This
post is too good to not simply repost in full. Thanks Danny.
There isn’t a single regional area that I know of who isn’t desperate to building an internet technology industry in their city. When my wife and I decided to stay in Vancouver to raise our children, we made a commitment to do whatever we can to make Vancouver the best place to start an Internet company in the world. Lofty goal, yes, but hey, I’m an entrepreneur, and we’re a group who is plagued with unbridled optimism.
I’m not going to get into what mistakes most cities make, but I will say this: If you’re building an incubation/acceleration/mentor program first, and staffing it second, you’re doing it wrong. Each city has slightly different characteristics and what works for one probably means it wont work for another. The biggest of these differences is THE PEOPLE. Find the right people, empower them, and get out of their way.
For the first time in the last two years, since I have been working at building the eco-system in Vancouver, I feel like I finally have clarity about how to communicate the stages building and Internet Startup Eco-System, which I’m sure could be applied to any city:
Stage 1: INSPIRE
- About: This is the top of the funnel. There are many many people who have an interest of starting a company but just don’t think they can, or think they can afford it, or are worried about what might happen if they fail. At the same time, they probably can’t get thought of it out of their mind either. These people are entrepreneurs in making. They just need a little inspiration.
- Goal: 1) Reach new founders and encourage them to learn more about what it takes to start an Internet company, 2) create opportunities for them to meet co-founders and 3) convince them to quit their day job to start the company.
- How: Inspiration from networking and socializing with other members of the community. Events, Co-Founder speed-dating, Meet and study other successful founders and their companies, Universities. Dispel the myth that failure is bad. Trying is good, failure is experience, success is rare.
- Where: Inspiration can occur from many sources including: Universities, Trips to Silicon Valley, PR/Blogs, Industry networking events like co-founder speed dating, Stories from successful exits, Educational seminars.
Stage 2: HACK
Stage 3: SEED/ACCELERATE
- About: Most founders are first-time founders. While extremely intelligent in building products that people want to use, they have a very limited network of people who have been through the experience of successfully starting and exiting a company. It’s these people who will provide the credibility they need, and help the founder prepare the company to raise financing required to grow. It’s clear, raising money is hard. Raising money from people who don’t know you is virtually impossible. Realistically, founders will need a credible introduction to even have a chance. Being accepted into a true seed accelerator is a great start, and the mentors that you work with while in the accelerator complete the picture.
Stage 4: GROW
- About: By this stage, founders are finalizing the transition into a working company with the goal of optimizing current user acquisition channels, and discovering more. Although, product iteration never actually ends, it is much more focused on individual feature adds/removes/updates. Another way to put it: you change from searching for a product that works to optimizing one that starting to show traction. This is the time to put the peddel to the metel.
- Goal: 1) Fund the acquisition of new customers as fast as possible in the cheapest way possible 3) develop new acquisition channels 2) Reinvest revenue and/or raise funding.
- How: Need a $20M Series A venture fund to act as a local lead investor. Exits of companies within this fund, will attract additional investment funds to open offices in the region. The fund will invest in the best local companies it can find, but syndicate with highly connected and reputable super-angels and VC firms in Silicon Valley, New York, etc. This will bring investment from more firms into the local area more quickly than starting up new firms. This fund must be able to invest in companies outside the local region in order to be focused on making the highest return possible, but it is also very important to build relationships with well connected and experience firms who consistently get invited to invest in the creme of the crop.
- Where: A modern VC firm in the local area, preferably within the same building that the Seed Accelerator is in.
What's next? (pick one)
- Series B Financing. Further equity financing for growth. onward to becoming large anchor technology firm.
- Customer Acquisition Factoring. A hypothetical future financing model which I project will be available by the time any company starting today is ready for Series B. This concept deserves it’s own post, but essentially, in the same way banks factor receivables, they will begin to factor user acquisition channels negating the need for Series B VCs.
- Merger/Acquisition. There should NEVER be any strings or attempts made to keep the company in the local region. While the eco-system is ramping up, chances are a higher percentage of companies will sell to US companies, but not ALL of them. Over time, as the eco-system matures, more companies will stay.
- Organic Growth/Bootstrap/Lifestyle.
- IPO (an option, but only in very rare and specific situations)
- Fail - Entrepreneur gains valuable experience – goto Stage 2.
Net benefit to ecosystem
- Higher volume of startups started and a higher success rate.
- More high paying high tech jobs created
- Angels are created and reinvest.
- Increased foreign investment from VCs
- Investor confidence increases.
- Anchor technology companies.
- New entrepreneurs inspired, goto Stage 2.
My hope is that companies will start to feel comfortable regularly communicating which stage their in to each other and investors. Investors should also communicate which stage their interested in investing in. Aligning these two groups will help to eliminate a point of animosity between these two groups. Associations, Governments and Universities should communicate which stage their targeting with their programs. But an eco-system is only actually healthy and functional when all 4 of these stages are fully active, properly funded, and managed by passionate people who care.
One last thought before I anxiously await your comments. I’m sure you can cite specific examples of companies that “made it” by skipping one ore more of these Stages. Please keep in mind that I’m not saying that this is the ONLY way to build ALL companies. However, I am adamant that this is the only way to build a healthy, productive, Internet technology eco-system that produces a high quantity of world-class companies.
