Posts tagged Startups

Improving Canada’s SR&ED Program for Startups

Today, during Ontario’s Civic Holiday, I finally got around to filling out Deloitte Technology Fast 50™ CEO Survey. There was an interesting question that sparked a thread that I’ve been thinking about lately:

“Specifically, do you think the SR&ED tax credit program is pretty good as is, or needs improvement? If it needs big changes, what would be the first change you would make?”

For those of you who don’t know what the SR&ED program is, go learn more because it can save your business tons of cash over time and help you finance your business with non-dilutive government assistance.

For those of you running (or have previously run) early-stage stage startups, here are my thoughts: Currently SR&ED will refund a portion of a startup’s R&D costs based on expenses incurred during the previous year – some of those earliest expenses claimed were incurred 18 months prior to the claim. For startups, this is an eternity. Today, startups can grow and die violently before they get their first SR&ED claim, which could have helped them to pay one more employee, solve one more problem or help one more customer.

The Canadian government should consider modifying the SR&ED program to include a faster-reimbursement timeframe for startups (making less than $1,000,000 in revenue per year). For example, this could mean making claims quarterly and being reimbursed within 60-90 days – this would massively improve startup financing in the short-term. A modification, as requested, would help startups build value and growth potential more quickly and help the overall competitiveness of the Canadian technology sector.

Will anyone help to stand behind an initiative to get the Canadian government to improve the SR&ED program for startups? Join the conversation in the comments below.

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The Five Whys and Three-Minute Rule for Startups

Over the course of the last few weeks, I’ve come across some great “rules” and “methodologies” for customer development and understanding your customers.

The Five Whys

The Five Whys, which has its origins in the Toyota Production System, believes that the root of every problem (including technical problems) is actually a human problem. As demonstrated by Eric Reis on the HBR Blog, here is The Five Whys applied to a startup:

  1. A new release broke a key feature for customers. Why? Because a particular server failed.
  2. Why did the server fail? Because an obscure subsystem was used in the wrong way.
  3. Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly.
  4. Why didn’t he know? Because he was never trained.
  5. Why wasn’t he trained? Because his manager doesn’t believe in training new engineers, because they are “too busy.”

The Three-Minute Rule

This rule can and should be used to better understand your customers. The Three-Minute Rule should be used to better understand the broader context around how your customers are using your product (and what other features may make sense, given their typical use cases). If you’re a CEO or a Product Manager, chances are you are living and breathing the product. Typically, surveys and focus groups can tell you a lot about your customers, but sometimes other approaches can be much more valuable. Enter, the Three-Minute Rule: call up a customer and ask them what they are generally doing three minutes immediately before using your product and three minutes immediately after using your product. Having them run through this scenario allows you to better understand their challenges and complexities; you may learn new sales techniques, develop new insights for potential product features or identify a cross-selling opportunity with another product/service that your company already offers. Anthony Tjan offers some additional insights on this at HBR.

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Explaining the ‘lack of’ Venture Capital in Toronto

I figured it would be appropriate to write about the lack of a growing and robust venture capital community in Toronto since it cropped up in three places over the last 2 days  – once with several folks at Startup Drinks last night, today over coffee with Jeremy Laurin of OCE’s Investment Accelerator Fund and on Quora (the new social network launched by the ex-CTO of Facebook). On a side note, Quora is actually pretty snazzy with super-high-quality people.

Back to the main point of this thread — I’ve been talking about this situation for roughly 3.5 years now — first in the biotech/life science VC community in Toronto and now with the ICT community. I believe there is one problem at the root of both sectors — we need a kick-start in Canada.

What does that mean, a kick-start? Well, most people believe that there is a fundamental funding gap in Toronto’s venture community between pioneering research (in universities, by startups, etc…) and venture capital finance-able deals. That may be the case, but that is a different argument for a different day. I believe there is a more substantial funding gap that exists once a ’successful Canadian company’ reaches the point of raising a round of capital greater than $15 million. The existing VCs in the community (generally) just can’t get those kinds of deals done. It’s not in our Canadian cards (given the average fund size, risk thresholds, etc…). Canadians need later-stage financing options (or Government money) to back those deals and to create a better later-stage ecosystem.

So, what happens instead? Great Canadian companies knock on the doors of VCs South of the border who are flushed with cash and willing to invest larger amounts in later rounds. For the record, I love US VCs. However, for the purpose of this discussion, or monologue rather, they have tended to bring companies close to home to minimize their geographical risk with the investment. Now, as companies continue to grow and are eventually sold, the successful founders and key employees of those companies often (not always) stay South of the border to further progress their careers — joining US companies, or launching other companies in those locales. Worse for Canada, those successful folks often reinvest in US VC funds or Angel invest in other local US companies rather than Canadian startups.

Envision that cycle reoccurring over and over for the last 30 years. The trend becomes large enough that a substantial amount of capital, and human capital for that matter, gets lost from the Canadian startup ecosystem.

Some say that there is a lack of venture capital in Toronto because there just aren’t great deals. I disagree. I think that there is a lot of talent in Toronto and in the surrounding areas, like Waterloo for example.

Now, the scenario I’ve described may not be the only reason for the lack of capital in Toronto (or Canada), but I feel that it is a significant part of the problem. What are your thoughts?

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BASES: A Resource for Tech Startups

I have been a subscriber to the BASES weekly digest for several years now (note: BASES stands for Business Association of Stanford Entrepreneurial Students). It is an extremely valuable resource to any tech entrepreneur, especially if you live in the valley or travel to the Bay Area often. They generally include a section on upcoming events and deadlines; for example, below is a list found in their most recent digest:

Monday, January 25th – Learn Web Metrics from the Master Featuring Dave McClure
Monday, January 25th – British Consulate / Seedcamp Reception
Monday, January 25th – Nordic Entrepreneurs and Venture Spinouts
Tuesday, January 26th – Girls in Tech: Catalyst Conference – 15% off
Tue & Wed, January 26th & 27th – Web 3.0 Conference
Wednesday, January 27th – Vator Splash Competition – Applications are Due
Wednesday January 27th – Social E-Challenge Speed Dating Mixer
Thursday, January 28th – FounderDating – Where Founders Meet
Sunday, January 31st – Lightspeed Venture Partners Grant Program Application Deadline
Wednesday, Februray 3rd – Bootup Labs (Canada) Demo Days
Wednesday, Februray 3rd – Geo-Loco! The future of geo-location services
Wednesday February 21st – 28th – E-Week at Stanford University

BASES recently launched their “Help A Startup Out” section to more efficiently match the needs of startups with their large and fast-growing global network of entrepreneurs, investors, and top-quality service providers. Startups, give them your input to help make this a success.

I had a chance to work with a few members from the BASES group last year when I volunteered as a judge and mentor for a student team competing in the 2009 Social Entrepreneurship Challenge. They are a great group of people doing great things for the community.

Which subscriptions to tech/startup newsletters and RSS feeds do you read religiously? I’m looking for more sources…

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