I have recently met with a variety of startups that have business models that are entirely dependant on hyper user acquisition, activation, and retention. Dave Mcclure’s Pirate Math (AARRR) remains the text book to follow In these discussions I was drawn into a discussion about valuation, which turned into an email I have paraphrased below for your feedback.

First a qualifier, I don’t imagine I am the best person to discuss valuation from any angle. In my role making funding decisions, I am lucky to not have to price rounds, so valuation isn’t something I have done professionally. Similar on the pricing (revenue) side (solution value) to the market, my experience is all value (ROI) or market based (competitive) pricing in enterprise B2B, so not well aligned to the B2C startups.

To give you my 2cents, my view is that all the companies I encounter that work on user dependant models are way to early to have any concern about valuation. On the pricing front, most are not even ready to start testing, as they need to build a value proposition that is coherent. Note a problem – solution statement and a value proposition are very different though related things. Those that have a value prop and a MVP should be running pricing experiments at as high a volume as possible; inability to do so illuminates other issues (CAC & Value).

My experience with companies that are pre-funding and typically pre-revenue is that there is nothing to price in order to derive a valuation. In the seed round my view is to do a convertible note. The only logical pricing mechanism at this early phase is the value of the team’s time. Two founders who could reasonably earn $100k/ year each working for the man have a company that is worth no more than $200k pre-traction (NPV). Generally speaking investors set the price, the only say the entrepreneur has is their ability to create a market for the equity and negotiate a deal. Your company, in the early stages, is only worth what someone is willing to pay.

Most teams do not have anywhere near enough evidence to establish comps for their valuation. This makes hunting for investment a very dangerous use of time. Money goes to teams with traction, spend nearly all your energy on activity that demonstrates traction (signups, downloads, revenue, etc). Investors will not make your business work, customers will.

Here is an easy example to think about B2C valuation. A Facebook user is worth $100 (roughly) and provides the peak market comparable for every other Ad driven social consumer platform in the market. Every other company with a similar business model has a user value less than $100 per account and the drop of is extremely steep. FB has dominant market position, continued up and to the right growth, proven revenue, extreme stickiness etc. Tomorrow’s hot startup only has user acquisition on its side with no sustained track record of activating, retaining and converting those users to VALUE. Pre-value users occur at a negative run-rate (basic costs of the business, dev ops, and user acquisition costs). The amount of traction to overcome the disadvantage is huge, and to my knowledge no one in Canada has pulled anything like that off (Wattpad is working on it).

This is driving 10m users as the benchmark for a startup to become a candidate for a priced round (see If you can get that many users without spending a tonne of money you likely have some foundational value to build on. Before that you are pissing in the wind trying to raise money IMHO. Metrics change based on models but the mountain is just as daunting if you are SaaS b2b etc. The reason i dislike user models so much is that I don’t believe Canada has any sherpas that have been up that mountain, we have plenty of folks who have climbed b2b peaks.

This rant has come out of on going discussions about Canada’s accelerators and their propensity towards B2C startups. Generally speaking; asking for investment is a waste of time on Demo Day. The only route to funding is through traction. I want to see these companies make asks that drive against traction milestones, ie help the startup get on a growth curve to 10 million users. Make asks against milestones ❤ months out from demo day, ones that generate momentum and move the needle on the key performance metrics of the model. “SIGN UP for the APP now! please;) but seriously the bar will not open until you have downloaded the app”. Boom 300 users at zero hard cost, not a bad 30 minutes.

Part of the challenge is the accelerators are serving a segment of entrepreneurs that are drawn to b2c, but that is another post. What I want to see is better understanding & demonstration of growth hacking and better asks from b2c founders, because cash ain’t it.


Much time is spent bemoaning the lack of aggression from early stage capital sources. Most of this energy is misplaced in my opinion. The real chasm companies struggle to leap, is to Enterprise Scale Solutions. Solutions that solve problems the Executive Suite of Blue Chip (F2000) companies truly care about and therefore will purchase. Many of the technology products and services consumed by Enterprise clients from SME (including startups) providers are isolated in what I will call Pilots or Islands.

These pilots or islands can be relatively large and long lasting, several millions dollars, run over several years, and touch thousands of users. I term these projects or deployments as pilots/islands because they do not register as strategic to the overall organization. Few if any other systems or processes depend on them and the relative switching (including straight deletion of the process) costs are low. Your core users inside the enterprise may scream bloody murder when you are displaced or turned off, but the overall strategy from the true decision makers will move forward with change regardless in order to achieve the broader more core goals of the company. Microsoft, Oracle, SAP, etc. are entrenched and scaled because their solutions deliver core value to the overall organization, replacing their solutions will have cascading effects that override the potential benefits of switching.

