Although we send out quarterly newsletters, we like to get Montreal Start Up’s (MSU) Limited Partners (LP) together once a year for an update on the fund’s performance. In addition to hearing about the fund, the LP’s come to network with their fellow investors and meet the entrepreneurs’ we’ve invested in.  This year we decided to open it up a bit more. In addition to all our LPs and founders, we invited many local investors, both angels and VCs, as well as other people active in the local startup ecosystem. It was an opportunity to share with the community what we’ve been up to as well as a great networking event.

Most people who read this blog and follow me on Twitter probably already know about the 15 investments MSU has made to date, Real Ventures our new seed fund that should be up and running this autumn, as well as Notman House. Those who were not at the event however, might not be as aware of the economic impact of the fund, so here are a few numbers:

$5M total size of first fund.

15: number of companies, all Montreal-based Web and mobile start-ups, we have invested in.

$24M invested by other investors into those same 15 companies, most of it as follow-on funding, but some of it as part of the initial round.

$20M of the $24M came from outside of Canada (Europe and the United States).

These numbers  become even more interesting when you look at them from a government policy perspective. Some of you may remember that there was some controversy last year surrounding the FIER-Regions program. What you might not know is that $2M of MSU’s $5M comes from a related FIER program (Fonds-soutien). So for every $1 that MSU invested, another $8 was invested into new Quebec businesses, $6.6 of which was new money flowing into the province. Put another way, every FIER dollar we invested attracted another $16.6 into Quebec! That’s serious leverage. Compared to many other economic development initiatives, government money applied to the Web and mobile sectors can provide tremendous bang for the (public) buck.

Related articles:

• Fonds d’intervention économique régional (FIER)
• 12 recommandations sur la gouvernance des FIER-Régions (radio-canada.ca)
• Gestion des FIER Le vérificateur général note des irrégularités (radio-canada.ca)
• Never Mind the Valley: Here’s Montreal (readwriteweb.com)
• Our Annual General Meeting (montrealstartup.com)

(cross-posted from danieldrouet.ca)

We recently held our fund’s annual general meeting. AGM’s are usually pretty stuffy affairs, but in true startup fashion, we kept ours light on formalities and big on just connecting our entrepreneurs with our investors (limited partners), co-investors and other stakeholders. The venue for this year’s event was a great rooftop patio in old Montreal generously offered by one of our LPs. It was a great evening and everyone we spoke with were truly excited by our companies and what they are doing. We had lots of recent news to celebrate including new financings by Beyond The Rack and Status.net.

If you missed it, here are some photos from the event.

Well done to the Beyond the Rack team who announced that Highland Capital had led a new investment round into the company. Dan Nova, who co-founded Lycos (!) and founded the Internet practice at Highland, will be joining the Board. And following on from some of the valuable support the company has received from Steve Abrams, it is also great to see BDC Venture Capital joining the shareholder registry !

Techcrunch posted about the investment and they were pretty accurate with their numbers. It has been amazing to see the company grow over the past 16 months from the 2 founders and zero members to over 120 staff and 1.5M members – all from Ville St. Laurent !

Readers of this blog wants to join the site please feel free to use this welcome code:

NJSD209537B

Browse the links in this post.

Snap update – Montreal Start Up has recently:

Made 3 new investments (that’s 15 in total)

Had follow-on investment rounds into 2 of our portfolio companies

Had 1 of our portfolio companies acquired (that’s the 2nd acquisition)

And launched a new logo !

NEW MSU LOGO

All that activity and the only thing we can announce publicly is the logo (!), but more news on all the above will follow soon.

Let’s face it, if you are part of the local Tech Start-Up scene you spend *way* too much time in front of your computer. Because we could all do with some running around in the sun, MSU would like to invite you out for the 2010 edition of Co-ed Start-Up Soccer.  Because we had so much fun last year, we’ve scheduled two matches this time around, one in July and the other in August.  For those not familiar with the event, here are the highlights:

* Each team must maintain a minimum of one representative of each sex on the field at all times.

* Absolutely no skill required! It is all about having fun with old friends and making new ones. Anyone taking him or herself too seriously will be subjected to disapproving frowns and made the butt of many jokes.

The event is for anyone involved with tech start-ups. If you don’t want to play, come out and cheer us on anyway. The more the merrier.

Checkout the Facebook page for more details.

Ben Yoskovitz announced on his blog recently that Standout Jobs had been acquired by another company in the recruitment space.

This is Montreal Start Up’s first exit since the fund was officially launched in Feb 2008 !

Congratulations to Ben, Fred Ngo and the rest of the Standout Jobs team who showed an incredible amount of tenacity and endurance in making this happen.

One of the things I’ve always regretted about university is that the only career paths that were presented to us were academia and going to work for a large, preferably well known, corporation. That’s why I’m pleased to see an event that seeks to present a third option to students: starting or joining a start-up. It should be a lot of fun, so if you’re working in a start-up try to stop by StartupSquare Montréal this Tuesday evening and share your working experience with some bright students from McGill, Concordia, UdM, HEC and Polytechnique.

Ben Horowitz of Andreessen Horowitz and Opsware fame recently made a post in the Wall Street Journal about why sometimes companies need a lot of funding to win a market.

