android device. They, too, struggled to find money and Migicovsky’s efforts in Silicon Valley came up empty. “It was being built in China and there wasn’t a lot of quality control and that’s what investors saw,” said Litt. Migicovsky turned to Kickstarter, a crowdsourcing site. They sought $100,000 to make 1,000 watches and got $10.3 million from 69,000 investors. They sold 85,000 watches and Pebble was born. “There are always new ways to get money and that’s one of them,” said Kevin Tuer, managing director of the Canadian Digital Media Network. “I think a lot of gadget makers will look at the crowdsourcing option.” That Y Combinator connection pops up again for another Waterloo start-up, Tenthbit, whose Pair app for iPhone and
