VenturesLabs

SurfEasy in both print and digital USA Today.  A great article, titled SurfEasy Vows ‘Plug-in Privacy’.  Great job Chris and Steve!

The conventional wisdom states that “platform” or “standards” battles (think PC/Mac, Beta/VHS) are won by achieving a dominant market share which leads to more “content” which leads to more consumers.  Applied to today’s debate de jour, Android will win the war against iOS because its low price point and its broad portfolio of devices are creating a rapidly growing market share which will lead to developers building more apps which will lead to further market share gains. This position is widely held in the tech world but this outcome could be undermined by two trends: fragmentation and forking.

Fragmentation of the Android ecosystem is making it difficult for developers to build and monetize apps.  Right now only 2.9% of all Android devices are running the most recent version of the OS, Ice Cream Sandwich.  Older versions of the OS still dominate with Gingerbread at 63% and Froyo at 23%.  Fragmentation creates a poor consumer experience (i.e. apps don’t work) and combined with low cost phones, is attracting a down market consumer.  Android apps are being monetized at just $0.23 for every $1 of Apple App Store revenue.  Given this, Android’s share gains are not translating into developer mind share.

Forking is a less widely known issue but it may prove to be even more important.  When Amazon released the Kindle Fire they took Android’s Gingerbread iteration and built a custom OS on top of it.  Amazon does not intend to update the OS on Google’s release schedule and the Kindle Fire does not support the Google appstore as the device is connected to Amazon’s app store.  As such, while Amazon’s device is “built on Android” it is completely disconnected from the ecosystem and will continue to be going forward.  The forking trend is rumoured to be picking up speed after Google bought Motorola Mobility.  Android OEMs are scared of being held hostage by Google and are working to build their “own” versions of Android.  I would imagine that all the big players (HTC, Samsung etc…) have formed internal OS groups to ensure they have a backup plan if Google continues to tighten the screws.

So will the conventional wisdom turn out to be true?  Does Android’s growing market share mean it is destined to “win” the smartphone wars?  For now I am going to dodge the question and state that regardless of who wins, this is a big opportunity.  Valuable companies are going to be built to deal with these issues.  Startups need to look at the problems in the chaotic Android ecosystem and build elegant solutions.  The problems are getting worse and the time is now to start fixing them.

Startups that are looking for external funding – be it equity, debt or otherwise – have a long list of providers whom they can reach out to in Ontario.  The list includes dozens of venture capital funds, angels, and other institutional sources.

In addition to these private sector sources, the Canadian government has a wide variety of programs designed to help startups.   Some of these programs (IRAP, SR&ED, FedDev, CMF) are well known and have been utilized by hundreds of startups.  I am not going to explain the details of these programs but, if you need information on them, feel free to email me at rsamuels@mantellavp.com and I can provide you with a brief overview and put you in touch with an entrepreneur who has utilized each funding source.

Interestingly, there are dozens of other programs that are not as widely known but can still offer startups substantial help extending their runaway.  To this point, our good friends at MaRS have built a comprehensive database that covers nearly all of the funding sources available in Canada (the database is located here and given that it has ~100 entries for just Ontario, it is well worth exploring).

After reading through the Ontario section I found 3 new funding sources that I was unaware of which offer the possibility of substantial external capital.

Eastern Ontario Development Fund – This program provides a grant of up to $1,500,000 to companies located in Eastern Ontario to fund up to 50% of economic development projects valued at $100,000 or more. The program is targeted at relatively established companies that have a minimum of 3 years of operating history and 10 employees or more.

Export Market Access – This program will cover up to 50% of the costs of “developing export sales”.  The program is targeted at later stage startups, as it requires sales of $500,000 and 2 year of corporate operating history.  Eligible costs include trade shows, marketing tools, market research and bidding on foreign projects.

