CEO Panel from left: Stephen Lake, CEO of Thalmic Labs; Jen Moss, co-founder of Plasticity; J. Paul Haynes, CEO of eSentire; Adam Belsher, CEO of Magnet Forensics.
Tech and Oktoberfest. What a combination.
The two worlds collided in Waterloo Region for a third time Thursday, to an unprecedented audience packed into the Tannery Event Centre for Techtoberfest, Communitech’s annual startup celebration.
The stars aligned as this year’s edition focused on venture capital during the same week Montreal-based VC firm iNovia announced it would be opening an office in the region.
A diverse mix of speakers from both sides of the funding table – CEOs and investors – brought their experience to share with the region’s startup community.
After a few shots fired from a Myo-armband-enabled T-shirt gun excited the crowd, Communitech CEO Iain Klugman started with opening remarks and introduced the first keynote.
Michael Serbinis, former CEO of Kobo, told the story of this game-changing company that dared to go up against large e-book players like Amazon and succeeded.
Serbinis talked about the suicide mission of going into a hardware war, “with a company that could easily crush us,” he said.
He admitted to the audience that not only was Kobo outgunned, but at the time it knew nothing, yet still went into battle.
“I believe that behind every successful company is a secret and for us that secret involved the booksellers,” said Serbinis, who employed the theory of, “the enemy of my enemy is my friend.”
Kobo partnered with top book retailers in each country, making an exclusive deal with each for a 50 per cent margin share. It gave Kobo a way to secure the best customers – the 10 per cent who drive 90 per cent of sales – for a fraction of the cost.
Another advantage in this David and Goliath fight was that “we built for global first,” Serbinis said.
The company went global all at once and ended up in 190 countries, as their competitor was focused on duking it out in local markets with the likes of Barnes and Noble.
Aside from great strategy, Kobo focused on a strong culture, one that was driven by a sense of competitiveness against the other market players.
“You have to build a cult,” he said, adding that, “My wife calls it the cult of Kobo and constantly makes jokes about it.”
Kobo faced similar issues to most startups, including investment. But unlike other companies, it had $110 million in sales by the end of the first year and was rapidly growing.
“We needed working capital and there wasn’t a big lineup wanting to give it to us,” said Serbinis, on the $50-million Series C round he needed to raise after 14 months.
Even with that early traction, not one venture firm wanted to invest, largely because of the risk of Kobo devices not selling against Apple or Amazon devices.
Not only did Kobo struggle to close that $50-million round, but in the time that it took to do so, things changed in the market and they realized they actually needed $150 million.
Instead of selling or going public, Kobo found a larger strategic partner, “a big brother,” to help them.
Serbinis went on to sell the company in 2012, after continued success, for $315 million, to Japan’s Rakuten.
After he completed his post-acquisition obligations, Serbinis took six months off because “it’s important to celebrate your wins,” he said.
Inspiration struck next at a conference focused on the future of the health industry, and the serial entrepreneur was on to his next startup – Everlong.
“Why bother?” he said rhetorically.
And answered with a quote from the film Inception: “There are those who are dreamers, and those who are stuck in reality. And then there are those that can turn one into another.”
Serbinis uses this concept as he looks to the future and his next venture.
Sticking with the VC theme, Serbinis was followed by a panel of local CEOs.
Stephen Lake, CEO of Thalmic Labs and Jen Moss, co-founder of Plasticity were joined by eSentire’s J. Paul Haynes and Adam Belsher, CEO of Magnet Forensics.
All four panelists had different perspectives and experiences with raising funds and brought a diverse set of answers on when to raise, how to approach investors and how much to give up in deals.
Issues came up from all four about the time cost of chasing VC money and diverting attention away from the company, which is one of the reasons Belsher hasn’t taken any external funds yet.
Apart from equity, “You’re also giving up control in a lot of ways,” said Lake, who cautioned on the finer details in agreements.
Moss commented on the relationship aspect of VC deals and that it’s just as much about you choosing them as they are you.
Belsher offered up an alternative to VC funds.
“We actually partnered with our largest customer and they are actually helping funding a bunch of our development,” he said.
