Marcus Daniels is CEO of Highline, the first pan-Canadian accelerator platform. Highline, the name a nod to the 49th parallel separating Canada and the United States, will focus on providing programming and support to help Canadian startups compete internationally, with the goal of keeping them north of the border. He spoke with Report on Small Business at the 2014 GROW conference in Whistler.
Q: Now that Toronto-based Extreme Startups and Vancouver's GrowLab have merged to form Highline, how is the single entity going to differentiate itself?
A: We're moving away from a generic, singular, traditional cohort program that's 12 weeks long and architecting what I call 'acceleration products.' There are specialized accelerator programs – different lengths with different core focuses. That's a layer where we offer the most value, specifically with the success metric both GrowLab and Extreme Startups had over the years.
Our core focus now is to find companies that have a product in-market and help them accelerate to get to the point of product-market fit.
The model is to speed to institutional seed and the only way we'll be able to fulfill that proposition is getting companies that are timed at the right points into a program so the peer learning is at the same level. You see a lot of these accelerators where one company's still coding its (first version), while another company has already got an anchor customer – it's hard to create that competitive, co-operative culture that really pushes hard, so that's one of the core elements.
The other advantage comes back to the geo-programming opportunities. We're starting with two anchor cities, but we also have deeper connectivity to New York and San Francisco. For the last 18 months, GrowLab has been running part of its program in San Francisco. In the last 12 months Extreme sent the companies down to New York. We can extend that and have a strategy for how we're going to build better activations there. From that point, we're going to see a bit more renewed level of excitement within the whole portfolio.
We currently have 40 active companies. There are so many great companies in Vancouver that are looking to come to Toronto, and now they have a landing spot and can participate in the activations and mentor pools and specific investors that are in our network, and vice versa.
Q: How did Extreme Startups and GrowLab come together?
A: We started the conversation October, 2013, and a lot of it stemmed around the Industrial Research Assistance Program (IRAP).
I was reaching out to different ecosystem partners and accelerators to collaborate. Jonathan Bixby at GrowLab shared the vision of doing something national. We wanted to figure out how to create a premiere league of accelerators.
The traditional demo day was not yielding results for the founders or for the investors. The project helped us see the synergies, shared culture and vision. We started asking the question: what happens if we were a stronger entity and became more of a national platform as opposed to continuing as independent programs?
There are about 1,700 accelerator programs in the world. Sixty per cent of them have not helped companies get follow-on capital, less than 90 per cent have ever had an exit. How do we compete to become a Top 10 program globally, where we're not just retaining the best Canadian founders but we're getting great deal flow?
Both of us were doing about 10 companies a year. Twenty companies a year isn't enough. If you look at 500 Startups south of the border – each batch is 30-plus companies. YCombinator's doing batches of 75 companies. This is a volume game in some perspective. These Canadian accelerators haven't had big exits but it's still early innings. YC's been around for about 10 years whereas in Canada, GrowLab and Extreme have been around about 30 months.
Q: Why did you think combining these accelerators was the right decision?
There are too many of these accelerators that really only have layer-one of an educational process to entrepreneurs working on their first venture. One of the reasons why we created this platform is we want to be more structured as a financial partner, as opposed to just teaching entrepreneurs how to launch their first venture.
I think what we're going to see happen globally is that most of these models are not sustainable. A lot of them are reliant on government funds. If the objective is to create jobs and economic prosperity, governments can do whatever they want to do. Some of them do a phenomenal job in how they allocate that capital. But you see stronger partnerships when government organizations are working with private entities.
If you look at ecosystem partners such as the BDC, they're not just a financial partner, they're an ecosystem partner. They fund VC funds. Their VC funds need to get a return and some of these VC funds have mandates only to invest in Canadian companies, like Rho Canada Ventures is an example. That's a perfect example of how we need to improve the tier of founders working on their next venture and they need a place in Canada specifically that's going to give them an unfair advantage to make sure that their headquarters can stay here.
It's that 1 per cent of growth entrepreneurs who create businesses that can yield $10-million to $20-million in revenue, they going to stay in Canada and create the jobs, create the economic prosperity and also then captivate the imagination of other people taking the plunge to start up a business.
Otherwise we get to a situation where a lot of these big conglomerates – the Googles and Facebooks of the world – will come in and they acquire talent and we'll never be on track to get the next Research in Motion or Nortel coming out of our ecosystem.
Q: How do you plan to attract companies that have products in-market?
What we've done really well over the past year is that we've built a founder development funnel to institution seed. We have three layers to that. For example, we met with the founder of Hurrier and started having interactions with the startup almost 10 months before it entered Extreme.
When the first interaction happened, the founder wasn't ready for it. There was a bit of light mentoring and access to services. We built a relationship and knew that he was a high-potential founder and we wanted to keep tabs on it. We timed it appropriately.
What we have to do is write a lot more smaller cheques and offer other services through ecosystem partners to build a funnel or a farm team that we're participating with, that we can help move along. Quite frankly, a win for us is a company getting funded directly from our founding institutional investors. Specifically the BDC, Relay Ventures – these are firms that can write cheques and do their entire seed round on day one.
We become a valuable resource to these early-stage founders getting from where they need to go, so that we can provide them the deal-flow at the right time.
Q: How do you feel about the opportunity?
I love the pressure to innovate. Both Extreme Startups and GrowLab were structured as operating companies, not funds. I'm the CEO of a venture-backed startup, not to mention that I have my own personal money in this venture and I'm a pretty significant shareholder. So my interests are aligned. I have to make this win for myself. So yes, I'm going to be abundantly excited about the opportunity. But I wouldn't also – being a savvy entrepreneur – go into this if I didn't see there was a path to win.
Q: How has the startup landscape changed?
We have enough founders in Canada that have done their first rodeo. They may have failed, but they're coming back to their next venture more savvy. I think the success rate – their ambition level's much higher. We're going to start seeing people going after bigger ideas, not just nice lifestyle growth companies, which I think we've had an abundance of in Canada. In (Silicon) Valley, people swing for the fences and embrace failure.
The reason why Canada's financial system has been so strong is that we take more calculated risk. The entrepreneurs who have seen smaller wins are going to start swinging for the fences and I think a platform like Highline will give them an edge.
It's not about getting an article on TechCrunch – it's about how we can achieve sustainable economic growth week over week, month over month.
Q: Canadian investors are often accused of being gun-shy when it comes to backing startups. How do you feel about that?
I think there's a misunderstanding in the general population. I think Canadian institutional investors don't get a fair shake.
I think we have phenomenal institutional investors in Canada and like in any industry, you have some that are top-tiered and others that aren't. You have to look at how these funds are structured.
These funds in Silicon Valley are $1-billion funds so they have a lot of capital to work with, they can do more deals and take bigger risks and fail.
The challenge in Canada is that we don't have enough founders who run a venture-backable business that are now recycled into the ecosystem on their second or third venture. We're finally getting to that stage – look at all the new funds that have been popping up in the ecosystem between the Toronto-Waterloo corridor. It's amazing to have Americans come up and invest in Canadian companies and having them say "you don't have to move your headquarters."
At the end of the day, it's a long process over time for us to build out this ecosystem and quite frankly, we've been fragmented as a country and one of the reasons why Highline came together is to answer the question: "How do we unify the best and build a sustainable platform for that small percentage of founders who have the potential to build $1-billion businesses?"
One to 2 per cent will hit that ratio if our platform is strong enough. That's our objective and that's how we're going to generate those economic returns. We're a private entity so we only win if they exit. That's our model.