Why Wasn’t BackType Funded in Canada?

This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting.

For those of us who work in the Canadian social media and startup circles, there was some celebrating earlier this week when BackType announced it had been sold to Twitter.

Lots of credit goes to founders Christopher Golda and Mike Montano, who have made BackType one of the leading services to track and analyze social media activity.

Without raining on the BackType parade, a question that begs to be asked is whether BackType should have been funded in Canada as opposed to the U.S.

To provide some background, Golda and Montano were electrical engineering graduates from the University of Toronto, who showed their entrepreneurial chops by starting a service called iPartee. While the business didn’t succeed, Golda and Montano proceeded to start BackType in 2008 as a way to search for blog comments.

To jump-start the business, they applied and were accepted into Paul Graham’s YCombinator startup program in Silicon Valley, which coughed up $15,000 for a 6% in BackType. This let Golda and Montano create a prototype they could pitch to investors. Over the next three years, BackType raised $1.3-million and expanded into Twitter search.

In hindsight, BackType is a big fish that got away from Canadian investors. I would hazard to guess that in 2008 getting seed capital from Canadian investors was a remote possibility for Golda and Montano, which is likely one of the reasons they applied for the YCombinator program.

The question is whether BackType would get funded today in Canada. It appears the seed and startup investment landscape has changed with the emergence of new funds such as Real Ventures. Meanwhile, there has been a growing number of startup acquisitions, which should bolster the confidence of investors and entrepreneurs.

Do Canadian investors now have the ability and willingness to finance smart entrepreneurs with ideas? Or do Canadian investors still need to see traction such as a finished product, customers or revenue?

For more on the BackType story, check out this TechVibes story.

BackType acquired by Twitter

Congratulations Christopher Golda (@golda) and Michael Montano (@michaelmontano) on Twitter acquiring BackType. We’ve written about BackType since their acceptance in YCombinator (fortunate that we didn’t give iPartee their previous startup too much attention). This is another amazing acquisition of Canadian startups by a Silicon Valley company (make it 16 acquisitions since Jan 2011 see TechVibes). I think Dan was right, this could be a $1B year for Canadian startup acquisitions.

The BackType team had already relocated from Toronto to San Francisco. And it looks like the relocation to the Twitter offices should be much easier:

Our team’s relocating to the Twitter office. We’re very excited to not only join an amazing company that’s changing the world, but to continue building products in pursuit of our shared vision with Twitter.

Finally, I’d like to thank all our investors and advisors, especially Y Combinator, Toni Schneider and True Ventures, Josh Felser and David Samuel from Freestyle Capital, Manu Kumar, Chris Sacca, Raymond Tonsing and Seth Berman.

What is amazing/disappointing is that there are no Canadian investors along side the group of amazing investors assembled by Chris and Michael.

Does RIM Matter to Startups?

If you haven’t heard by now, RIM is having a horrible year. Their earnings meeting yesterday was chock full of bad news:

Q1 revenue: $4.9 billion vs. $5.15 billion consensus
Q1 EPS: $1.33 vs. $1.32 consensus
Q1 shipments: 13.2 million vs. 13.5 million units expected
Q2 revenue: $4.2-$4.8 billion vs. $5.46 billion consensus
Q2 EPS: $0.75-$1.05 vs. $1.40 consensus
Q2 shipments: None given vs. 13.5-14 million units expectation

One caption I read put it best – RIIMMMMMBEEEERRRRRRR.

Out of the downfall the Globe and Mail was hypothesizing that the fall of RIM was catastrophic for Canada’s tech eco-system. The article was a bit light on fact as to why it would rip apart the Canadian eco-system, and my initial gut reaction was “RIM has almost no impact on any of the startups I know.” But then I decided to go and look at the facts.

Since roughly 2008 RIM has bought the following Canadian startups:

So they’ve probably flushed about $60mm-$80mm into the Toronto ecosystem over 3 years in exits. On top of that they have the BlackBerry Partners Fund (with about $150mm in cash) which has invested in several Canadian startups. Lets also not forget that the eco-system around their partners. BlackBerry’s platform has created opportunity for mobile dev shop’s like Fivemobile and Xtremelabs to exist. But it feels like those guys do most of their business in iPhone and Android.

So between exits and investment via BB partner funds they have probably kicked in about $100mm to the Canadian startup eco-system over the past 2-3 years. Which is not something to sneeze at. Having said that, Google (not HQ’d in Canada) has kicked in probably close to $100mm in the past 12 months… just in exits. So maybe its also not something to brag about either.

Putting these numbers together, makes me feel more ambivalent about RIM’s impact on the tech eco-system in Canada. Lets be clear, we’re talking about a decline in the short to medium term, not a total shutdown. In that decline I expect RIM to take an even lesser role in the eco-system than before. And I’m not sure it matters.

(Small end note as a UW alumnus. I’m not sure RIM’s downfall will have that big an impact on the school either. Big companies like Microsoft, Google, Facebook are still going to fight over UW’s top talent – their won’t a shortage of jobs for UW’s engineering community anytime soon. Maybe Laurier’s business & marketing grads… oh low blow).