Winning Pilots is often a Series A funding trigger for enterprise software ventures. When it is not, its typically as reflection of a few things: the pilot customer does not reflect the ideal target, it is not a scalable implementation of the solution, the pilot is, has, or will not generate enough evidence to represent sufficient traction, etc.. This process, in my experience, is very similar within F500 organizations as they explore new offers and markets (funding from HQ vs. VC). The next major challenge, and often the project companies get stuck in, is post a successful pilot.

Transitioning from successful pilot to a repeatable and sustainable growth process is a Chasm a large number of companies find themselves trapped in. This chasm is not just trafficked by startups, I would wager the majority of teams in this stalled growth phase are SMEs. $5 – 50m annual revenue 10 – 300 employees, 10 – 100 customers, mix of professional services and product based revenue, 5 – 35% EBITDA.   In other words, a lifestyle business. Lifestyle businesses are awesome, if that is you and your stakeholders’ desired outcome. If you took outside money that has any notion of your business being a venture company, being a lifestyle business is painful. Wanting to grow the business for the sake of growth while in this phase is also fraught with risk for the owners personally and the business.

This chasm is the ideal conditions for Founderitis to run rampant and symptoms to metastasize. Startup founders focus on the positive evidence, ‘we have customers, revenue, etc.’; SME CEOs focus on the risk, ‘we are making money, we are comfortable’. Anyone who dares label themselves an entrepreneur has a dose of Founderitis. The question is how you harness the syndrome to the best benefit of the company.  In the Successful Pilot / Isolated Solution to Scalable Growth transition Founderitis constricts the vision of the key leaders limiting their ability to absorb and act on opportunity or required change. Optionality becomes so constrained that the business loses its momentum and dynamism, stagnating into the ‘lifestyle’ chasm.

If your company is not activating new revenue in a consistent, predictable process you are in the Chasm. If you sell a solution to a decent size market that drives a top or bottom line outcome for you customers; you should be able to forecast revenue growth with decent accuracy. A software startup that has exited the Pilot Chasm and has hit the Growth Curve should be generating better than 100% CARGR. The tactical ins and outs of individual sales cycles should only impact the velocity and amplitude of the growth curve, no individual deal should be able to knock it off the up and to the right shape. SME growth companies should be able to account for churn in the sales team and maintain predictable revenue results. Sales have become an engineered process, the sequence of inputs and outputs are known.

Yikes, we are in a Chasm; what the heck do we do? Confession, our Startup is in the Pilot Chasm, right now, scarier we maybe on an Island. I don’t have enough evidence on whether or not we are on island or not yet, so I am going to focus on the ‘known’ that we are in a Pilot Chasm. Like all problems, acknowledgement is the first step, take stock of the current state. Focus on evidence, categorizing Known Facts, Known Unknowns, Solid Assumptions, Weak Assumptions that require data, and your Current Progress Against Targets. Second step, given the evidence what trajectory are we on, does that trajectory and our current velocity propel us out of the chasm?

You need to run diagnostics on the state and severity of your Founderitis, right here, right now, especially if the evidence is showing you are not going to make it over the crest. If you are not on the roadmap you set to get out of the chasm, the leadership team has hard decisions to make. Founderitis is triggered by hard decisions. 

Our Startup is on course, we have mapped out rocks and potholes between us and the crest of the chasm. We have a partner at the top that we are roped to adding traction, we have enough capital to provide fuel, we have added talent to increase force, we have stripped off some unnecessary components to reduce drag, there are enough pilots & pipeline in process to absorb some bumps, focusing on keeping the engine turning is the core focus. Execution will keep the engine running. Three months closing on current opportunities and active pilots and we are up and out of the chasm.

There are still lots of risk. We have burned lots of fuel and have stripped off a number of the safety features; if our partner cuts the rope we will overheat the engine and stall.  The roadmap we have drawn is working, we need to keep our heads up for unknown unknowns and execute on keeping the engine running.

The question I worry about is what we will look like on the plateau above us? Will we come over the top and find ourselves on an island? For us this would be total dependency on our partner for revenue. There is also a good chance we will drive right into another Pilot Chasm in order to prove our engine is a standalone solution and not just a feature or our partners’. Good news is that we have a solid assumption that we will earn another round of funding once we exit the Chasm, thus giving us the ability to prepare a boat (to get off the island) or for another uphill climb (out of the chasm).

The key outcome of the process will be that we will have proven our revenue engine works. From there we will need to engineer a repeatable revenue generation process based on the proven use case. If we cannot repeatedly generate revenue on the product, we will have to take stock and iterate the vehicle for another rough and tumble ride through the Pilot Chasm.

