VC in Ontario. It's officially a mess.Saunders-45X64.JPG
Posted by Alec Saunders

Ian Graham writes frequently from his soapbox at Blogmatic about startups - especially funding, hiring, business plans and so on. His blog is a bit of a startup CEO handbook in many ways. He asks "Is Startup funding broken in Ontario", inspired by a StartupNorth piece about Brightspark's new incubator model. Brightspark 3.0 is a company that will build web 2.0 businesses, not a fund. The lads at Brightspark have returned to the model they started with in the late 1990's; assemble a team around an idea and fund it. Ian points out that today's VC model is broken because it requires as much due diligence to do a seed round as it does a Series A or B, but the risk is higher at the seed round. I'd add to that that once beyond the term sheet, the VC solution is over engineered. To raise $500K an entrepreneur can easily be staring at a legal bill of $100K. Do you really need $500K? Depending on the kind of business you're in, maybe not. In a cloud computing environment, it doesn't cost much to open an EC3 or Joyent account, and simply start building. There are plenty of Web 2.0 startups being built using tools like Ruby on Rails that are being created for far less than $500K. Many entrepreneurs simply choose to finance their pet project as a sideline, or by running up the credit cards. It doesn't take long to create an early stage product, throw it out there, and see what happens. So who needs the VC? Well, come stage 2, which is refining that prototype into a commercial product, we all probably need additional sources of capital. And that's where it gets tough in Ontario. Click here to read more of Alec's blog.

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