The first rule of real estate

Before you read this, go read Mark MacLeod’s post on Who not to take money from…. It’s not related to this post, but a great post for entrepreneurs to read when talking about investors.

RT @Cmdr_Hadfield Chris Hadfield 19 Jan With a long tradition of hockey on the shore of Lake Ontario, introducing Toronto - Go Leafs Go! @MapleLeafs

If geography doesn’t matter, than why do plane tickets cost so much?

“When it comes to raising funds, I just don’t think the geography matters that much. Good solid product that solves an actual pain can find it’s way to investors any where in the world thanks to the internet.” – Adeel vanthaliwala

I read a lot of comments like Adeel’s. And I agree that geography might not be the most meaningful filter, it still impacts startups in raising capital. It is far easier to raise money from a broader range of sources today, than it was 10 years ago. Changes to Canadian Tax Act (Section 116) have helped open the border to outside capital. There has also been a rise of new Canadian funds that have all closed in the past 2-3 years including: OMERS Ventures, Relay Ventures, Rho Canada, BDC Venture Capital, Real Ventures, Version One Ventures, Golden Venture Partners, Tandem Expansion Fund , Georgian Partners, etc. I worry that comments don’t take into consideration the complexity and challenges of raising capital. The impact of geography on raising capital has been reduced, but geography does still affect startups raising money.


The best advice on geography is from Brad Feld in 2007:

  1. Don’t worry about it
  2. Be realistic about the available resources
  3. Find the local entrepreneurial ecosystem – now!
  4. Don’t try to get investors to do unnatural acts
  5. Don’t play the “we can be virtual” game

From the point of the investor, geography probably doesn’t matter that much. Unless of course there is a limitation in the partnership agreement that limits the geography where the capital can be invested. There are other more practical concerns about having remote startups including legal and or taxation concerns (see Section 116). Or the ability for a startup to leverage personal/professional networks for hiring, business development, etc. And none of this describes the challenges of having to spend 6 hours flying each direction to attend a board meeting. But beyond that, proximity is not a requirement from the investor side. Good startups can be located anywhere.

“Local brewers = geography matters. As macrobrew VCs are increasingly spending time in multiple geographies (separate from their HQs) there is real potential to differentiate along knowing that you can actually sit down and see your VC face to face. For some that’s important, but for some that’s a negative. Just as some people here in Boston prefer drinking Cambridge Brewing Company ale; others could care less it was brewed locally.” – David Beisel

I like David Beisel’s   model of the VC industry starting to become more similar to the beer industry. There are larger funds, local funds, specialized funds, and individual partners. They all matter differently to entrepreneurs depending on the company, stage of development, location, etc. Understanding the available resources and your ability to access them are key.

Traction trumps geography

Non Linear Growth

There is going to be the inevitable argument about companies raising money from foreign VCs. The great news is since the changes to the Tax Act and the fall of Section 116, we have a lot of examples:

Not to belabour the point, it is possible to raise capital from foreign investors in Canada. But the level of traction demonstrated by most of these companies was very high. For example:

“Since HootSuite’s Series A financing, we’ve grown from 200,000 users to almost 2.5 million! We’re proud of our progress and are looking forward to the future with more success on the roadmap.” – Andy Au, Hootsuite

According to my calculation that’s a 431,690% CAGR of the registered users between when they announced their Series A and Series B financing. Go big or stay home. Traction and growth trump geography. Paying customers, a scaleable business. Being able to demonstrate that for every dollar that goes into the business you understand how many (more) dollars come out. You need to be able to demonstrate appropriate milestones to mitigate risk.

Avoiding Unnatural Acts

“Don’t try to get investors to do unnatural acts: Assuming you are looking for capital, focus your energy on two categories: (1) local investors – either angel or VCs and (2) VCs that are interested in the specific business you are creating. In category #2, “software” is not a specific business – you need to be a lot more granular than that. Your chance of #2 is enhanced by a relationship / investment with someone in category #1, so make sure you focus enough energy on that early on.” – Brad Feld

The secret here is that social proof that VCs are doing deals north of the border is not enough on its own. You need to focus your efforts, and assuming that you’re doing everything you can to hit accretive milestones you still need or want to try to avoid doing unnatural things. A local investor is not required, but it can be a signalling risk about the team, market, product, or other, i.e., what am I missing if local investors are cold? (There are situations where you can imagine an entrepreneur choosing to avoid local investors, particularly if they have had a deal go sour in the past, but usually the entrepreneur discloses this very early).

What to do about location?

  1. Fugetaboutit!
  2. Start nailing concrete milestones that demonstrate traction and mitigate the risk associated with your business.
  3. Get connected to your local community. Look for events like Founders & Funders, Elevator Tour or GrowTalks to have initiate low risk conversations with both local investors and entrepreneurs that have raised capital.
  4. Do your research! Use AngelList, Google, Bing, LinkedIn, portfolio pages, etc.  to find partners following and investing in companies in your very specific vertical.
  5. Figure out who locally is investing locally and figure out how to get a warm introduction and find 30 minutes to meet.
  6. Listen, ask questions, try to figure out what is missing, what is the biggest risk factor and how you might mitigate the risk.
  7. Rinse and repeat with non-local investors aka get your ass on a plane and keep hustlin’ (go re-read Mark Suster’s Never ask a Busy Person to Lunch).

