These may all be important programs that have some effect on changing the trajectory of a local ecosystem, however they neglect one key fact: great companies are built by great entrepreneurs who succeed despite an imperfect ecosystem, despite a lack of local capital, and despite the absence of good mentors. In other words, great entrepreneurs make it happen in unlikely places.

A prime example is how Greg Zeschuk and Ray Muzyka built Bioware in Edmonton (a city that had no gaming talent or large tech ecosystem to speak of). Bioware was later sold to Electronic Arts for $860M.

So does this mean that local governments are powerless when it comes to attracting special entrepreneurs like Zeschuk and Muzyka? Should they just sit back and see what happens? Not necessarily. Lately I’ve been wondering if there’s a role for a local Chief Talent Officer, whose focus is to attract the best and brightest to their cities and municipalities?

For example, some of the questions for a Chief Talent Officer to consider include:

• How can you implement (or lobby the federal government for) entrepreneur-friendly immigration policies like the Startup Visa?
• How can you contribute to make the local universities best in class?
• How can you support local accelerators / incubators whose focus is to bring in talent from out of town?
• How can you brand your city / province as a desirable place to live for the creative and entrepreneurial people you are targeting?
• How can you make it as easy as possible to start a business in your city?

This is no easy task, as all these areas span the authority of many different institutions and organizations. I’d imagine the Chief Talent Officer would spend the bulk of his/her time persuading other people and departments to do the ‘right’ thing. Yet I’m growing increasingly convinced that this is the only lever for large-scale, long-term results.

Helping an area’s local entrepreneur community is important, but that along won’t change the game or spark the next hotbed of innovation. Attracting the best and brightest from all corners of the world will.

Globalization and immigration are often hot button issues, but they can be crucial to local economies. Over the coming months, I’d like to think deeper about how local municipalities can spur a tech upsurge, and welcome your thoughts as well. Stay tuned.

The post Is it time for a Chief Talent Officer? How to create local hubs for high tech entrepreneurship appeared first on Version One Ventures.

On one end of the spectrum, many start-ups think that great products sell themselves, while the other camp argues that it’s the channel and monetization that define a company’s success.

The simple answer to the question is you need both. To be successful, a stand-alone company needs a top-notch product and a clever distribution/sales strategy. However, there are a few nuances to add to the discussion.

1)  Start-ups are generally more successful when the founders are product-driven. It’s typically much easier to add sales expertise to a product-driven organization than it is to add product focus to a sales-driven start-up. Sales is more of an execution game, meaning a start-up can hire senior executives to shape and refine the sales and distribution strategy. On the other hand, a great product requires great leadership with the right product instincts. Those intangibles are usually much harder to add.

2) Sales-driven companies can turn into service organizations. Sales-driven companies are often focused on maximizing short-term return on investment and this mindset can shape product decisions. The natural consequence is that sales-driven companies can evolve into service companies as they are stating to build every feature that clients are asking for instead of following a long-term product vision.

3) The consumerization of IT is putting more emphasis on product. Historically, software and products were sold to a company’s purchasing agent and CTO. The sales cycle hinged on the ability of the vendor’s sales team to make the right contacts and manage the sales process and relationships from start to finish.

Today, it’s a different story. The CTO and other management no longer serve as gatekeepers for which products are used in the organization. Products are now introduced directly to end users. This trend has a double impact (and both in the product-driven start-up’s favor):

• Small start-ups that don’t have a large sales force can now sell their products in the enterprise.
• The enhanced role of the end user in buying decisions makes the product experience all the more important. Good products that are easy to use take hold in this environment.

While the sales cycle may be changing, start-ups still need to focus on their sales and distribution strategy. Products, no matter how great, usually don’t make money on their own. As a result, product-driven companies need to focus on distribution in order to succeed in the long-term.

The post What’s more important: product or sales? appeared first on Version One Ventures.

The analyst position is a two- to three-year role where you will learn about what the venture capital business is all about and get the chance to work with some interesting startups. The primary responsibility of the analyst is to help manage the day-to-day activities of the fund, including:

• Helping to identify new and interesting entrepreneurs and companies in the 3 focus areas of the fund (e-commerce, SaaS, marketplaces/platforms)
• Performing market research and due diligence for potential investments (interviewing customers/users, testing products and services, and/or financial modeling)
• Helping with reporting for our investors, including writing quarterly updates and preparing LP advisory board meetings
• Working with existing portfolio companies, including helping out with hiring, financial modeling, and research
• Executing projects of your own direction that help Version One and/or our portfolio companies

We’re looking for someone who demonstrates:

• Native understanding of the ecosystem of web and mobile products
• Strong written and oral communication skills
• Good product instincts – you get what a great web or mobile product is made of
• Strong interpersonal skills – you’ll often be talking to entrepreneurs and other investors
• Good Excel modeling skills
• Ideally, prior design or programming experience or work in an investment or internet-related position

As Version One is investing across North-America and has portfolio companies from New York to Seattle, Los Angeles to Toronto, you should also be excited about travelling and “airbnb’ing”.

