

Atlantic Canadian Founders Deserve Better Than FAN (First Angel Network) - jmacd
http://startupnorth.ca/2013/02/19/atlantic-canadian-founders-deserve-better-than-first-angel-network-fan/

======
lkrubner
We would all be wise to remember that when a lot of money is being thrown
around, some con artists will arrive. Scammers will haunt the edges of any
scene where people are giving out something valuable. Those of us who read
Hacker News are aware of the reputable investors who mean well, and who
clearly want to help facilitate the creation of wealth. Anyone who reads this
site can name at least a dozen investors and/or incubators that are honest.
But we should not be innocent: whenever there is a gold rush, there will be
liars and cheats.

I have written about this before, but in 2009 I was hired by a small startup
in New York City. At that time I lived in Virginia but I had wanted to move to
New York, and this job offer was the perfect chance. So I moved to New York. I
had worked with startups in Virginia, and I had high hopes about the startup
in New York.

All the same, what I saw at the startup was disturbing. The financing seemed
questionable. The central figure ran what he called an investment firm. That
meant he reached out to potential investors and he tried to get them to invest
small amounts in his various projects. At any given time he had 10 to 12
projects that he was raising money for. He would raise $100,000 or more to get
a startup going. Each project might have 10 investors.

I worked at that place for a few months, and then I was told that they had to
close down because all the money was gone. The project manager/COO told me
that they'd spent $80,000 of the $100,000. I was not clear why things were
closing down. He told me to send in my final invoice. I did. They never paid
me. 2 months later I was told there was no money to pay me. I had long
(sometimes angry) conversations with the COO about the money. He gave me some
reassurances about the money, how much had been spent, how much had been
raised, how much there was. But he also said that the main figure had never
granted him (the COO) access to any of the financial statements, so he was not
able to speak with 100% confidence about how much money there had been, or
still was.

It is possible that all of this can be put down to the normal chaos of
startups. But it seemed like the main figure here was raising $x amount for a
startup, spending 80% of the money, and then telling investors that, sadly,
the project had failed, they had not gotten enough momentum, these things are
very risky, etc.

Maybe he had an understanding with the investors, but I very much had the
impression that he kept 20% of the money for himself. And he was doing this
constantly for 10 to 12 projects. He went to dozens of events in New York and
in Boston, he was constantly pitching, constantly raising money. He was very
good at getting people to hand him money. But I have my doubts about whether
the money was being spent the way the investors would assume it was spent.

The normal chaos of startups can hide a lot of corruption. You can use the
riskiness of startups as a cover for fleecing investors and delivering very
little. In the end, all you have to say is "I am very sorry, these things are
very risky, I'm sure you knew this was risky, we did our best but we failed to
get momentum." And of course, startups are risky, that part is true, but the
investor has the reasonable expectation that if they give you money, then you
did everything possible to make your startup a success.

Here is a bit of age old wisdom: let the invest beware. (And likewise, beware
of the exploitive investor pitch.)

The fact that there are some famous investors whose integrity is well known
should not distract anyone from the fact that there are scam artists in every
walk of life.

~~~
unreal37
This reminds me of the musical "The Producers". Raising money for ventures
that often fail leads to intentionally raising money for something that you
hope will fail to hide corruption.

------
creamyhorror
There's no Google-cached copy of the page, but here's a summary from a news
site:

[http://business.financialpost.com/2013/02/24/feathers-
flying...](http://business.financialpost.com/2013/02/24/feathers-flying-as-
maritime-entrepreneur-network-accused-of-conduct-unbecoming-an-angel/)

 _\- Despite taking public money from government agencies such as ACOA (which
gave FAN $1.1-million between 2006 and 2011), FAN charges $3,000 to present
each startup to its investor network.

\- Startups that present are also required to sign a consulting contract with
a private company owned by Finlay and Lowe. These services normally include
helping the company prepare its pitch, negotiate a deal, and ensure due
diligence by legal experts.

\- In return for these services, the companies normally pay Finlay and Lowe a
percentage of the capital they raise. (Crow quotes a standard fee of 8%,
although Finlay says the percentage varies, and has been as low as 4%.)_

It also quotes responses from the FAN partners, which you can judge the
validity of for yourself. Getting up to 8% of the investment raised is a sweet
gig for them, I think. Too bad they don't let the startup know about their
"consulting fees" till it's almost time to present to the investors.</s>

~~~
jacquesm
There are some serious conflicts of interest there.

~~~
grobertson
Welcome to the Maritimes.

~~~
narcissus
Ain't that the truth. Watching PEI politics, for one, makes me think I'm back
in high school again...