Here is a brief summary of Loudcloud/Opsware’s fund-raising history during that time:

• September 1999: Loudcloud founded
• November 1999: Loudcloud raises $21 million at a $45 million pre-money valuation (Benchmark Capital is the lead investor)
• January 2000: Loudcloud borrows $45 million from Morgan Stanley (MS)
• June 2000: Loudcloud raises $120M at a $700M pre-money valuation
• March 2001: Loudcloud goes public on Nasdaq, raises $160 million and is valued in the public markets at approximately $480 million. Total funds raised to this point: $346 million.
• August 2002: Loudcloud sells the managed services business to EDS (this was the only actual business we had at the time) for $63.5 million and becomes a software company (and changes its name to Opsware).
• September 2002: Opsware shares trade for 35 cents per share or approximately a $28 million market cap.
• September 2007: Hewlett-Packard (HPQ) acquires Opsware for $1.6 billion

The glaring issue I see here is that there were big winners and big “losers” in this deal and that isn’t sustainable. In fact it is the reason that the venture industry has failed to perform.

If you do a very rough back of the envelope calculation:

Benchmark: Invested $21M for 32%

Follow-on Investors: Invested $120M for 15%

There was 33% dilution at IPO.

Net return for Benchmark after dilution (32% x (1-15%) x (1-33%)) x $1.6B was $290M or about 14x their original investment. The investment was held for 8 years, so not a bad investment for Benchmark.

The follow on investors did not fair as well. Their return after dilution (15% x (1-33%) x $1.6B) was $160M or about 1.3x. Their investment was held for 7 years, which in effect means they barely got their money back.

Mark Andreessen walked away with $138M.

The world Ben Horowitz is talking about has disappeared and dragging back these examples only serves to point out further why venture firms should not be thinking in this way. Ben probably views himself as a “Benchmark” and not a “follow-on investor” – and he probably is, but those “follow-on investors” are fewer and farther between. They have learnt lessons and changed their ways, or they haven’t been able to raise follow on funds.

There is no one left to rescue the fat start-up.

The MSU team has been working hard over the past few months on putting together a new venture fund. We mentioned in an earlier post that we had submitted a proposal to Investissement Quebec to act as a cornerstone investor in our new seed-fund.

Today they announced which funds they were going to support !

The three Québec-based technology company seed funds recommended by the Selection Committee are Real Ventures in the information and communications technologies industry, AmorChem in the life sciences industry and Cycle-C3E Capital in the green technologies industry.

We are pleased to say that the Montreal Start Up team are also the team behind Real Ventures !

The press-release went on to say:

These new funds will be financed in part by the Québec government, which has agreed to provide a $50-million contribution through Investissement Québec, by the Solidarity Fund QFL, which is investing $33 million, and by FIER Partners, which plans to invest $17 million. The minimum contribution from the private sector is $8.25 million per fund, and the minimum total contribution for each fund is $41.25 million.

The new technology company seed funds were selected by means of a rigorous process for identifying the three best projects. The Selection Committee was in charge of coordinating the call for proposals and selecting the managers who would be responsible for securing private-sector capital and managing each fund. Committee members studied each of the 17 proposals in detail and conducted a series of group and individual interviews with six of the top management teams.

You can read the full press release here.

There is still a lot of work to do before the new fund is up and running ….

In addition to the minimum private-sector subscription of $8.25 million, these new funds are subject to a number of specific conditions for their promoters, including signing employment contracts with key resources, conducting due diligence and ensuring that every investor in each fund signs a limited partnership agreement. The government and its partners anticipate that it will take promoters roughly four months to meet these conditions.

….but we are really excited that we have our cornerstone investor and can get on with establishing our new fund!

Thanks to everyone who has supported us so far and keep your eyes peeled for more news on the launch of Real Ventures.

It’s been a while since I’ve posted anything but that doesn’t mean MSU hasn’t been active. We’ve invested in 13 companies to date, several of which are hiring. If you or someone you know is interested in learning more, please get in touch directly with the start-ups involved.

• Status.net continues to do well, and is now looking to hire a Commercial Director. More info can be found here.
• Vanilla Forums are setting up shop in Montreal and are looking to add a PHP Developer, a System Administrator as well as a Sales & Marketing Guru to their team. Complete descriptions of the positions are available on their site.
• Our latest investment represents a great opportunity for a senior developer (see below for details).

————

Think you have what it takes to be a start-up CTO?

We are a funded, Montreal based start-up looking for a CTO/Architect to join the founding team and lead the development of our service. Heavily social in nature, it will have Web and mobile components, APIs for third party add-ons, integration with social networks and some serious recommendation and data mining algorithms to power it all.

We are looking for someone who thrives in the creative, fast paced, get-things-done atmosphere of a start-up. You’ll be responsible for the high level design of the service, writing a lot of the initial code, maintaining servers and implementing solid development practices. We expect a fairly rapid ramp-up so you’ll also be point man (or woman!) for building a world-class technical team. No technical decisions have been taken yet, so you’ll have the freedom to choose the best technologies and architecture to do the job right.

You must have:

• Minimum 7 years programming experience, most of it on the Web.
• Mastery of one or more of the common Wed development languages (PHP, Python, Ruby) and their associated frameworks.
• Comfortable with Javascript and AJAX interfaces.
• Good knowledge of databases and SQL.
• Intermediate level system administration skills.
• Good software engineering practices (source control, testing, bug tracking, deployment, iteration planning, etc).
• Good communication skills.

Bonus points for:

• Past experience in a software architect role.
• Experience managing a team of developers.
• Having worked in a start-up previously.
• Experience developing for the iPhone or other mobile platform.
• Experience building applications for, and deploying them on, the cloud.
• Ability to do Front End integration.
• Having worked on social applications (comments, tagging, recommendations, social graphs, etc).

Some people dream of being part of a successful start-up, others go out and make it happen. Which type are you?

Contact: marc@socialgrapeswines.com