Jesse Rasch

About This Site

2006-08-16T21:00:08-04:00

My commentary will be very infrequent. Subscribe to the RSS or email feed for this blog if you wish to be automatically notified when new content has been posted.

My primary objectives:

Evangelizing the Entrepreneur

Shortly after the sale of a controlling interest in my startup InQuent Technologies, I spent a considerable amount of time speaking at universities and to business groups about my entrepreneurial adventures. I enjoyed sharing my experiences in these venues. It was mutually rewarding. I believe that entrepreneurship is in the public interest, and I seek to actively promote this belief in Canada and abroad.

With commitments to new ventures and family increasing in the past few years, I have had less time for public speaking. I view this blog as an ideal platform to spread my entrepreneurial gospel and engage a much larger audience than I could reach through speaking engagements.

Encouraging Venture Philanthropy

I believe it is incumbent upon all who achieve financial success to participate in some form of philanthropy. In particular, entrepreneurs who have realized a favorable liquidity event (or multiple events!) have no excuse for not participating in philanthropy, whether their involvement be active or passive.

I established my private charitable foundation nearly six years ago at the age of 24. My foundation has since distributed millions of dollars in traditional and venture-oriented grants to primarily Canadian charities. It has been a vehicle for participatory philanthropy that has provided my family and I enormous personal satisfaction.

It is one of my objectives to use this blog to discuss contemporary philanthropy and encourage/guilt/goad other successful entrepreneurs of all ages to support their communities through strategic charitable giving.

Entrepreneurial History

2006-12-06T23:30:19-05:00

Much of the focus of this site will be on entrepreneurship. Content will be largely drawn from my own personal experiences and those of entrepreneurs I know or work with - I will avoid theory and stick to real life examples. The range of topics will run the gamut from what I consider to be basic entrepreneurship to sophisticated company building strategies. There will subject matter of interest to both aspiring and serial entrepreneurs.

Naturally, my perspective on entrepreneurship is largely shaped by my own experiences. Entrepreneurs come from vastly different backgrounds. It seems only appropriate if you are going to invest the time to read my blog that you know of my entrepreneurial credentials. The following post will provide an overview of my early (teenage) entrepreneurial history to be followed by additional background posts on my technology ventures, which I started when I was 19.

Entrepreneurial Biography - Early Ventures

2006-12-07T02:22:30-05:00

WORKING FOR "THE MAN"

The first and last job I would ever hold was as a junior forest ranger for the Ministry of Natural Resources in Cochrane, Ontario. I was 16 at the time. Cochrane is known for its polar bears and being the birthplace of hockey player and legendary donut purveyor Tim Horton.

What I thought would be an opportunity to commune with nature (I was a young environmentalist) and plant trees ended up being 3 summer months of paving roads, cutting trees for unnecessary trails, and servicing outhouses in remote provincial parks. The RCMP and health officials also quarantined our barracks for one week when a mysterious illness spread amongst our group and hospitalized two of my crew. No one ever explained to us what the infection was; some thought salmonella from the small kettle lake we swam in, others were convinced it had something to do with the ball lightening that hovered near our campsite. Witnessing the latter, a very rare form of lightening, was by far the highlight of that summer.

MY FIRST COMPANY

The next summer, when I was 17, I decided it would be more gainful to work for myself. A family friend informed me of an opportunity to erect a-frame construction signage for a homebuilder in Toronto. The signs, which were erected on public street corners to guide prospective home buyers to development sales centers, could only go up on the weekend or city officials would confiscate them. While most only saw unappealing hours - signs had to be up by 8am Saturday morning and taken down Sunday evenings after 6pm - I sensed opportunity for what would soon become Signs Up!, my first company.

Up until this point developers would generally have one of their construction crew setup the signs. Inevitably this would not work out well - the workers didn't like the hours or the menial nature of the job. Signs were poorly erected which resulted in fewer prospective purchasers reaching the sales center. I quickly realized the problem was common to every homebuilder in the Greater Toronto Area.

Signs Up! quickly grew into a thriving niche business with monthly revenues approaching $20,000 before I sold the company to my employees 2 years later. It was with this early venture that I acquired a basic foundation of skills that I would later build upon in future ventures. From managing older employees (I was 17, my drivers were in their early 30s) to learning of the dangers of well-intentioned publicity (my first press coverage, an article on my business in the Toronto Star, resulted in no new customer wins and a legal threat that forced me to change my company name - that was not the outcome I had expected!).