If you’re interested in the position, please send me an email at bwertz [at] versiononeventures [dot] com. Your email should contain 2 things:

First, I am looking for links that represent you. Linkedin is good but I am generally more interested to understand how you think and what you do: your Twitter account, your blog, a website you built, a project you helped. Second, I would like to get your take on 3 questions: “Why do you want to work at Version One Ventures?”, “Which web and mobile products most inspire you and why?”, and “What is the biggest insight you recently had about start-ups?”. Please limit your answers to 2-3 sentences per question.

Applications are open until Friday, June 21. The position is available immediately and is based in Vancouver, B.C.

If you have questions, please leave them in the comments below. Looking forward to hearing from you!

The post We’re hiring an analyst! appeared first on Version One Ventures.

The easiest path to growth and profit is up, and the most deadly attacks come from below 

This quote from Clayton M. Christensen’s The Innovator’s Dilemma perfectly encapsulates how startups can find success over incumbents in their markets. Incumbents often look left, right, and above – yet sometimes they’re most vulnerable from below. The tiny market niches and startups who play there are often too small to capture an incumbent’s attention. However, it’s these small startups that begin in the long tail that have the capacity to disrupt over time.

For example, Hootsuite started as a free Twitter tool for small/medium business and casual users; it’s now a social media dashboard serving Fortune 500 companies like Seagate and Pepsico. Zendesk initially focused on tech startups and now has more than 30,000 clients including global giants like Disney and Vodafone.

For startups, the message is that you should develop your business in the long tail, focusing on those customers in your market that the incumbents don’t care about. For example, Clio, a company in my portfolio, first focused on providing legal practice management for solo lawyers and very small firms (today, Clio is now serving firms with over 50 lawyers).

Narrowing your focus to a smaller piece of the pie offers several advantages. First, customers in the long tail usually require a smaller feature set which means that you can get a MVP into the market faster. Second, you have the unique opportunity to tailor your solution for a few particular use cases… and thus make a superior solution for a certain segment of the market (one that’s much more useful than a one-size-fits-all tool from an incumbent). This will enable you to build a community of loyal, passionate customers.

In addition, by focusing on selling to smaller companies in the long tail, you’ll benefit from shorter sales cycles. Smaller businesses are far more agile when it comes to purchasing and deploying a new technology than Fortune 500 companies. It would have been a much different story had Clio first tried selling a cloud-based management tool to large legal firms (which are notoriously slow to adopt anything new).

As you build out your product and develop a brand in the long tail, your reputation in the market will spread. Enterprise SaaS products can be viral, as companies are tightly connected to dozens/hundreds/thousands of suppliers, customers, and partners. High utility products are shared, enabling you to extend from the long tail to win larger accounts and move up.

The post The easiest path to growth and profit is up: why startups should focus on the long-tail appeared first on Version One Ventures.

The Black Swan

“Hard work plus luck is what gets you a jet instead of just a BMW.” (Nassim Taleb, The Black Swan)

Start-up success typically boils down to three elements: hard work, talent, and luck.  Yet when we dissect the successes and failures of other start-ups, we tend to focus on the hard work and talent of the team, completely disregarding the important role that luck (or the lack thereof) may have played.

Luck definitely played a huge role in my career, both on a company-level as well as a personal level. In the early days of AbeBooks, our company got lucky twice. Luck struck first when Barnes & Noble approached us to become a reseller of the books of our sellers.  This immediately doubled revenues of our sellers and attracted more inventory to our site. And then luck came again, when Amazon bought our competitor Bibliofind and folded it into the main site. This led most sellers to leave Bibliofind and join AbeBooks.

I’m certain that without both of those events, AbeBooks would most likely never have become the uncontested market leader in the used books space. And while one could argue that our hard work and talent created the right environment for Barnes & Noble to approach us, I have no doubt that both scenarios could just as easily played out another way…completely altering the course of events.

And I also got lucky a few times on a personal level. Back in 2003, I felt like leaving AbeBooks and starting something new, but my parents convinced me to stay at the company. That proved to be the right decision, as most of the success of AbeBooks (including the ultimate exit to Amazon) came in the subsequent years and defined my career.

