in Ontario, Startups, Toronto

$7,500,000 Series B and New CEO for xkoto

xkoto logoGrowthWorks and GrandBanks Capital have announced a $7.5M Series B investment in xkoto. The startup, based in Toronto, is a leading provider of database load balancing solutions. The funding will be used to expand support of multiple database and ISV platforms, grow its U.S. presence, and accelerate sales. xkoto already counts big customers including UnitedHealthcare, Genworth Financial, InGrid, Travelport, and leading Wall Street investment firms.

While the use of load balancing technology is already widespread for deployments of web and app servers, corporate data centers have only recently begun to seize the technology and capture the associated benefits (improved performance, lower consumption of system resources, and the viability of using inexpensive commodity hardware). xkoto claims savings of up to $295,000 on the initial hardware/software and recurring savings of $60K per year for each system replaced with a commodity system using GRIDSCALE, their software product.

In addition to funding xkoto announced today a new Boston based CEO, David Patrick. David hails from Novell where he managed the $450 million Linux, Open Source, and Platform Services Group. Co-founder Albert Lee will become Chief Strategy Officer. Khalil Barsoum an industry veteran and Tim Wright of GrandBanks Capital, have joined xkoto’s board of directors which includes Roger Chabra of GrowthWorks, Mark Stirling of Treadstone Associates, and co-founder Albert Lee.

This round is exciting as it represents continued interest in Canadian software startups. Is a move south of the border imminent? No decision has been made according to Roger Chabra of GrowthWorks. “The CEO is Boston-based solely because he was too good a candidate to pass up.” Rather than get all worked up about headquarter relocation, lets try celebrating it as both a fact of startup life in Canada and more importantly a sign of success in a larger market.

13 Comments

  1. It was a painful and expensive process. A good portion of the investment went into the legal changes required to avoid the tax liabilities to the US investors.

    If a US VC firm is trying to decide where to invest capital to get the best rate of return, the additional cost of investing in Canada is big hurdle. It is cheaper and easier for a US VC firm to invest in a US company.

  2. It was a painful and expensive process. A good portion of the investment went into the legal changes required to avoid the tax liabilities to the US investors.

    If a US VC firm is trying to decide where to invest capital to get the best rate of return, the additional cost of investing in Canada is big hurdle. It is cheaper and easier for a US VC firm to invest in a US company.

  3. Sorry to hear that Ariff. 4% of capital raised being spent on legal documentation is certainly a tough pill to swallow.

    It leads us to an interesting question though: Should Canadian companies that plan to raise venture capital just start corporate life as subsidiaries of a US parent?

  4. Sorry to hear that Ariff. 4% of capital raised being spent on legal documentation is certainly a tough pill to swallow.

    It leads us to an interesting question though: Should Canadian companies that plan to raise venture capital just start corporate life as subsidiaries of a US parent?

  5. You could set it up from the start (to lower the barrier for US VCs to invest later) but requires money up front which most startups don’t have or don’t want to waste on lawyer fees for something they may or may not need in the future.

    However you do it, it requires expensive lawyers to allow US VCs to invest in Canadian companies. Either way it’s a barrier for Canadian startups that US startups don’t have.

  6. You could set it up from the start (to lower the barrier for US VCs to invest later) but requires money up front which most startups don’t have or don’t want to waste on lawyer fees for something they may or may not need in the future.

    However you do it, it requires expensive lawyers to allow US VCs to invest in Canadian companies. Either way it’s a barrier for Canadian startups that US startups don’t have.

  7. No question the fees are ridiculous,and one of the reasons I talk about the current US capital overhang being parked at the border. HOWEVER, we aren’t any more expensive than a deal in France or China, where lots of VC money is going. I am involved in VC fundings in both place, and let me just the fees are staggering. After you deduct the time spent smoking Gitanes and making insouciant comments, the effective hourly rate for French lawyers is impressive.

    Still, there’s no good reason the tax rules haven’t been changed, other than the fact that our own local groups have done little to lobby for the effort. This is the kind of thing where grassroots entrepreneur noise is needed.

  8. No question the fees are ridiculous,and one of the reasons I talk about the current US capital overhang being parked at the border. HOWEVER, we aren’t any more expensive than a deal in France or China, where lots of VC money is going. I am involved in VC fundings in both place, and let me just the fees are staggering. After you deduct the time spent smoking Gitanes and making insouciant comments, the effective hourly rate for French lawyers is impressive.

    Still, there’s no good reason the tax rules haven’t been changed, other than the fact that our own local groups have done little to lobby for the effort. This is the kind of thing where grassroots entrepreneur noise is needed.

  9. Agree with Ariff, it was a painful and expensive process. Btw, Good luck for new CEO for xkoto

  10. Agree with Ariff, it was a painful and expensive process. Btw, Good luck for new CEO for xkoto

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