What was the most valuable skill acquired? How to cold call. I spent countless hours cold calling hundreds of builders - it was the definition of trial by fire. In time I would be able to artfully circumvent secretaries and deliver a perfected telesales pitch to promote Signs Up! I quickly learned that my pitch needed to be malleable to improve my closure rates - a hard sell for the type-As and a soft sell for the type-Bs, a cost-savings pitch for the smaller builders and an operational-efficiency pitch for the larger builders. A complimentary skill developed during this formative period - the ability to effectively control the direction of a call. In time, this would end up being an equally if not more important ability.

GOING AFTER A LARGER MARKET

In 1994, at 18 years of age, I was ready to take on a larger challenge. I deferred my final semester of high school (which I later completed - I do have some formal education!) to run my next venture - a play in the then recently deregulated Canadian natural gas market. I operated a marketing organization that took advantage of the newly competitive market that offered consumers and businesses a choice from which producer they purchased their natural gas. This experience afforded me the opportunity to acquire two new core skills:

(1) From a sales perspective, I now primarily sold corporate accounts on a face-to-face basis, and I also provided sales instruction to large groups of people. These new sales skills rounded out my sales abilities, which had previously consisted primarily of telesales.

(2) From a management perspective, I learned how to scale an organization quickly. Granted, this was primarily a commission-only sales organization with high turnover, but I scaled it with the assistance of a friend who I invited into the business to a fairly steady 80+ reps in less than a year.

This business also brought with it accounting headaches (the first of many to come, watch for future posts ;-) that are inevitable for a transaction-intensive business run in a startup modality. In the interest of brevity, I'll fast forward to the outcome of this business:

JR: "Mom, Dad, I've decided not to go to university. I'm making good money. I'm going to stick with this."

Parents: "That's not your decision to make."

JR: "[attempting to use sales skills to manipulate parents]"

Parents: "You can always make money, but you have only one opportunity to experience university life in a new city when you are young" (I had previously chosen McGill in Montreal).

PARENTAL PRESSURE PREVAILS

My parents exerted a bit more pressure and I conceded. I could blame it on my filiopietistic nature, but I did see the wisdom in their advice, and it ended up being one of the better decisions that I have had to make under duress. My partner took over the business and I traded a six-figure income at 19 for textbooks and bitter Montreal winters.

Of course, that didn't last for long. I'll save what happens next for my upcoming posts on my technology ventures that I started during my first year in McGill.

Entrepreneurial Biography - WebHosting.Com

2006-12-26T18:46:30-05:00

IT STARTED OUT SIMPLY ENOUGH

I had always been a computer hobbyist. I taught myself html and coded my first website in early 1995, prior to leaving for McGill. The site was for my father's achitectural practice. I built the site for him mostly out of my own interest in better understanding web development. That he was quoted thousands of dollars by a design firm to build a site also caught my attention. This was the era of static websites - web design was a simple task. This experience led me to the business I would start in my first year at McGill - DynamicWeb Design.

DynamicWeb was my first "virtual office" venture. Leveraging the great human capital available in Montreal, I assembled a team of contractors to whom I outsourced the website development work. My focus was on client acquisition. Using redirected phone numbers and mailing addresses in both Toronto and Montreal, I created the perception of a company much more sizeable than the actual reality (I worked alone out of my university dorm room!).

ENTERING THE WEB HOSTING BUSINESS

DynamicWeb grew quickly and soon had a blue-chip client roster which included Bank of Montreal, Future Electronics, and a number of other large Canadian businesses. In addition to development services, we provided web hosting to our smaller clients via a reseller relationship with a web host operating out of Baltimore. Their uptime and customer support were terrible and reflected poorly on us. I reasoned that I could not be the only web developer dissatisfied with their web host. As this was not our first experience with a sub-par hosting provider, I made the decision to start my own web hosting company.

Using the DynamicWeb.net brand, the business grew rapidly through word-of-mouth referrals and targeted telesales. In 1996 I partnered with my roommate, Mike Apted, to help me grow the business. We ultimately developed a set of tools that could be accessed via a customer's browser that empowered them to comprehensively manage all aspects of their web hosting environment. This resulted not only in a vastly improved customer experience, but significantly reduced our technical support costs.

BOOTSTRAPPING RAPID GROWTH

We were excited about the growth prospects for the company. I recall predicting we would reach $1 million in sales within 3 years. Naturally, the loan officer at our bank did not share our enthusiasm and would only offer us a fully collateralized line of credit. I used a combination of funds from my previous ventures and a mixture of credit card and student loan debt to finance the growth of DynamicWeb.net. We were bootstrapped from inception.