What’s the moral of these stories? Don’t underestimate the power of luck in shaping the future of your start-up. For some this may be unnerving…after all, luck may play such an important role, yet we cannot do anything about it. However, instead of worrying about luck or fate, focus on what you can control. Aim to create the right environment for luck and its opportunities to take hold.

The post Talent, hard work and luck appeared first on Version One Ventures.

The Good: When crowdfunding works…

In particular, I’m bullish on crowdfunding when it’s about passionate consumers rallying around an idea, cause, or product concept they believe in. In this case, the funders have modest expectations…either a small perk (like a t-shirt) or just the simple satisfaction of supporting a company or cause they care about and watching it grow.

Take JamStik as an example. It’s a prototype mini-guitar that interacts with an iPad or iPhone. The project has currently raised $129,000 with an initial goal of $100,000 on Indiegogo. Its funding packages range from an exclusive backers t-shirt, your name on the Founder’s wall, to discounts on a JamStik or one of the earliest prototypes.

Crowdfunding can also be a way for startups to finance parts purchasing and manufacturing by taking customer pre-orders. For example, Tindie fundraisers can give startups working capital to buy parts for the final assembly of their products (full disclosure: I am an investor in Tindie).

The Bad: Disappointing expectations

While Tindie fundraisers usually work very well in terms of meeting customer expectations, turning crowdfunding into a wide-spread platform for taking pre-orders can be risky business. The Pebble smart watch may have had one of the most publicized delivery delays, but they’re hardly alone. Statistical analysis by Professor Mollick of Wharton uncovered that 75% of all funded projects on Kickstarter shipped late.

When consumers start to look at a crowdfunding site as the equivalent of an online store where they can buy new toys, there will be trouble (hence the Kickstarter blog post: “Kickstarter is not a store”).  Delays in production/delivery are usually expected among investors, but even a few weeks delay can frustrate and anger this new class of ‘investor customers’ who are expecting the same smooth process as when they order something from Amazon. Their frustration ripples throughout the web, souring the entire industry.

The Ugly: Crowdfunding for equity

Recently, there has been a lot of talk about crowdfunding for equity. The idea here is to make it very easy for anybody to invest small amounts of money in startups through crowdfunding platforms. I personally think this is a recipe for disaster. Here is the problem: the fact is that few angel investors make good investment returns…and that’s true even for those who are lucky enough to have a huge winner in their portfolio. On average, VCs had pretty dismal returns over the past decade. And those are sophisticated investors who look at hundreds of deals and then work for years to help their portfolio companies build the best teams and execute.

In short, early stage investing is hard and typically only the top tier investor with a proprietary deal flow can make great returns. It’s not the place for the average consumer to put his or her money.

If the driving force behind crowdfunding platforms is to make it easier for anybody to become an angel investor and have fun tracking the progress of their project (without much expectation for a return), then crowdfunding is a welcome addition to the financing landscape. However, if we start to see people putting up large swaths of their retirement savings in the hopes of funding the next Google or Facebook, this will end in a disaster. Time will tell what happens. But unfortunately, if the future is anything like past history, the latter scenario is more likely.

Related articles

• CircleUp raises $7.5m to expand its crowdfunding platform to more consumer companies (banklesstimes.com)
• Donald Trump gets into crowdfunding (finance.fortune.cnn.com)

The post Crowdfunding: the good, the bad, and the ugly appeared first on Version One Ventures.

hardware (Photo credit: alorenzi)

Despite the recent media buzz surrounding the hardware revolution and emerging maker space, the overwhelming majority of hardware startups have a hard time attracting financing today. Hardware requires time, money, and inventory. As a result, most venture capitalists are reluctant to touch hardware projects, opting for the lower costs and smaller risks of software.

While my portfolio is primarily centered around consumer internet as well as enterprise SaaS startups, I typically talk to two to three hardware startups each week. Here’s the advice I give these teams who are navigating the tough world of hardware financing.

1. De-risk your startup as much as possible

Manufacturing innovations like 3D printing support quicker and cheaper prototyping and design. This means the overall costs of launching a hardware product are coming down considerably, yet hardware is still costlier (and thus riskier) than software. To increase your chances of venture capital financing, you’ll need to lower the risks as much as possible, such as:

• Bootstrapping as long as you can to get a working prototype into the market.
• Following an iterative manufacturing process. Instead of taking a year to develop and launch one product, it might be advantageous to run through four development cycles in smaller batches.
• Having at least one team member with a deep background in hardware manufacturing.