Innovation Demonstration Fund – A grant of between $100,000 and $4,000,000 (50% of costs) is available for companies with pilot stage “green” technology that will provide Ontario with a significant competitive advantage and is globally competitive.  While the program is designed for “green” technology it appears to include anything that is “globally significant”.  This process sounds like it could be slow given that the project needs to be reviewed by the Ministry, an inter-ministerial review team, an external panel and others.

If anyone has utilized funding sources that they want to recommend to the community please feel free to post a comment below or message me (rsamuels@mantellavp.com / @RussSamuels)

Check out Chris Houston on TWiT TV at CES last week. It was a great show, but I’m with Chris, my feet still hurt from standing in the booth all day…

In early August 2011, Marc Andreessen published an unusually long and detailed essay in the Wall Street Journal titled “Why Software is Eating the World”.  Mr. Andreessen argued persuasively that:

“…we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy [emphasis added]”

Sitting at at the head of the Valley’s hottest VC fund, Andreessen Horowitz, and having co-founded Netscape and Opsware, Mr. Andreessen is in as good a position as anyone to observe and comment on such trends.

The point of this blog post is not to argue against Mr. Andreessen’s thesis – especially since, its undoubtedly true – but rather, to take a look at a smaller trend that falls within his broader argument: in the coming years a number of successful startups will appear to be hardware companies (particularly in the eyes of consumers).

This is a non-consensus view.  Think about it, nearly all of the hottest startups in the recent cycle have been software only: Facebook, Twitter, Zynga, LinkedIn, Groupon and Pandora. Investors have been ringing the “software only” bell for 10 years and for good reasons: no inventory costs, faster cycle times and above all, low capital intensity.

Given all this, why are we on the verge of a Hardware Renaissance?  I think the broad trends are well understood and include: the rise of low cost Asian manufacturing, the movement towards universal smartphone penetration (as smartphones will often be the “brain”) and the ability to quickly and easily update hardware over-the-air.

Below are four examples that demonstrate the point.  The first is a clear success story, the second is an emerging success story, while the third & fourth are looking really promising.  Each demonstrates a creative pairing of low cost hardware with smart software.

Square – Jack Dorsey’s follow up to Twitter is a small, square shaped dongle that plugs into an iPhone and allows anyone – yes, anyone – to accept credit card payments for 2.75%.   The company is giving away the dongle and as of October 2011 had signed on 800,000 merchants (which is approximately 10% of the Visa & Mastercard accepting world!) and was on track to do $2 billion in gross payments.  Square is combining a simple low-cost hardware package with an insanely smart software backend and the result has been mass adoption faster than anyone thought posible.

Jawbone – Most people know this company simply as the maker of a stylish Bluetooth headset.  After Mr. Andreessen’s fund invested $49 million in March of 2011 observers began to take notice of Jawbone’s larger ambition, namely, wearable computing.  The firm’s second wearable device, the “Up”, has stumbled due to quality issues but otherwise has generated serious buzz online.  At $179, the device is comparable to Fitbit but with a high-end, jewelry inspired design.  The device ties into a lifestyle management software platform online and intelligently helps consumers live healthier lives.

Twine – In recent weeks an obscure Kickstarter project which looks to be a plastic bar of soap has captured the imagination of early adopters.  Twine raised just shy of $500,000 from 3,500 backers (avg. cost of $142) to produce the Swiss Army knife of programmable sensors.  The device is adept at detecting movement, temperature, IR, moisture, and has a number of switches and inputs. Consumers will be able to let their imaginations run wild and program their Twine’s to do thousands of tasks.  The hardware is a plastic rectangle with off the shelf components inside of it, which is to say, its low cost and simple to build.  The real brains are in the cloud (a DIY platform for consumers to program their sensors).