I ended up in default of most of my personal debt obligations, but this did not concern me as I had no assets to protect (I ultimately repaid these debts, but nearly a decade later I still have a credit score insufficient to qualify for even the smallest dept store credit card!). Within a year of starting DynamicWeb.net we had surpassed our year 3 sales forecast and we were rapidly running out of space for staff in our crowded Montreal apartment. We made the decision to drop out of university and move the company to Toronto. I was 21 at the time.

THE LAWSUIT THAT CHANGED EVERYTHING

In late 1997 we opened up offices in Toronto on the third floor of an antiquities dealer. Within a few weeks of moving in we made our first major offline ad buy, purchasing a one page ad in PC Magazine for nearly $25K - a significant ad spend for us at the time. Within days of submitting the creative for the ad, we received notice from a New Jersey based company that operated in a completely different line of business at the dynamicweb.com URL that we were infringing on their trademark.

Their case had no merit, but they had tens of millions in the bank and a small army of lawyers. I didn't. After much deliberation, I decided against wasting my limited resources and time fighting their frivolous lawsuit. We agreed to change our name within a predefined period.

The timing could not have been worse. We were in the midst of rapid growth and had built brand equity in the DynamicWeb.net trade name. This was a significant setback for our company, or so we thought.

A BLESSING IN DISGUISE

A theme that will confront any entrepreneur on a near constant basis is battling adversity. We had a limited timeframe to develop a new brand for our company. Little did I know that this lawsuit would end up being the catalyst for an event that would soon elevate our business to the ranks of the world's largest web hosting companies.

I had long been intrigued by the power of category-defining generic domain names to both deliver qualified type-in traffic and serve as a brand for a business. When I was searching for a data center provider who could provide dedicated servers for our retail hosting business, I typed dedicatedserver.com into my browser. We ended up becoming one of the largest customers of the company that owned this URL at the time. If I could find a similarly appropriate domain name for our company, it would go a long way towards smoothening our brand transition.

To our good fortune, the company that owned the webhosting.com domain name was based in Toronto. They had amassed a database of thousands of prospective clients who arrived at the webhosting.com domain via direct navigation [archived site circa 1997]. They had yet to enter the web hosting business but made it abundantly clear they had no intention of selling the domain.

I refused to give up that easily. I had already convinced myself that this would be our brand.

WEBHOSTING.COM IS BORN

After a reluctant courtship, details of which I'll share another time, we convinced them to part with the domain for approximately $30,000 in early 1998. To say that the domain had a transformative effect on our business would be an understatement of the highest order. The day we launched our new retail web hosting brand at WebHosting.com, our sales quadrupled and would continue to grow in the weeks to come as the domain's generic descriptive nature was highly relevant for search engine optimization.

In time I would purchase a matching vanity phone number (888-WEB-HOSTING) to pair with the WebHosting.com brand. Through organic growth and the acquisition of three related companies that provided much needed human resources, our growth skyrocketed.

By 1999, within 15 months of changing our name to WebHosting.com, we had registered over 150,000 domain names for tens of thousands of hosting customers in over 140 countries around the world. We were on track to surpass $10 million in annual sales, handily exceeding my predictions of 2 1/2 years earlier. Our headcount grew to approximately 100 staff and we were moving offices on an annual basis to accommodate our constant expansion.

MAINTAINING OUR EDGE

One of the industry trends that concerned me was the increasing commoditization of web hosting. Competitors were quickly duplicating our early technology innovations. Quality customer support, a challenge for any rapidly growing technology business, was less of a differentiator than it once was. We found continued success through highly effective marketing collateral and a significant reseller network that represented over 60% of our sales. This was a good competitive advantage, but I felt we needed to do more to maintain our leadership position.

In my next post, I'll discuss the evolution of our business from a web host for small businesses into an application servicer provider of highly-automated, scalable hosting platform software for carrier class companies.

Entrepreneurial Biography - InQuent Technologies

2006-12-27T17:13:39-05:00

OUTMANEUVERING THE COMPETITION

Any entrepreneur worth their salt is constantly thinking about how they can both defend and increase their market share. For us, the answer came courtesy an email from KPN, the incumbent Dutch telecom. They were interested in selling our products to hundreds of thousands of business customers they served in the Benelux region. They wanted to know if we could situate our web and application hosting platform in their data centers and integrate our software with their legacy billing, customer care, provisioning and operational management systems.

