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Part Two: Tech Startups

The startup dilemma: build a following or monetize first? Add to ...

Evgeny Tchebotarev and Oleg Gutsol were just about to run out of cash when U.S. investors came calling.

“We were getting pretty desperate,” says Mr. Tchebotarev, one of the co-founders of 500px, a website that lets professional photographers set up their own portfolio pages and interact with a community of like-minded photographers.

The story of how 500px went from a small Livejournal community in 2003 to the number-one ranked startup in Toronto (according to a recent ranking in TechVibes, a technology community site) illustrates the many ups and downs of trying to make a mark in the hyper-competitive tech industry.

At almost every stage, tech startups can face deeply polarizing choices – take the acquisition offer or go it alone? Focus on revenue or a user base? Stay in your home town or go to a tech hub such as Silicon Valley?

Each decision can fundamentally change the nature of the startup, and there’s no right answer for all of them. For every small tech company that has accepted an offer from a major player such as Research In Motion or Microsoft , there’s a company such as Groupon, which reportedly turned down a massive $6-billion offer from Google in favour of expanding independently. For every company such as Polar Mobile, which remained in Toronto but expanded internationally, there are dozens of Canadian entrepreneurs who decided to take their ideas to Silicon Valley.

Perhaps the most clear-cut issue facing startups today, it seems, is the revenue vs. user base question. Since the meteoric rise of sites such as Facebook and Twitter, the majority of new tech startups, especially in the mobile and social space, have focused on building a following first, and worrying about monetizing that following later.

For years, the co-founders of 500px spent their own money on the project – which, as amateur photographers in their own right, was also a sort of labour of love. But by early this year, that approach wasn’t working any more. Traffic to the site was soaring, thanks to increased publicity in the photography community, and the duo’s bandwidth costs were rising accordingly. A few more weeks of bills and 500px may well have gone under.

That’s when help arrived, in the form of more than $400,000 in funding from a U.S. investor. The co-founders of 500px had decided to use a Web site called AngelList, which offers a service that puts startups in contact with investors. The site’s success stories include startups that have since been purchased by Twitter, Google and Facebook.

“It’s the best website for new startups,” says Mr. Tchebotarev. “We were getting e-mails back and forth from the founders with helpful advice.”

In addition to the U.S. investment money, 500px went looking for help closer to home. The co-founders, both Ryerson grads, found office space at the university’s Digital Media Zone, an incubation chamber for new tech companies. In addition to a few desks, the DMZ provided the co-founders with access to other young tech entrepreneurs – relationships the duo are now using to help get the mobile version of their Web site up and running.

Today, 500px is no longer just a few weeks away from running out of cash. The staff has grown from two to eight, and plans are in the works to find a new office location that will fit the growing company.

As for leaving town to a tech hub such as Silicon Valley, Mr. Tchebotarev says he’d rather see the company stay in Toronto.

“We’d love to stay in Toronto as long as possible,” he says. “There’s access to a bigger talent pool here. It’s strange but true: There’s a shortage of great developers in Silicon Valley and New York because they all got snatched by the big companies. Toronto allows us to spend less on development.”

The series continues next Thursday. Other stories can be found on the Web Strategy section of the Report on Small Business website.

Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT

 

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