Posted by: danielharan | July 31, 2007

VC capital in Montreal

Daniel Drouet just posted another article in his series on VC capital in Montreal. I like where he’s going with this. There is good talent in Montreal, and VCs and Angels aren’t nearly as active as they could be. He finishes by asking “In a city with limited angel activity, how should entrepreneurs proceed? What should local VCs be doing?

Here’s my take: invest amounts of $50-$250k, with answers for applicants given in 1 week after the first meeting. I know a few people that could build a good product and be ready for an A round or buy-out with $250,000 – and could get a prototype for $50k. Well, less if he wants to hire students that will eat ramen for 3 months.

He refers to a Union Square Ventures post claiming they’re not staffed to do as many small deals as Charles River Ventures. That sounds like nonsense to me. CRV needs fewer partners to OK a seed investment; they didn’t double their staffing to double the deal flow; they’re putting less work into vetting each opportunity. This is normal, since the risk is inherently spread.

One thing I would change about CRV’s standard QuickStart terms is a clause in the case of a sale. The VC should have an upside if the company gets bought out by Google after an angel investment, so incentives are aligned.

To pull this strategy off, a VC would have to be able to assess the technical chops of hackers as well as the market potential of their idea. It would only take one of those to make Montreal a magnet for new startups, so I hope Montreal Start Up succeeds!

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Responses

  1. “I know a few people that could build a good product and be ready for an A round or buy-out with $250,000” Please send them my way 🙂

    I think it’s important to differentiate between an application and a business. There are lots of people who can build a web app, but very few who can turn that app into a product and then make that product the basis of a business. Most of the people at the Tech Entrepreneurs’ Breakfast have built prototypes. Most have been unable to get seed, let alone A round financing. That’s not to say they won’t, I just don’t think we should underestimate how hard it is.

    I’d also like to comment on your response to the Union Sq post, i.e. they don’t have the resources to do a program similar to CRV Quick Start. I don’t think the problem is in deciding to invest, I think the problem is in managing the investment after the cheque is cashed.

    You are right concerning the need to speed up the go/no go investment decision. I don’t know that MSU will be able to make it in a week, but we will try to keep it short and honest.

  2. Good to see you’re planning to speed up the process.

    At the seed stage, I believe the first risk to check is whether the team can build a product and get users. YCombinator has been notorious for funding teams with no business experience and no business plan, and they have been beating the returns of most if not all other VCs.

    Since most ideas are going to change anyways, any time spent on business plan before there’s a product in place has a high likelihood of being wasted.


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