Naturally, we replied in the affirmative and ultimately won the contract. Next step was to figure out how to actually deliver a private labeled platform to them in the time-frame they had requested. As we were developing the solution, we immediately recognized the potential market for "wholesale" web hosting was significant - almost all telecoms struggled to deliver a web hosting product set competitive with that of scrappy pure-play web hosts. However, what they lacked in product they made up for in reach - as a group, global telecoms had tens of millions of small business customers who trusted their brands and wanted a web hosting solution that could be bundled with their other telephony and data services on one bill.

PIONEERING THE WHOLESALE MARKET

I decided we would be the ones to enable these giants to compete effectively against nimble companies like ourselves. We would partner with the telecoms instead of competing with them. We shifted our focus to wholesale web hosting solutions for large telecoms, broadband operators, ISVs, and financial institutions. As part of this strategic transformation into the world's largest provider of wholesale OEM hosting solutions, we renamed the company InQuent Technologies. We continued to operate WebHosting.com as our retail brand, but most of our energy was channeled towards building InQuent.

By early 2000, InQuent was providing managed email and hosting infrastructure for the world's largest service providers. Companies like Telecom New Zealand and Comcast were fueling a growth trajectory that saw our private label business eclipse the WebHosting.com retail channel for overall revenue contribution.

"GROWING PAINS" - AN UNDERSTATEMENT

I had just returned from Hong Kong after closing a deal with PCCW, the incumbent in the region, and I found our offices in a state of disarray. Workstations were lining the hallways. We no longer had a boardroom - it was sacrificed to make room for a dozen cubicles. My management team had swelled from just Mike and I two and half years earlier to ten execs managing a staff of 160 in Toronto, the US, Europe, and Asia. A significant amount of my time was now spent on recruiting to keep pace with our growth.

We now faced a new challenge - could we build a foundation to support our expansion quickly enough or would our house collapse under the weight of our growth. Frankly, we nearly succumbed to the pressures of growth on more than one occasion. I credit the resiliency and determination of our people, whose willingness to work in the most chaotic of circumstances and believe in the vision of what we were building, with getting us through our growing pains to this point.

And then the phone rang. It was early February and a call from a prospective customer would cause me to revisit if the spirit of our team alone would be sufficient to seize the opportunity now at hand. This prospect had the ability to push our geometric expansion to the next level and test our resolve as it had never been tested before.

THE BABY BELL'S RING

I had the good fortune to participate on a board of Telecom executives that gathered in Toronto to discuss Canada's state of connectivity. It was through this venue that I met various members of the management team of BCE. As a result of these introductions, Bell Canada would ultimately become a prized customer for InQuent.

This client win, combined with our established position as the leader in the wholesale hosting market, attracted the attention of SBC Communications of Texas (now AT&T). They owned 20% of Bell Canada at the time and had numerous investments in other telecoms throughout the world. They were also the largest telecom in the United States. When they called to speak to me about a potential partnership arrangement, it was immediately clear that this opportunity would be another company transforming event.

To this point we had not taken a dime of outside investment - InQuent was bootstrapped from the beginning. In the backdrop of the NASDAQ crashing and many VC-backed Internet companies gasping for air on their way to a much deserved death, InQuent was flourishing.

However, if we were to take on AT&T as a client, our estimates showed we would need to double our staff in the next year and make significant investments in hardware, human resources, and office space to support AT&T. There was no way around it - we would require additional capital to fund our business.

TRADING CONTROL FOR A STRATEGIC PARTNER

From their perspective, AT&T felt that the strategic importance of our product offering and the commitment they would undertake to monetize our platform with the millions of business customers in their portfolio warranted an ownership stake in InQuent. While taking an investment from AT&T would likely have precluded us from acquiring the business of their largest competitor (Verizon), there was no certainty we would ultimately win that business, but there was certainty that we would gain access to all the Baby Bells in AT&T's portfolio and their investee telcos around the world.

In the summer of 2000, after much deliberation, we ultimately reached an agreement resulting in the sale of 51% of InQuent to AT&T in a transaction that valued InQuent at $342 million dollars. It was essential to me that InQuent retain its headquarters in Toronto and have the freedom to continue to service and grow its wholesale customer base. As part of the transaction, we agreed to hire a new CEO, past Sprint Canada president Ken Wilson, and I retained my post as Chairman. Ken assumed responsibility for the direct management of the company, permitting me to spend time on a number of other initiatives, including working with VerticalScope, an online media company I co-founded with Rob Laidlaw in 1999.