On courting VCs, Lake advised to go straight to the firm’s general partners or managing partners and not to waste time with analysts, who aren’t the ones signing the cheques.
Although news of iNovia’s announcement was less than a day old, it came up during the panel.
“There was a press release yesterday that iNovia is opening an office here in Waterloo. I think that’s awesome news and we need to see more VCs here in Waterloo,” Lake said.
Warm German pretzels were served during the break, before Achievers CEO Razor Suleman took the stage.
Suleman was self-deprecating as he aired his failures that have led him to this point, in hopes that we collectively learn from his mistakes.
“Sometimes you win and sometimes you learn,” he said.
Culture was one area where he dropped the ball because he thought it was just something that happened, and it got to the point where he as CEO tried to quit after 40 per cent of his staff left.
“If you do empower your employees to genuinely create a culture that they want to be a part of, then they’re excited to come to work and put their blood, sweat and tears in,” he said, describing how he crowdsourced his employees to create a new culture.
Suleman said he failed to communicate the journey he had convinced his employees to join him on, and emphasized the importance of employees, who are also part owners, being just as informed about the “master plan” as he was.
While it’s difficult to deliver bad news to employees, such as having only 45 days of cash left, that’s “the time when you build trust,” he said.
Suleman also had generic values and a mission to get listed on the Nasdaq to guide the company.
“No one gets excited when a founder gets rich,” he said, so he went back to his employees to help create a mission and set of values that meant more.
Then comes hiring.
“I think hiring is the single hardest thing to do in business,” he said, adding, “I didn’t have a framework for hiring, or a process.”
After making some recruiting mistakes, like hiring guys he met while playing a game of hockey or women he met at the bar, he realized that he was looking for the wrong things.
“You need to find people who are passionate about your business, who believe what you believe, who see this as their calling, and that’s really hard to do,” he said.
It’s all about culture-fit and looking for people with potential.
“We tend to hire people for what they do and let them go for who they are, because their resume didn’t match the person who showed up at your company,” Suleman said.
He added the only good time to let someone go is before you even hire them.
Before getting into financing, he warned the VCs in the room to leave or cover their ears, as they wouldn’t like what he had to say.
As Suleman raised each round, with each one bigger than the last for a total of $33 million, he celebrated extravagantly with private jets and by renting out entire hotels.
“That was 33 million reminders that “Razor, you didn’t create anything valuable enough that companies would want to pay for, and that you had to go hat in hand and give away large chunks of your company to put cash on the balance sheet,” he said.
He asked why we celebrate raising money.
“If I get another invitation for a company that’s raised a bunch of money and is having a party, I’m not coming to that party,” he said, adding that he would show up if you’re throwing a customer or revenue party.
As his talk came to an end, Suleman talked about a recent conversation, with Y Combinator, about where the best applications to the prestigious accelerator come from.
As a local graduate (he went to Wilfrid Laurier University), he was delighted to hear that the University of Waterloo was mentioned.
He quoted one of the partners: “We would take the Waterloo team over the MIT team any of the day of week,” because Waterloo graduates have less ego than their MIT counterparts.
Applause filled the centre at that remark, which he topped with his announcement that he’s hiring for his next venture and is looking for designers and developers to join him in San Francisco.
During the last session of the day, it can be hard to keep an audience engaged, but the expert panel of VCs that followed Suleman had the audience hanging off their every word.
Tracey G. Riese, Managing Director at Golden Seeds; Kevin Carter, Partner at SV Angel; Marissa Campise, Partner at SoftBank Capital; Jonathan Ehrlich, Partner at Foundation Capital; and Roseanne Wincek, Associate, Canaan Partners, offered insight into the minds of VCs.
They responded to some of the issues raised by the previous CEO panel and talked about some hot topics, like women in tech and changes they’re noticing.
In true German spirit, there was a keg-tapping featuring K-W Oktoberfest volunteers, festival mascot Onkel Hans, and Miss Oktoberfest. Mike Farwell, local radio personality, emceed as Michael Litt, CEO of Vidyard, and Lisa Cashmore, from the Canadian Digital Media Network, did the honours.
“Prost” was shouted as the beer flowed.
Techtoberfest continues Friday.