Yaletown Ventures closes $65M

It might be the end of the world as we know it for venture capitalists. But Vancouver VC, Yaletown Venture Partners, announced their $100M Second Fund with $65M closing today. The fund is focused on early-stage investing in clean tech and IT in Western Canada.

"The support that Yaletown has earned for its first two funds in extremely challenging market conditions, from institutional and technology industry insiders alike, is a strong endorsement of this team and its investment strategy," said Haig Farris, retired co-founder of Ventures West and one of Canada’s most respected angel investors.

This quote by the retired cofounder of Ventures West says it all. A strong investment team with a strong thesis can raise money in down times. This is true of entrepreneurs and startups. Good ideas, good businesses and great execution make it easier for startups to raise money even in tough times.

Yaletown has done a number of IT investments including:

Just Launched: Bizzia – b5media's business news portal

Earlier today b5media launched Bizzia, making their second foray into the world of blog aggregation. Bizzia is centered on business news, initially pulling together posts from 30 established b5 blogs and videos from content partner Your Business Channel.

The Wall Street Journal it is not, and many of the questions I posed when Starked (their entertainment portal) launched remain. Namely, will consumers of niche content be interested in aggregation around a generic vertical? Time and traffic will tell… For your consideration two data points: First, in under a month Starked has managed to attract an audience size similar to that of StartupNorth (at least according to Compete). Second, Starked does not yet nearly rival other niche b5 blogs like JuniorCelebs.

Finally a survey for the peanut gallery: any thoughts on the palindromesque brand / logo?

Your Business 2.0

One type of pitch companies sometimes make goes something like this:

  • Founders have a reasonably successful consulting services company where they do development or other project based consulting in a particular industry niche.
  • Based on their knowledge of the space and seeing a need, they come up with an idea for a product.
  • They divert some of their companies time/money to develop the product and maybe get a beta version installed at a couple of their customers.
  • Now they are looking for money to take things to the next level.

In comparison to a ground-up startup, this type of investment opportunity does have its share of advantages due to the consulting services part of the company:

  • There is some level of cash flow to help fund the new company
  • There are existing relationships with customers in the industry
  • Management has proven their ability to run a services company in the industry

However, in terms in of pitching to investors, there are a few aspects that need to be positioned compared to a ground-up startup.

Company – investors will probably not be that interested in investing in a low ROI services based business. The up-side will be with the product business. As such, since you are looking to bring in outside investors, now is the time to formally split the two parts of your company. This means separating into 2 different legal entities, setting the share capitalization of the new company, transferring any assets into the new entity, etc.

Intellectual property – since you probably did a large part of the development of your product as a side project to your consulting services business, you need to be clear where the intellectual property lies and who has ownership of it. Often the exit value of a company will be heavily dependent on its IP. Investors will not want to get into a situation where the services entity of the company retains the IP ownership and the product entity does not own the IP.

Revenue – past revenue generated by the services part of your business is not meaningful in terms of the new product part of your company. It is good to show for historical purposes to show stability, growth, etc of your consulting services business. But in terms of how well your product is selling, investors will want see this separately as most likely its only a small part if any of your current revenue.

Management – until the new product company takes off, most likely management will be splitting their time on the new company as well as keeping things running on the services side of the business. Investors will want assurances that management will be able to devote enough time to grow the product company without getting bogged down in fighting fires to keep current customers happy on the services company.

In today’s challenging investment climate, start-ups are going to have to rely on bootstrapping even more than ever. Providing cash flow by doing consulting services is a perfectly viable way to do this. When looking for outside funding, you just need to ensure you correctly communicate some of the unique structural aspects of the deal.

craig at mapleleafangels.com