InQuent continued to grow over the next 12 months, ultimately reaching a headcount of nearly 250 people with a singular focus on delivering best of class of hosting solutions to AT&T and our roster of private label partners.

[Two interviews discussing the initial 51% sale of InQuent - Aug 2000]

IT'S HARD TO SAY GOODBYE

A year had passed since I sold a control stake in InQuent. AT&T had originally wanted to buy 100% of InQuent but I refused. I was optimistic that we would be able to go public in the not-to-distant future. I envisioned an IPO that would be gainful to all our employees, rewarding those who had worked so tirelessly to build InQuent into one of Canada's most successful Internet companies. Unfortunately, it was quite clear in the summer of 2001 that regardless of the fundamentals of the company, there would be no market for new technology IPOs at any point in the foreseeable future.

As time passed, a number of other trends emerged that would ultimately influence my decision to sell my remaining 49% interest in InQuent to AT&T. Most of the challenges I had in my relationship with AT&T were a consequence of the enormous size of my "baby" bell partner - nearly 300,000 employees, 90 million customers and over $100 billion in revenue. Despite the well-intentioned efforts of several AT&T staffers who managed the InQuent relationship, many divisions of the multi-faceted company treated InQuent as though it were a wholly-owned subsidiary. Most were not aware there was another shareholder in InQuent, and many tried to use InQuent as a cost-center for expenses they did not want to carry in their own budgets.

After making a significant investment in infrastructure to support the AT&T channel and having the "green light" for going live repeatedly postponed for reasons outside of my control, I decided it was time for me to move on. My ability to exert influence over the direction of InQuent was diminished to the point where I felt I could no longer make a meaningful contribution to the growth of the company.

I had a good relationship with the AT&T executives who sat on my board. These people were key stakeholders in driving the successful growth of AT&T into the world's largest telecom. It was evident, however, that in the context of a conglomerate that did hundreds of billions in mergers and acquisitions, InQuent was but a tiny fish in the AT&T sea. We agreed to part ways at the end of 2001 in a transaction that resulted in the sale of the 49% of InQuent I still held to AT&T.

INQUENT, ACT II

It would be a short interlude between my exit from InQuent and regaining control of the company I had started some four years earlier. Within months of leaving InQuent I received word that AT&T was going to put InQuent up for sale. Not surprisingly, InQuent's private label clients favored independent ownership from AT&T, a potential competitor. This concern had been previously mitigated when I was a shareholder. At the same time, I don't believe AT&T wanted to be in the business of servicing other telecoms. AT&T decided they would sell InQuent, but retain the rights to utilize InQuent's IP and ownership of the WebHosting.com domain name.

Several parties bid for InQuent but my management team backed buy-out offer prevailed. The InQuent we acquired in March 2002 was a very different company than the one I had sold 20 months earlier. Much of the infrastructure and human resources put in place to support AT&T were no longer required. InQuent had to be streamlined to be lean and efficient, and that meant many cost-cutting measures had to be implemented in an effort to restore the company to profitability.

Targeted layoffs were a very difficult but necessary step to ensure the long-term financial viability of the company. We reduced the workforce by 40%. We renegotiated our office lease from over 40,000 sqft to 15,000 sqft. We restructured or bought out a number of equipment leasing and software licensing commitments. We significantly consolidated our data center space. Finally, we sold the portion of the retail business not retained by AT&T (predominantly non-US customers) in a structure that saw us keep the former retail customer base as private-labeled end-users of the acquiring company. As a result of these restructuring efforts, expenses were halved and we exited the retail hosting business. We now had a singular focus on providing web and applications hosting services to our private label customers.

TIME TO MOVE ON

When presented with an offer that rewarded the management team for turning around InQuent, we made the decision to sell the company once more. While I was pleased to have completed another successful sale of the business, I derived most of my satisfaction from knowing InQuent would continue to be a viable business that would outlast the historic technology bust of 2000-2003. I credit much of our success to the tireless dedication of the many people who worked at WebHosting.com and InQuent. The job was often thankless, the work hours were often long, and the office conditions were at times far from ideal, but the hundreds of people who were part of the InQuent family over the years made our success possible.

As an entrepreneur, I took great pride in seeing my business weather a number of fierce storms only to come out ahead stronger for the experience. After numerous merger and acquisition transactions over the company's history, InQuent is today a wholly-owned subsidiary of Network Solutions. In addition to providing web and email hosting to the millions of domain registrants at Network Solutions, InQuent continues to service private label telecom customers around the world.