SurfEasy (MantellaVP portfolio company) – Everyone knows that Internet “privacy” is a big issue but nobody knows what to do about it (and no, quitting Facebook is not an option).   At next week’s CES show in Las Vegas, Chris Houston and his team will unveil their radically simple solution: the SurfEasy USB key.  Pop the USB key into any computer and SurfEasy provides you with fully encrypted access to the Internet – and not just any kind of encryption, this is Bank grade tech. SurfEasy ensures that no data is left on the computer your surfing on and that nobody (hackers, your spouse etc…) can identify who you are!  The stick retails for $59.99 and sits in a credit card sized holder so that it can live inside your wallet and be with you wherever you are: a friend’s house, the office, or the local Starbucks.  SurfEasy quickly pre-sold about $70,000 worth of product on Kickstarter earlier this year and is now taking pre-orders from the general public (first batch ships on February 20).  SurfEasy has done a great job combining an insanely complex backend system with a simple and low cost hardware package.

In conclusion, software is eating the world but often that software is going to come packaged in beautiful, low cost and/or simple hardware.

Feel free to post comments & questions below or message me on twitter (@RussSamuels)

Thanks,

Russell (@RussSamuels)

After failing to win a gold medal in the 1976 Summer Olympics in Montreal and the 1988 Winter Olympics in Calgary, Canada became the only country to host multiple games without a winning a gold medal.  Realizing a change was necessary, the Canadian Olympic Committee formed the now famous ‘Own the Podium’ program in preparation for the 2010 Winter Olympics in Vancouver.  The results of this program were amazing.  On February 27th 2010, the second last day of the winter Olympics, Canada won its 11th gold medal surpassing USA’s previous record for the most gold medals awarded to any host country during a winter Olympics.  The next day, a day etched in many of our memories, Sidney Crosby blew a game-winning goal though the legs of the unstoppable Team US goalie, Ryan Miller, to give Canada its 14th gold medal of the games.  Although we finished third in the medal count for the games (behind the US and Germany), Team Canada earned a record-setting 14 gold medals and 26 medals in total, besting the performance of every nation to host a winter games since Salt Lake City in 2002.

So, what was the secret behind ‘Own the Podium?’  Was it the world-class committee of former athletes gathered to inspire this year’s crew?  Was it the incredible pressure this very public campaign put on our athletes?  Or did we just get lucky?  Although some pressure, planning and luck may have played a part in the success, there was something different in the attitude of this team long before the opening ceremonies even began.  Our athletes emerged from their dressing rooms with the audacious goal of winning the Winter Olympics.  They not only believed this goal, they announced it to the world.  It rivaled Babe Ruth’s famous ‘called shot’ in the 1932 World Series – Babe pointed at the centerfield stands and then proceeded to hit a centerfield homerun.  It was gutsy, it was different, and it was almost non-Canadian.

If our Olympic athletes can be this audacious, why don’t we naturally lay down the gauntlet in our endeavours?  Why is it that startups favour ‘stealth mode’ and months of ‘private beta products’ over taking an ‘Own the Podium’ strategy right from the start?  My guess is that it all comes down to a very simple fear of failure.  Failing publicly is definitely hard.  But staying the course when challenges start to rise is even harder.  Early on in the Vancouver Olympics, Canadian reporters dubbed the program the ‘disown the podium’ strategy because of our low medal count.  The cold hard truth is that it takes incredible commitment to an audacious goal to achieve something of notable magnitude.  As Babe Ruth so famously put it: “Don’t let the fear of striking out hold you back.”

Our athletes in Vancouver in 2010 were bold, daring and zealous, and that’s exactly what entrepreneurs need to be to build the kinds of companies we all know we’re capable of building.  No Canadian will ever forget the feeling of invincibility from Crosby’s overtime goal.  My hope is that this feeling will inspire the kind of gutsy, risk-taking and fearless company building that we can all be proud of for years to come.

“Geographical Synergies”, a strange phrase – right?  Geographical synergies … like when Wal-Mart builds a new store near an existing location and can leverage an existing distribution depot? Or is it more like when the The Gap helps to negotiate reduced rent for a new Banana Republic store moving into the same mall (as both retailers are owned by The Gap)?

