500 Startups’ partner David Dufresne dropped by Invest Ottawa on Thursday to give the scoop on the organization’s new Canadian venture capital fund.
Since December, 500 Startups Canada has been an active fund looking at making deals with early stage companies – a lot of deals.
“We’re kind of different from a lot of VCs, because our model means taking a lot of small bets,” Dufresne told a crowd at the Innovation Centre at Bayview Yards’ incubator space.
The goal of the fund is to invest in 120 to 150 Canadian companies over the next two to three years. The investments will be relatively small amounts – $150,000, on average. Dufresne says the fund is about finding high potential companies, investing in as many as possible, and hoping that a select few will be the next Canadian unicorns.
This is the model of 500 Startups’ international fund, which features a portfolio of more than 1,800 companies across nearly all sectors. Though Dufresne says machine learning and virtual and augmented reality are exciting spaces to invest in today, he’s willing to look at any early-stage company that has initial product validation or traction and can demonstrate a path to growth.
One of 500 Startups’ most successful investments to date has been Twilio, a software firm that enables developers to embed messaging, voice and video features to their apps and counts Uber and Airbnb among its clients.
Dufresne says Twilio’s 2016 IPO returned two-thirds of 500 Startups entire initial fund. That’s the kind of success Dufresne is looking for in the north.
500 Startups Canada is, itself, a startup. Dufresne’s Montreal office fits just three people (four, if you’re friends), and the organization is still fundraising. The parent organization also puts on an accelerator program that Invest Ottawa portfolio company ChangeJar joined last fall.
The main benefit that comes with 500 Startups funding isn’t the money, however.
“Our biggest differentiator is our network,” Dufresne says.
Across its portfolio companies and mentors, 500 Startups has connections for nearly any industry question. Need to know what’s happening in Chinese artificial intelligence, or looking to set up a presence in Brazil? Dufresne says that’s what the organization excels at.
“Let’s say one of our startups needs to talk to someone about a certain API at Amazon. We’re probably a couple of Slack conversations away from opening up that door and getting that conversation started.”
As such, the organization provides legal support and connects startups to mentors and experts who can take the company through subsequent rounds.
As a man who gets pitched every hour of the day, Dufresne also gave a list of his biggest do-nots for entrepreneurs looking to land a little funding.
Firstly, do not put a stock photo of a millennial wearing white headphones drinking a latte in a cafe. Just stop. Stock images in general, avoid them.
"Hmm, maybe I should look into this venture capital fund..."
Stock images aside, here’s the rest of his list:
Don’t talk about taking a tiny chunk out of a total market size of $500 billion. Instead of a top-down approach, go bottom-up. Look at your current market share or user base, look towards achievable goals and immediately addressable market, and show how you can feasibly grow your startup to the levels VCs are looking for.
On that note, don’t go looking for venture capital if you’re not looking to build a $500-million business. There are many companies that solve problems, keep low overhead and a smaller staff, and make a good $5 million. Don’t lose control of your company by asking for money that won’t give you or the investors an exponential return.
Don’t lie. Don’t pretend you know the answer to a question you don’t, say you’ll send a follow-up email when you’ve got the answer. Don’t say an angel investor or a firm is really interested in leading a funding round because VCs talk to each other. The truth comes out.
- Never email just once. Dufresne gets 100 emails a day, and if he doesn’t respond, it’s not because he’s not interested. That said, the best way to get his attention is to have a trusted source refer your startup to him. He’ll spend time on a pitch that has been sent his way by someone who knows what he’s after.