2. Focus on VCs who have done hardware before

The reality is that few venture capitalists are ready to write a check to a hardware startup today, and it’s not all due to the risk. Many VCs have a background in software and are less familiar and comfortable with bringing hardware projects to market. In order to minimize the time wasted during fundraising, you should focus your efforts on venture capitalists that have done at least one hardware deal. For example, Softtech and True Ventures funded FitBit.

3. Patents versus traction

In the software space, it is commonly accepted that barriers to entry are no longer created by patents or by tech differentiation alone, but by superior traction in the marketplace. One could argue that the same development will hold true in the hardware space. Therefore, when you pitch investors, it’s wiser to focus on the traction you have built up in the market rather than pitching your patents.

4. Look at crowdfunding options

Crowdfunding sites like Kickstarter and my portfolio company Indiegogo are helping fill the financing void for hardware projects. For example, Pebble (a watch that wirelessly connects to a smartphone and displays its messages) raised $10M on Kickstarter in 2012. Muse (a brain sensing headband that lets you control things with your mind) raised $287K on Indiegogo.

Along with providing much-needed cash in the early days, success in a crowdfunding community shows product validation and market demand, since people are committing to a particular product. However, there’s a challenge when your investors are also your customers. Production delays are quite common with hardware projects and, as Pebble found out, it’s easy to disappoint customers when dates are missed.

In addition to gathering seed money, hardware startups are also finding success in raising working capital to buy parts via online fundraisers on Tindie (another portfolio company).

The making of a hardware revolution

It feels like we are still in the early stage of the hardware revolution. With further refinement of design, prototyping, and manufacturing tools, the costs and risks associated with hardware should come down enough so that hardware becomes palatable to traditional funding sources. With Lemnos Labs, we already have a hardware-focused incubator, so it will only be a matter of time before we see VC funds emerge that focus exclusively on hardware. In the meantime, hardware startups should look for innovative ways to get their product to market.

Related articles

• How a Garage-Based Incubator Is Fueling the Hardware Revolution (adafruit.com)
• Hardware is Feeding the World (taylordavidson.com)

The post How to find funding for your hardware startup while we’re waiting for the hardware revolution appeared first on Version One Ventures.

When making such a major decision, you’ll undoubtedly need to weigh many factors and most likely, some competing interests. However, I think the most compelling reason to sell is when the founders run out of ideas for how to grow the company further.

Speaking from personal experience, this was the driving force behind our decision to sell AbeBooks (a marketplace for used, rare, and hard-to-find books) to Amazon back in 2008.

At the time, AbeBooks was still a nicely growing and highly profitable business, but we didn’t know how we could turn it into a billion dollar company. At the same time, the business could provide a lot of strategic value for many players in the book business, namely Amazon. So we decided to sell.

Looking back, there were several factors limiting our ability to grow, including:

• Geographical markets: We had internationalized to five non-English speaking countries in Europe, but felt that conquering Asia was too risky an endeavor for a relatively small company (our platform revenues were in the hundreds of millions of dollars).
• Vertical markets: Expanding from books to other media verticals seemed unrealistic, considering both the music and movie verticals had a rapidly shrinking share of physical goods.
• Market expansion: AbeBooks specialized in the long tail (used, rare, hard-to-find books). We saw only modest success when we tried to complete our offering by expanding into new books. Amazon’s brand recognition is just too strong among book buyers to allow competition.
• Acquisitions: We had acquired companies both upstream (Bookfinder, a major price comparison engine that sent up a large amount of traffic to us) and downstream (Fillz, a channel manager software that helped our sellers sell on other marketplaces).

Most importantly, we felt that we had optimized our business model to extract as much value out of the marketplace as we could. In short, we were struggling to think of ways to grow the company beyond modest increments.

For some founders, external factors and financial pressures may be too strong to avoid selling. But if you have a choice, don’t think about selling your company until you run out of ideas for how to grow it. Hopefully, that time will be far down the road.

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Good Advice (Photo credit: Wikipedia)

Getting good advice is critical for any entrepreneur and fortunately there’s plenty of advice to go around. Unfortunately, not all advice is worth listening to. Angel investor Allen Morgan (@allenmorgan) summed it up in a recent Tweet: “It’s a power law relationship: for entrepreneurs, >90% of the advice worth heeding comes from <10% of the advice givers.”

The reality is that entrepreneurs should not listen to the bulk of advice that comes their way. Yet, good advice from smart people can be an invaluable asset when trying to navigate your most pressing questions, from how many board members to have, to how much money to raise in Series A, or how to build a monetization strategy.

