The Downside of Canada’s Start-up Buying Binge

Editor’s note: This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting. Follow him on Twitter @markevans or MarkEvansTech.comThis post was originally published in September 12, 2011 on

CC-BY-NC  Some rights reserved by SteelToad
AttributionNoncommercial Some rights reserved by SteelToad

There has been a lot of euphoria and happy dances recently about the flurry of Canadian start-ups being acquired. The list includes Zite (CNN), Five Mobile (Zynga), PostRank (Google), PushLife (Google) and BackType (Twitter).

The positive news is that the flurry of deals (22 and counting, according to TechVibes) provide a huge boost to Canada’s start-up ecosystem, which needs all the support it can get. Acquisitions reward start-up founders, encourage venture capitalists and angel investors, embolden entrepreneurs, and provide a healthier landscape for people like myself who provide services to start-ups.

In short, Canada’s start-up ecosystem is on a roll and, hopefully, these deals will make things even better and more active.

But there is a downside to these start-ups being snapped up. Many of them are early-stage companies with interesting technology but perhaps not a lot of customers or revenue. Rather than a business being acquired, it is the ideas, intellectual capital and, as important, the people that are being purchased. Many acquisitions are fuelled by the need to add strong talent to jump-start the growth of a business or service. Zynga, for example, was looking to boost its mobile development capabilities so buying Five Mobile was a quick way to do it.

The problems with many of these deals are two-fold:

  1. Many start-ups are snapped up before they get a chance to gain real traction and evolve into small or medium-size businesses that employ dozens or hundreds of employees. It means the loss of an opportunity to build a high-tech community that features a “middle-class” between start-ups and large players (most of them U.S.-owned) such as Microsoft and IBM. In an ideal world, some of these start-ups would grow into an Open Text or, heck, a RIM.
  2. Many of these deals involve some or all of the start-ups’ employees moving out of Canada. PostRank’s employees, for example, moved to the Mountain View, CA. after the Waterloo-based company was acquired by Google. It’s an M&A-driven brain drain when the best and bright entrepreneurs, developers, etc. get sucked south of the border. Granted, many of them will likely return to Canada with more experience and some dollars in their jeans but, in the short-term, it’s a loss for Canada’s high-tech and start-up community.

I recognize that, in the scheme of things, these are nice “problems” to have. After all, it is better that start-ups are being acquired and investors rewarded as opposed to no M&A activity, which afflicted the start-up landscape for far too long. My point is it is also important to recognize there is a downside, even though it is something we can happily accept.

Impact National Conference & Impact Ventures

Impact Entrepreneurship GroupImpact_blog_redlogo started life as a student group designed to help promote entrepreneurship as a career path. It was started by Kunal Gupta, now the founder & CEO of Polar Mobile. It started as a conference for students, “a one-day event in Kitchener, Ontario attracting 150 delegates”. It is still primarily a conference/event machine for student entrepreneurs. However, with the creation of Impact Consulting and now Impact Ventures (see below) this is changing very quickly.

The next INC_logoImpact National Conference is happening November 20-21, 2009 at the Westin Harbour Castle on Queens Quay in Toronto. The conference features some interesting speakers including some familiar faces: Andy Nulman, Sunjay Nath, Ali Asaria, Jordan Banks, Saul Colt, Austin Hill, Mike McDerment and others. It looks to be a great conference with a great list of speakers in Toronto.


What is most interesting to me is the announcement of the Impact 2010 Programs, including Impact Ventures.

Many talented youth with innovative ideas steer away from an entrepreneurial path due to the numerous challenges, including funding and guidance, which they inevitably face; Impact Ventures was created to remove these obstacles. Impact Ventures strives to provide youth entrepreneurs with the seed funding, advisory services, workspace tools, and strategic resources they need at the crucial idea stage to create a successful business. Based on the successful Y Combinator model used in Silicon Valley to bring the next generation of ideas to life, Impact Ventures will help propel new startups to achieve their business objectives.

The selection process consists of an application form and an interview; there is no business plan required. During the pilot, three to four ventures showing the most opportunity for growth and long term sustainability will be chosen for the first batch. This three-month program will bring these budding entrepreneurs to Waterloo, the technology hub of Canada, to present them with all the components each entrepreneur needs to help build their venture.

Components for each selected Venture:

  • $15,000 in seed funding for an average of 6% stake in the company
  • Mentors available for hands-on help as well as advise
  • Advisory services including Legal, Accounting, Banking and more
  • Office Space in Waterloo to create an environment of collaboration
  • Themed weeks where experts related to starting a business will provide their insights and advice
  • Consultants to help a new company fill gaps in its initial organization

Impact Ventures is dedicated to the implementation of the entrepreneurial spirit amongst Canadian youth and values the independence of each entrepreneur. We are not interested in controlling the direction of the company as we trust in the entrepreneurs to make the best decision for their company. We believe in a non-regimented and friendly atmosphere where you are allowed to develop your startup with little interference, numerous resources and advice when you need it. Impact Ventures is set to revolutionize the startup industry by giving entrepreneurs an excellent spring board that will launch them to their success.

I’ve been talking with members of team creating Impact Ventures including Taimur Mohammad and Ray Cao since my post "Incubators, accelerators and ignition” back in April 2009. It looks like the Impact team has taken up the challenge and will be using their network of advisors, past members to help guide and mentor new companies. It also looks like they’ll be providing funding and consulting services to help kick start these early ventures.  There is a Waterloo residency requirement, which potential a detractor for many students actually enables students in the VeloCity program a formalized incubation phase beyond their residence. For many non-University of Waterloo students this provides students access to the ridiculous support network available in Waterloo (I’m looking at you TechCapital and Communitech and BarCampWaterloo). This is something that is definitely worth keeping an eye on.