After a long journey which started in 2007 with the creation of Montreal Startup, Real Ventures, a $45M seed fund, is finally here.
For those of you who don’t know, Montreal Startup is a $5M seed fund that was founded by John Stokes, Daniel Drouet, Alan MacIntosh, Austin Hill, and yours truly. Mark MacLeod has since joined the team for Real Ventures. We invested in 15 web, mobile and software companies between February 2008 and March 2010, including Beyond The Rack, Status.net, Whatsnexx, Vanilla Forums, Recoset, mConcierge, Oneeko and SocialGrapes. For the majority of our investments, we were the first money in, acting as the lead investor. We hold board seats in most companies. Montreal Startup was created for two reasons. First, we all shared a passion for entrepreneurship. I for one love entrepreneurs. I believe they are the driving force of change, innovation and evolution, our modern day conquerors that are making our future. They are are future leaders. Participating in the shaping of these men and women and supporting them in the building of their respective empires is a fulfilling and gratifying experience. We also started Montreal Startup to take advantage of what we believed was a disruption in how technology companies were being built and financed. In fact, we set up the fund to test the following assumptions which are now some of the pillars of Real Ventures’ investment strategy:
1- The cost of getting a company from idea to the validation of the business model is now 10X less than what it was 5-10 years ago and is no more than a few hundred thousands $ for consumer Internet companies and less than $1M for companies targeting the enterprise:
a) The evolution of opensource platforms and development frameworks means that software or web services that used to take a team of 6 people over a year to build now takes 2 people less than 3 months. In addition, software infrastructure costs are zero (operating systems, databases, etc.)
b) Because of the cloud, hardware costs (servers, storage, bandwidth) are now directly proportional to utilization, meaning that startups can get started for less than $100 per month;
c) There are now many platforms with more than 100 million active users that are seamlessly accessible to third party apps, software and web services providers including Facebook (500M +), Twitter (200M+), Iphone and ipod touch (more 250M+), Android (250K new activations per day), Google search and adwords, Google Apps, Gmail, Salesforce AppExchange, Amazon, etc. These platforms allow companies to transact with their customers with one click in many cases. Combined with a blog and media industry dedicated to technology, it now costs very little for a startup with a good product to get access to customers.
2- M&A is the new R&D and talent recruitment: The IT market is maturing. To maintain historical growth rates, midsize and large companies have to diversify their service offering. These companies have all been built under a different development and innovation model and cannot innovate at the speed that is required today. In addition, mobile and the web are now important parts of every consumer facing company’s business but they can’t recruit the young talent that would rather work in startups. They have to resort to M&A to acquire new product lines and talent through smaller acquisitions in the $5M-$100M range. Google alone has made more than 20 this year. Mark Zuckerberg, the CEO of Facebook, stated in an interview with GigaOM they have only made talent acquisitions so far in their short history.
3- The access/proximity to capital is not a competitive advantage anymore. Now that startup costs are getting close to zero, being in the valley and having access to capital is not a condition to success. What companies need is enough capital to get to market validation from people who can help connect them to funding, business development and corporate networks. This is what we do. Although most of the seed funding activity has come from the San Francisco-Silicon Valley area, other pockets such as New York, Boulder, Chicago, Seattle, Research Triangle, London, etc. have emerged. In Canada, Montreal, Vancouver and to a certain extent Toronto are booming.
4- The rise of the Super Angels is having the effect of increasing the size of the seed rounds in the US and drive Series A and B valuations to stratospheric heights. I believe this will have the effect of increasing the number of US VC funds that come to Canada for early stage investment opportunities.
Real Ventures will invest in web, mobile, software, digital media, social and casual gaming startups run by driven entrepreneurs. Like Montreal Startup, we invest at the seed level, between conceptualization and the validation of the business model, for companies that can get there with less than $1M, but preferably less than $500K. We’re based in Montreal, the best city in the world to start and run a startup, and as such, will spend most of our time looking at investment opportunities in a 250KM radius. We are working on setting up an accelerator for Montreal called Founderfuel that we hope to launch in the spring, so stay tuned.
We invest in entrepreneurs. We put entrepreneurs first. As entrepreneurs ourselves, we are active investors, helping the entrepreneurs we invest in get to validation and grow as individuals and business leaders. We provide entrepreneurs with the support structure of a VC firm but with the flexibility and personal touch of an angel. We believe in capital efficiency. Raising the right amount of capital forces entrepreneurs to focus on the minimum viable product and gives them more strategy and exit flexibility every step of the way. To me, it’s all about the alignment of interest.
I have spend the past few years looking for the project that would allow me to earn a good living while making the world a better place. Give more than I take. Real Ventures is this project. I get to meet and work with hundreds of entrepreneurs, exceptional individuals out to change the world. I get to support and participate in their success. It’s a very challenging but fulfilling profession.
Real Ventures is here and open for business so don’t be shy, it’s never too early to talk to us.