Aaron Pereira: Serial Social Entrepreneur Par Excellence

2007-01-16T02:16:47-05:00

My interest in promoting a culture of entrepreneurship is not limited to the for-profit sector. I've had the opportunity to befriend a number of social entrepreneurs over the past six years. These non-profit bootstrappers often follow a very similar path to their profit-oriented counterparts. While the parallels are remarkable, the hurdles to success are usually greater for the social entrepreneur. It is often far more difficult to raise money, foster an environment of economic efficiency, promote technological and operational change, and measure success in the charitable sector.

When a social entrepreneur's venture involves a paradigm-changing business model that deeply intersects with the world of government regulation, the odds can seem nearly insurmountable. The fear of long sales-cycles and faceless bureaucracy is sufficient to preclude most for-profit startups from venturing in the realm of the government. For my friend Aaron Pereira, navigating a cumbersome regulatory framework is one of the many challenges he has successfully overcome as he nears completion of a multi-year project to launch Vartana, a community bank for the non-profit sector in Canada.

Vartana is Aaron's second major social venture. I first met Aaron in 2000, shortly after he had developed the idea for CanadaHelps.org, an online donation portal for Canadian charities. Aaron, who had run a successful web development business as a student at Queens University, made the selfless decision to channel his entrepreneurial energy into a non-profit startup at a time when the allure of dot.com profiteering was difficult for most entrepreneurs to resist. The idea for CanadaHelps was born out of Aaron's frustration with traditional funding options. He correctly predicted that a web-enabled service to facilitate donations to any of Canada's 80,000+ charities would both simplify the donation process for donors and greatly benefit charities by offering them a zero-cost platform for receiving donations.

Common to most startup success stories, Aaron recognized an inefficiency in a multi-billion dollar market as an opportunity to build a successful venture. And in this case, successful is an understatement. At age 19, Aaron convinced two friends to join him in building CanadaHelps. He led a successful fundraising for startup capital in 2000, built a first-class board of advisors, and launched the donation portal the same year. Aaron recently sent me an email with the amazing news that six years after it's launch, CanadaHelps.org now generates over $20 Million in annual donations for thousands of Canadian charities.

CanadaHelps achieved several important objectives:

they simplified the giving process for individual donors and developed a charity gift card product, which contributed to an increase in personal giving levels

they significantly reduced costs for businesses by allowing corporations to outsource almost all of the administration of their corporate/employee giving campaigns

they enabled every registered charity in Canada to receive donations online - an enormous advantage for thousands of small charities who do not have the expertise or resources to develop online capabilities on their own

Not long after building CanadaHelps, Aaron began searching for his next startup idea. In 2002, he launched an even more ambitious undertaking - a plan to develop a bank to service non-profits. Building a financial institution from scratch is an enormously complex undertaking. Aaron and his team have raised millions of dollars and dedicated five years to this initiative. He is now nearing the launch phase for Vartana. This excerpt describing Aaron's venture is taken from his Ashoka Fellow profile page:

CSOs are vital to Canada's economy - employing over one million people in 2003 and comprising 9 percent of the GDP - but they are largely denied access to the credit and advisory services essential to their fiscal growth. The Community Bank will fill this void by creating the nation's only financial institution dedicated to the special needs of CSOs.

Aaron sees an opportunity where others see an unchangeable system. His Community Bank Initiative will provide the resources that CSOs currently lack: checking and savings accounts, short term credit, long term investment, financial advice and advisory products. He plans an innovative governing structure; the Bank will be governed by CSOs themselves, with investments from a variety of stakeholders such as foundations and others, with yields that are reinvested with tax benefits to sustain a sound financial base and support a motivated, competitive work force.

If you're interested in reading more about Vartana, you can review this PowerPoint presentation for additional information. And of course, if you are interested in supporting the community bank, you can make a donation through CanadaHelps to Vartana (or any other charity in your area of interest!).

I'm grateful to have had the opportunity to provide Aaron with modest seed capital through my foundation for both CanadaHelps and Vartana. Aaron epitomizes the type of social entrepreneur I like to invest in. His accomplishments are a testament to the power of social entrepreneurship and will hopefully inspire others to follow in his footsteps.

