Why would a kick-ass startup look for funding in Montreal? Hasn’t the precedent been established that more savvy investors ‘who get it’ are to be found south of the border? I would view that as one of the web 1.0 lessons and not necessarily picking on Montreal (there are other places that have ‘worked hard’ to develop that reputation) … I’m sure you’ve been over this as you work on developing your ‘product’ and would be keen to hear your take.

Cheers.

I agree with your last comment. VC money isn’t needed to build web apps and services anymore but it is still needed to build companies, in most cases. But yeah we need to adapt and get used to doing smaller rounds of 2 M $ and sometimes much less, at least in Web. I personnally try to size a new investment by the potential exit-size, which is often only marginally correlated to the investment-size…

Seed level funding allows you to test ideas cheaply, but when one starts to take off, you are going to need more servers, bandwidth, sys admins, staff to handle inquiries, etc. If growth is rapid, then you are going to need VC money to cope. If several startups are in the same space as you, you need to grow faster than the competition to establish a dominant market position. This requires VC levels of investment.

Also believe that the Y-Combinator companies have three choices after their three months are up: (1) try to sell themselves for a relatively low valuation, (2) raise VC money to grow the business, or (3) raise some angel money, to buy time to accomplish (1) or (2). Y-Combinator kick-starts companies, but it doesn’t output self-sustaining businesses.

Heri – the YC model is great for students, but that’s not enough money for most potential entrepreneurs to pay their bills. Something a bit closer to CRV’s program would be easier for a lot of people with kids and/or mortgages. Also, as you say, the design of the product is now a bigger part of the success – it would be nice to have enough cash to hire outside expertise for design and usability.

Daniel Drouet just posted another article in his series on VC capital in Montreal. I like where he’s going with this. There is good talent in Montreal, and VCs and Angels aren’t nearly as active as they could be. He finishes by asking &#822…

one implication of having these open source frameworks is that you will so more people trying to launch a website, more ideas will be tested, markets will be fragmented. and that’s why i think the VC model (funding of more than $1million) is now irrelevant. unless you launch a service that needs a lot of logistics like moo.com or woot.com

i think the y-combinator model is the best you can get. provide early funding to as much teams as possible, diversify, provide backup, connections, advice, invite some key speakers. we have 4 universities in montréal, polytechnique and ETS and i believe once you get the word out, you will see a lot of creative ideas. and we know that creativity is one of montreal’s strenghth.

also, VCs will then have to turn to other areas like telecommunications, hardware, mobile networks where you still need a lot of capital to get a company started.