The key to getting advice boils down to knowing how to filter the good from the bad. Here are four simple ways to weed out the 90% of advisors that you should ignore and focus on the best advice for your situation:

1. Stick to your core values

If you don’t have a clear vision for where you are headed as a founder or startup, it’s nearly impossible to evaluate the advice you get. I’ve seen too many people change direction with every new piece of advice they hear. Before you can really take in advice, you need to have a strong sense of your core values. Then, you can weigh each bit of advice within the framework of your own convictions.

For example, the core values of Twitter’s management helped guide them through the monetization question. Countless experts and pundits were pushing them to monetize via relatively obvious examples like paid premium products or CPM ads. Yet, Twitter took the time to come up with a native monetization model that is not only much better for the user experience, but is also more scalable in the long run. Twitter would be a far different experience today had their management team jumped on the first bit of advice they heard.

2. Listen to people who listen

People who give the best advice are good listeners. They try to understand your specific situation first, rather than instantly spouting off their words of wisdom without any context. Turn to people who ask good questions and seem genuinely interested in the particulars of your question or challenge.

Additionally, you should pay close attention to those individuals who refrain from giving you advice at times because they outright admit they aren’t sure or don’t have the right expertise. Such people will be far more trustworthy in future situations than those who dispense advice just for the sake of feeling important.

3. Change/expand advisors as you grow

Someone who gave you great advice last year could well be a trusted resource in the future, however you need to be cognizant that your needs change over time. Most advice givers are helpful in certain phases of the startup lifecycle, but very few are experts in every area or challenge you face.

For example, a mentor who helps you navigate early-stage product questions may not necessarily be the right person to ask about HR issues as your company grows to 100 people. Again, the most trustworthy advisors will let you know right away if they feel a certain situation is out of their realm of expertise.

4. The final decision is always up to you

There is no standard process for making a good decision. In some cases, you may need to talk to ten different people and weigh each option carefully. In other cases, the right direction will hit you instantly. In most, if not all cases, you need to trust your gut.

No matter how many advisors you talk to, the most important lesson to getting good advice is to never forget that you are running the show. Mentors and advisors can help you build your opinions, but they should never make decisions for you. Don’t listen to people who adamantly push for a certain direction as they most likely have their own agenda.

Lastly, remember that there’s no benefit in being able to blame someone else for a poor decision which is why you should never put an advisor in the position to make the final call. You’re running the show, which means final decisions are always up to you.

Related articles

• The Art of Finding a Mentor (grasshopper.com)
• 5 Rules for When to Listen to Advice (& When Not To) (inc.com)

The post Don’t listen to most of the advice you are getting appeared first on Version One Ventures.

Left or right?

For many startups, there comes a time when it becomes clear that things are not going exactly as you planned. You can read the writing on the wall that you haven’t found a product-market fit, and you’ve run out of ideas on how to get there.

Typically, if you don’t see signs of traction after six to nine months with a SaaS or e-commerce model, it’s time to reassess your market or model (note: a marketplace-based business often requires a longer time table). And if it’s time to pivot, I have one piece of advice: pivot hard.

Too often, I see pivoting startups try to keep too many elements of their original business. This is to be expected. After all, founders invest untold time and energy into building a product and team. It can be downright heartbreaking to feel like you’re throwing it all away.

However, once you’ve decided to pivot, it’s time to forget about your existing business and have laser-like focus on the new opportunity. Don’t let history cloud your thinking about your future business. It’s time to ask yourself the following questions:

1. What opportunities should I be pursuing independent of all the assets (product, customers, teams) already built-up from the current business model? Explore your new opportunity with a fresh set of eyes: if you were starting up today as a new founder, what would you want your new business and business model to be?

2. What should the new product look like independent of what’s already been built? Don’t try to derive a new product based on trying to salvage your current code base. First think about what you need for your new product, then (and only then) look at what code can be reused.

3. What should the future team look like? Consider what roles, skills, personalities, and expertise you’ll need for the new business model. All hiring decisions should be based on the positions you’re trying to fill now, rather than trying to piece together how your current team members can fit into the new venture.

4. What financing do I need to execute on the opportunity? It’s critical to take a realistic look at how much you’ll need for the new opportunity, rather than thinking of what money is available. Underfunded startups can’t and won’t execute and you shouldn’t move forward if you don’t have a plan for sufficient funding and a long enough runway.

Course changes happen all the time and can lead to brilliant things. But when pivoting, you need to completely separate your old and new businesses. Approach your pivot as if it were a completely new startup. Then see which pieces of your current setup (people, product, etc.) can potentially help you accelerate the new opportunity.

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