Primedia Acquires Modified from VerticalScope

2007-02-09T16:01:44-05:00

Yesterday we announced that VerticalScope sold its automotive publishing division to Primedia. The acquisition of the Modified Automotive Group is a significant milestone for both VerticalScope and Rob Laidlaw, my operating partner and President of VerticalScope. Rob is a highly skilled media entrepreneur - in just four years he grew Modified from an idea into the fastest growing family of automotive publications in the highly competitive automotive market. Each Modified title redefined it's respective niche, bringing a new level of design, editorial, and marketing excellence to the market. My congratulations go out to Rob and everyone at VerticalScope who contributed to building Modified and its sister titles into the leading publications for automotive tuner enthusiasts.

Today Primedia announced it's intentions to sell its Enthusiast Media group, which had revenues of more than $500 million in 2006. The group's properties now include the Modified Mag titles in addition to Motor Trend, Hot Rod, Automobile and Automotive.com among more than 70 publications and 90 web sites.

VERTICALSCOPE: A BRIEF HISTORY

I first met Rob in 1997 when he ran TopHosts.com from his home in Regina, Saskatchewan. My web hosting business advertised on his website, a directory for web hosting providers that he had started at age 15! Rob's site was the second largest hosting directory at the time and one of the first niche directory model advertising sites on the Internet.

When the then-largest hosting directory sold for $30 million to CNET in 1999, I floated the idea by Rob of forming a partnership to grow his business. Rob had built a respected brand and significant traffic base - an excellent foundation that I felt we could leverage into a much larger business with the operational, technical and sales resources I could contribute.

At age 18, Rob dropped out of university (a wise decision!) and relocated to Toronto to work full-time on growing the business. That was the beginning of a great partnership that endures to this day. Under Rob's leadership TopHosts became the largest web hosting directory and the flagship media property of VerticalScope, the company we formed to operate TopHosts. Since then we have developed and/or acquired over fifty online media properties in the sports, automotive, and technology vertical markets. Amongst others, our properties include the largest network of automotive and sports communities online, AutoForums.com and VerticalSports, content properties like Motorcycle.com, and a variety of niche directory websites.

WHAT'S A WEB COMPANY DOING LAUNCHING MAGAZINES?

At a time when most magazine publishers were struggling extend their brands online, we decided to go in the opposite direction, and launch print titles in parts of the automotive segment that Rob identified as being underserved. It was an unorthodox decision, but most good decisions are!

Modified was born out of Rob's realization that existing automotive publications serving the sport compact market failed to capture the excitement an exploding industry - movies like Fast & The Furious, video games like Need For Speed, and the emergence of new motorsports like Drifting were driving enormous growth in the sport compact world as legions of new enthusiasts began modifying their rides. Rob felt VerticalScope could quickly develop a superior print product and ride the wave of growth in this market. As both Rob and I are automotive and motorsports enthusiasts, he did not have to do too much convincing that this was a good idea.

Through exclusive access to influential industry personalities, event partnerships, and leveraging our significant network of web properties, Rob built a very successful stable of magazine titles that reach millions of enthusiasts each month. After finding success in the sport compact market, we extended the popular Modified brand to the luxury and exotics segment, and then to the venerable mustangs market. Each new launch brought more success.

RETURNING TO OUR ROOTS

Rob and I were not looking to sell the Modified Automotive Group, but when the right opportunity presented itself we decided to proceed. With the sale of Modified, VerticalScope returns to its origins as a pure-play Internet media company. We have a number of ambitious growth plans underway and I expect that VerticalScope's future will be very promising.

UnVenture Capital: An Alternative Approach to Startup Investing

2007-03-06T02:06:23-05:00

I was recently quoted in a story on startup fundraising where I was identified as a "Venture Capitalist". This is not the first time I've been incorrectly labeled a VC. I can see how the confusion could arise - my operating entity for direct early-stage investing is named "Aprilis Ventures" and our website homepage identifies us as the "venture capital company of angel investor Jesse Rasch". Since I'd hardly want my untraditional approach to seed and early-stage private equity to sully the reputation of ordinary venture capitalists, I thought it prudent to better describe the nature of my startup investing.

The following 10 points provide an overview of my approach to angel investing. In future posts, I will elaborate on my criteria for making investments and fundraising tips for entrepreneurs. Of note, there is a fair amount of commonality here within to my approach to funding non-profit projects through my charitable foundation.

FLEXIBLE INVESTMENT PARAMETERS

I only invest on my own account. I have no limited partners to answer too, no fees on assets under management to maximize, and no minimum deal size constraints. The latter point is important, as most early-stage VCs faced with a promising company that does not require $2.5MM+ in funds are forced to choose between overcapitalizing the company to get the deal or passing on the opportunity all together.