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VonGuard
Soooooo, that $3,000 to pitch is actually a deal when compared to what
TechCrunch charges, or what DEMO charges for a booth..... Both are wastes of
money.

~~~
frankdenbow
Well, at Techcrunch I believe the main battlefield is free but the booth
setups are paid for.

~~~
grobertson
This is correct.

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paulgb
The site is loading slow under HN's load, here's the text content:
<http://pastebin.com/QKsXiAg3>

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spitfire
It's Canada. This is standard operating procedure.

EDIT: To clarify, I mean modestly wealthy individuals attempting to take
advantage of hopeful entrepreneurs is SOP in Canada. I've seen it on the west
coast first hand, and have reports from the east coast about similar things.

~~~
macspoofing
It is most certainly not the standard procedure.

EDIT (for your edit): >To clarify, I mean modestly wealthy individuals
attempting to take advantage of hopeful entrepreneurs is SOP in Canada. I've
seen it on the west coast first hand, and have reports from the east coast
about similar things.

Again, this is NOT the standard operating procedure in Canada. I'm sure there
are individuals who have no qualms about squeezing entrepreneurs, but I can't
imagine this is any different from US. The one problem I found is that, though
Canada (Ontario at least) has a wonderful Angel network, and phenomenal
government programs (e.g. FedDev, SRED), there is a lack of Series A (and
later) VC money.

~~~
CanadianDude
I have first hand experience in your quoted excellent programs. I'm using a
temporary username as I don't want to link my comments to past identifiable
use of this website.

SRED is a dirty game where consultants will elaborate on your less than
applicable research to boost your chances of getting grant money. And hey, the
consultant will get paid, the company will get paid and the tax-payer with the
actual developer who's SIN and identity is used gets chucked on the hook for
it. It's absurd. Both of the programs you have mentioned get people that I
know very rich, tax-payers poorer and regular workers adding to it by paying
on average 33% - 37% taxes.

Sometimes, I wonder if playing by the rules without leeching off the system is
worth my while. And as long as I have enough to keep a roof over my family's
head, I just might stay on the right side of this debacle of a ruse.

~~~
macspoofing
>SRED is a dirty game where consultants will elaborate on your less than
applicable research to boost your chances of getting grant money.

It's as dirty as you want it to be. If you want to lie and cheat, you can try,
and you may be able to get away with it. Or you can honestly approach the
process, and sleep better at night.

>I wonder if playing by the rules without leeching off the system is worth my
while

Playing by the rules? These are federal and provincial programs. There's
nothing shady or illegal about them. I think the startups that qualify do
benefit from them immensely.

------
DaniFong
There are good alternatives in the area. LightSail had very good experiences
with Innovacorp. Quick and reasonable -- no crazy expenses.

------
rmah
This is a strait up scam. NEVER pay to pitch.

~~~
davidcrow
Agreed. 100%.

It prays on desperate entrepreneurs that will do anything to keep their
businesses alive. And it's wrong, for so many reasons.

------
clamprecht
ERANYC might be a worse deal - they don't charge to pitch them, but they want
8% and anti-dilution, for $40k investment.

~~~
frankdenbow
How is that worse? Thats similar to most incubators.

~~~
clamprecht
Including the anti-dilution part?

------
wesleyd
This reminds me of an old dilbert cartoon in which they play the game "Trust".
You fall backwards, into your teammates' arms. You can imagine how it goes,
but the key lesson learnt is, essentially: Don't trust anybody.

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jmacd
What a bummer. I post something half interesting and the site goes down. . .

~~~
davidcrow
Sorry, I messed up. My configuration was substandard this morning. Upgraded
the memory available to the WP & MySQL instances. Turned on WP-Supercache. And
adding a Varnish layer in front.

~~~
pdufour
Try W3 Total Cache, they have super-tight Varnish integration.

~~~
davidcrow
Working on it with vmfarms guys (we got 10x our high point traffic using
hourly measure on this post) updating our infrastructure to be more resilient.

~~~
driverdan
I recommend replacing super cache with W3TC. It has a lot more features,
including minifying your CSS and JS. If you need help with it email me, dan at
driverdan dot com.

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drpgq
Sometimes it seems like Atlantic Canada can never win.

~~~
jmacd
It's hard work but things are changing. Exits here are growing and early stage
startups have good access to capital

------
shaaaaawn
Found it hilarious i can't connect to the site.

~~~
notatoad
The site you can't connect to is startupnorth, a blog about canadian startups.
the fund in question is First Angel Network (according to the slug, as that's
all i can see too.)