Location, location, location

Editor’s note: This is a guest post by Lymbix founder and CTO Josh Merchant (LinkedIn, @joshmerchant). Josh was born and raised in Brampton, before relocating to New Brunswick to attend the University of New Brunswick. Josh and the team at Lymbix are based in Moncton, NB but spend time on planes between Toronto, San Francisco and New York. Disclosure: David Crow sits on the Board of Directors for Lymbix Corporation. 

Idea – check. Cofounder – check. Home base – che-… hmm?

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At a company’s inception, what factors do entrepreneurs consider before deciding on a location to set up shop?

Scenario A:
Some may automatically choose their hometown, whether it is Halifax, Brampton, or even Hazelton, as a default location. With this option, entrepreneurs have the potential advantages of already knowing the city’s particular market quirks and tapping into a network of home-grown connections.
Scenario B:
Conversely, others flock to a major city such as Toronto, New York, San Francisco or Palo Alto, which have a thriving tech communities. This is a great option, as we see many acquisitions and exits coming from these startup hubs.

Is there any benefit to laying a company’s foundations in an “out of market”[1] (non-traditional) city, like Moncton? Definitely. Here are some reasons for why you might choose to set up your next startup in a location other than a major city.

Keep Costs Low

The average office rent and employee salary are noticeably lower in a city such as Moncton, especially compared to Toronto. The ability to limit the rate at which a young company burns through cash can be a major advantage right out of the gate. An “out of market” city injects new meaning into the phrase “cost of living.” In these locations, emphasis is shifted to the “living” part, and entrepreneurs don’t have to uniformly dread the “cost” part.

“One of the big advantages I see, and have been privy to is the political support. In a “smaller pond” with a limited amount of startups and successful IT companies, it is easier to get quickly noticed….We have been extremely fortunate to have the local and provincial government assist in opening doors for us, providing us with early incentives to stay in NB and shine the spotlight on us, which in turn helps raise capital and grow our business.” — Matt Eldridge, CEO & Founder Lymbix

Low Competition for Early Sources of Funding

Getting started is cheap, but eventually everyone needs money to keep that ball rolling. Hopefully by this point, you’ve already got traction and your idea is gaining momentum. Without some form of traction, it doesn’t really matter where you are. If you do have it, however, it is easier to secure government and angel funding in a province like New Brunswick. Why? You will encounter significantly less competition – if any – for what money is available.

Low Competition for Talent

“If you build it, they will come.” Well, it isn’t quite that easy in a small tech community. However, there is a greater chance that there aren’t as many companies drawing the interest of the local, tech-minded talent. Your company could be one of only five fishing in the talent pool in a particular city. Let’s face it, there are smart people living all across this country – not just in Toronto.

I can’t say for sure, but I would venture a guess that there is less employee turnover in a city like Moncton as well. This translates to less time wasted worrying about knowledge transfer, and more time invested in building a strong, diverse team that you can count on.

“Building a company out in a growing tech community is great – it’s like a talent magnet! The more news that’s pushed out of prospering areas like San Francisco, Vancouver and Toronto, the more talented developers want to jump on an opportunity locally without having the resources to relocate.”

If you could do it all over again?

If you were starting out or had to do it all over again, what city in Canada would you call home for your startup? Why? 

Acquisitions across Canada

I wonder where Anand Agarawala (@anandx), Nick Koudas (@koudas), Ray Ready (LinkedIn), Albert Lai (@albertupdates) will set up shop for their next venture?


FN1. An “out of market” city seems to be a great ecosystem in which to nurture a startup.

However, deciding on such a location does have its drawbacks:

  • In the early days, working closely with new clients and prospects can be a challenge in a small market. It is more difficult to have those valuable face-to-face feedback sessions away from large urban centres.
  • If and when an opportunity arises for rapid growth and expansion, you may be hard-pressed to find the quantity of talent your company suddenly requires. After all, startup life isn’t for everyone.
  • Ideas are contagious. It is easy to observe the community-created inspiration in the valley or in Toronto. A twenty-minute coffee break with an intelligent peer can spur an eight-hour hackation thanks to a flood of ideas. Motivation automation.

Editor’s note: This is a guest post by Lymbix founder and CTO Josh Merchant (LinkedIn, @joshmerchant). Josh was born and raised in Brampton, before relocating to New Brunswick to attend the University of New Brunswick. Josh and the team at Lymbix are based in Moncton, NB but spend time on planes between Toronto, San Francisco and New York. Disclosure: David Crow sits on the Board of Directors for Lymbix Corporation.