Most companies I work with raise between $200K and $2MM in their first round. My average investment is in the $250K to $500K range. I have invested as little as $50K and as much as $1.5MM in single round. This broad range represents companies at the opposite end of the startup spectrum - from two university students working on an idea after classes to a team of serial entrepreneurs with early revenues and deep domain expertise.

A GUT FEELING

At this stage of investing, early in the company lifecycle, I rely more on my gut feeling than cumbersome due diligence. To a large degree, I believe success is inversely proportional to the amount of due diligence performed on an investment. The more deeply we analyze a company the more reasons we can find to say no.

FIRST ROUND FOCUS

The majority of my self-directed venture investing is in seed and early-stage ventures. It is at this stage of company formation where I derive the most satisfaction from working with entrepreneurs. I will occasionally invest in later-stage companies when we have either deep domain expertise or the entrepreneur is well known to us.

SIGNIFICANT BOOTSTRAPPING EXPERTISE

Having bootstrapped a number of businesses from the idea stage to a cumulative equity value of nearly half a billion dollars, we have proven company building expertise. We are not armchair investors. We live and breath an entrepreneurial existence and share common ground with our fellow entrepreneurs.

AN ENTREPRENEURIAL PERSPECTIVE

With a long history of entrepreneurship, I take a very hands-on approach to venture capital. Capital is widely available; if all an entrepreneur seeks is funding, he should go talk to a VC. In most cases, the investment of our time, knowledge, experience, and operating assistance appreciably outweighs the value of our capital contribution to a business.

COLLABORATIVE FUNDRAISING

Historically I operated as a lone angel, often providing the sole source of funding for seed and early-stage startups I worked with. As I return to more active investing in the startup space, I am increasingly collaborating with other entrepreneurial investors to expand our investment universe and bring additional expertise to ventures I fund.

WE ARE NOT VC TASKMASTERS

We consider our role to be consultative and collaborative. We are an entrepreneur's partner, not employer. Many entrepreneurs receive a rude awakening to the power imbalance present in the relationship with their VC. An entrepreneur who does not choose their investor wisely may find themselves sharing their bed with a VC dominatrix. The venture capitalist as a destructive force is not without precedent.

For the record, I have no personal disdain for venture capitalists. On the contrary, I am an investor in numerous venture capital funds and I count a number of venture capitalists as personal friends. However, any good venture capitalist will tell you that not all venture capitalists are good. Most merely perform a perfunctory role as lenders of unsophisticated risk capital to the startup ecosystem.

There are of course excellent venture capitalists. Nevertheless, in analyzing the performance of VC funds, there is a significant skew towards top-decile firms. It is immediately evident that the majority of VCs will deliver very poor risk-adjusted returns to their investors. This information is useful to an entrepreneur weighing the value a prospective VC brings to the table - statistically, there is likely to be no value.

A PARTNER YOU CAN COUNT ON

Many entrepreneurs are forced to early or untimely financing or liquidity events by investors who exert undue influence on the entrepreneur's company. While it is important for an angel investor to see a path to an exit, it is critical that an entrepreneur align himself with an investor who will be an enduring partner in both good and bad times. We stand by our companies through thick and thin.

SELFISH PERSONAL INTEREST

As a general investor in numerous asset classes, my direct investments in venture capital represent a small percentage of my overall investing activities when measured on a capital basis. However, when measured against time, life's most precious commodity, it is immediately evident that I spend a disproportionately large amount of time wearing my angel investor hat.

This is important to emphasize. A skillful entrepreneur or investor will never run out money, but one day, they will run out of time. How you spend your time is of the utmost importance, as it is a constantly depleting asset. The fact that I often spend more time than is economically rational working with startup entrepreneurs is a reflection of my genuine interest in promoting a culture of entrepreneurship. In this regard I could be considered selfish, as I often derive more satisfaction from my working relationship with an entrepreneur than I derive economic benefit.

THE BEST OF BOTH WORLDS

Put most succinctly, my early stage investing activity is a hybrid of angel investing and venture capital. Maybe that makes me a Venture Angel, or an Angel Capitalist. In the final analysis, the label is not important. There are easier ways to engineer financial returns in the capital markets - for me, angel investing is equal parts passion and business. We see ourselves as a true partner to entrepreneurs. We actively help to build an entrepreneur's business by leveraging our knowledge, experience, and network to create a successful company.