At Mantella Venture Partners I see geographical synergies being captured everyday.  As they say in real estate, location! location! location!.  All of our portfolio companies work in the same space (alongside Duncan, Robin, Jill and I).  Chango sits next to Unata, Hipsell is next to Brave and Brave is next to SurfEasy.

Come-on, is this really necessary, with Skype, WhatsApp, FaceTime, G+ Hangouts and email is there anything to be gained from startups being physically beside one another?  YES.

When you put a few dozen insanely talented and motivated people into the same room, the whole ends up being more valuable than the sum of the parts: CEOs getting advice from CEOs, front end guys learning from back end guys and lowly investors doing their best to keep up   The cumulative knowledge in the room is massive – everyone has their specialty: Chango = advertising, Brave = daily deals & carriers, HipSell = marketplaces, SurfEasy = privacy and Unata = loyalty programs.

Earlier this year we saw real geographical synergies when MantellaVP sold PushLife to Google. The PushLife guys needed help getting ready for the notoriously grueling Google interview process and it was Mazdak, the CTO of Chango who took the time to help the team prep.

More recently, as we worked to validate the SurfEasy concept, we turned to a former PushLife adviser.  This adviser provided highly relevant industry expertise and very quickly transitioned from an adviser to a key investor in the SurfEasy syndicate.

In our offices practically any question is answered by looking up from a computer and asking someone who is just a stones throw away.  Its faster than Google, more social than Quora and more detailed than Twitter.

Time flies in the startup world.  One month ago I made the jump from a Private Equity role at a pension fund to the wild west of “hands on” Venture Capital at Mantella Venture Partners.  In my old role, a typical month would see a few presentations created, a financial model or two built and maybe a couple important conference calls. While these tasks required long hours of diligent work, the sense of pride and excitement pales in comparison to what I have seen accomplished by our portfolio companies in the last month.

Brave Commerce – Brave is the company behind “Rogers Mobile Offers” (yes, that Rogers) which are Canada’s first and only carrier backed mobile daily deals.  When I started working at MantellaVP in July, Brave had barely sent out its first deal.  Now, just over a month later, Brave has run ~20 deals from some of the best merchants in town (Extreme Fitness, USTA, W Burger, Jetsun’s Juicy Burger, Toronto Argos etc…).  Brave has processed hundreds of individual purchases, sold thousands of dollars worth of products & services and created value for both merchants and consumers.

Hipsell – Patrick, Aron and Matt moved into the Mantella offices the same day as me.  This crew of two hackers and Matt (all around all-star) are building a super simple mobile centric solution for buying and selling “stuff” online. On the day we all moved into the Mantella office their dream was mostly that, a dream.  In the last month the three have literally worked around the clock to build an iPhone app and a gorgeous web site for product listings.  The day before their official launch at GROW, the app was accepted into the App Store and the guys formally launched the first real-time social classified service.  Hipsell BETA is up and running, check it out: www.hipsell.com.

SurfEasy – When I started, SurfEasy was just Chris and his team of 5 in a 5×7 prison cell sized office.  Now, a month later, Chris and the boys have upgraded their real estate (probably 10×10!), raised over 100% of their target on KickStarter (join the movement http://kck.st/nDn6QF ) and have a fully functioning prototype that everyone in the MVP offices wants to get their hands on.

Unata – Chris “Mobile Rewards with Backing from Groupe Aeroplan” Bryson is not a name I had even heard of when I started at Mantella.  After closing an investment in early July, Chris and his team have moved into SurfEasy’s old cell and are cranking hard.   Chris is out building relationships with some of Canada’s largest retailers while the rest of the team focuses on tweaking Unata’s world class recommendation algorithms.  It won’t be long now until consumers are receiving Amazon quality recommendations at their favorite retailers.

Check back in coming weeks for more updates from our portfolio companies.

A great interview with Chris and Maz, the technology visionaries behind Toronto’s hottest startup!  If you need to build for scale, you can learn some hard earned lessons here.

http://startupnorth.ca/2011/07/07/under-the-hood-chango/