The key takeaways:

1. Know where you are and where you are going, they call it a roadmap for a reason

2. Pilots are experiments to determine how your revenue engine should operate; they are not your business model

3. If you are not predictably generating new revenue you are stuck, Assess, Analyze, Act


A fair question most people are too polite to ask me. So let me answer the question that hasn’t been able to traverse your brain to mouth filter.

I have failed as a founder multiple times. The most informative, and my only true fully committed startup founder experience was Investment Ready Partners. It was professional services startup, focused on helping companies define, develop, and execute their funding strategy. We worked intimately with a broad variety of ventures, software, green energy, traditional SMB, etc. and learned a ton about the never ending challenges of growing a business. I also learned an amazing amount how business financing in Canada works, the banks, the government, PE, VC, Angels, all of it. Failure is an important element of entrepreneurship, you should not be judged by failure but by what you learned from it and your response going forward.

Five most important lessons I learned and inform most advice I give:
1. Revenue is KING, the magic bullet, a businesses reason for being, all things spring forth from revenue.
2. Entrepreneurs are Crazy, it’s a roller coaster that few have the ability to handle. Related it ain’t about the money but its all about the money; have your house in order.
3. Co-founders are the third most important relationship you will ever have after parents and spouse. Know thyself and ruthlessly evaluate your co-founder(s) and they you; be accountable.
4. Network is hugely valuable but does not directly monetize. Relationships get you opportunity, business value gets you money. Also it’s a small world, markets are tiny, even big ones are controlled by less than 50 people.
5. Timing & Positioning are critical success factors that you have limited control over. When successful entrepreneurs point to luck, typically the ‘luck’ was a function of timing and positioning. Only way to influence luck is through hard work and foresight.

So I am a failed entrepreneur, what makes me qualified to advise Startups and influence the community? Another question that likely didn’t get to your lips;).

My point of view is informed by having funded more than 70 companies with more than $2m of the Ontario government’s money in less than 3 years. We have funded projects across the software startup spectrum: academic, two kids in the basement, pre & post accelerator, growing seven figure companies, pre & post VC funded, b2c, b2b, b2b2c, in a wide variety of verticals, etc. The outcomes on those projects have formed a ‘portfolio’ of companies that have many more wins than losses; including two exits (admittedly acquihires), more than a half dozen $1m+ venture rounds, over two dozen companies that are going concerns, and a less than typical percentage of dead pool.

Between Investment Ready Partners and Coral CEA I have easily looked at over 1000 Startups. Understanding what makes a startup investment grade has been my profession for five years. That is nothing compared to guys in the Valley, but not too many folks in Toronto can say the same. For Toronto, I don’t likely rate a top 10 startup advisor, but I’d give myself top 20. Most of the folks in front of me run (real) funds or have had successful exits.

I also have some experience, 5 years in Startups is enough time to develop some scar tissue. Before that I worked in F500 IT services companies selling to F2000 companies. I learned a few things about complex solution selling, RFPs, and business cases. I also got an education on a few of Canada’s most important sectors: health care, energy utilities, and manufacturing/distribution; while learning enough to be dangerous about banking, life sciences, telcos, and insurance.

“Great, what can you do for me?” You ask.

Typically, most people come to me looking for money, which I encouraged for a couple years. That ship has sailed, the budget is spent, so that is no longer a good use of your time. I am no longer special, I am like everyone else in the community and extremely unlikely to fund you.

If you haven’t bounced, I will go on;). Where I add value is enterprise grade complex solution selling; that is the focus of the majority of my career and that is where I add the most value. If you want me to actually help you execute that is the area. I can very helpful to Startups around their strategy for business development and funding based on my last five years solving those problems. My network in the Toronto Startup Community is broad and deep, nobody is more than one degree away; I will get you to the next best person for the learning you need. Most important, I will do my very best to not Bullshit you. If your idea sucks, I will politely say so, back it up with the knowledge I have at hand, and then work with you to get to a better place.

“So what do you want”, compensation drives behaviour.

Mostly, I work for Karma (see earlier post). The remaining <10% likely have some fit to my mission with Coral CEA (my current startup), and <1% might be inclined to compensate me for making magic happen. Making money on entrepreneurs ain’t my business and its not on my agenda, but I like money so I am happy to take it ethically. Free no bullshit tip, trying to make money on entrepreneurs is sure fire way to fail.

As Coral CEA ramps and evolves as a startup my ability to be as open a member of the startup community will change; but know this, I will respond. I am hear to help. Good Luck!