Lessons Learned
How I founded, bootstrapped, grew
and sold my web startup(s)
hashtag: #meshuCM
Carl Mercier (@cmercier)
cmercier@websense.com
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Who am I?
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Who am I?
Founder and “ex-CEO” of Defensio.com
• Anti-spam for social web applications
• acquired by Websense (NASDAQ: WBSN) in January ’09
O U T S M A R T I N G E V I L S PA M

Who am I?
Founder and “ex-CEO” of Defensio.com
• Anti-spam for social web applications
• acquired by Websense (NASDAQ: WBSN) in January ’09
Serial entrepreneur
• 5th startup/project
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Before Defensio
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Before Defensio
• Adonis Technologies (acquired in 2006)
• Management software for leisure organization: camps, municipalities,
conference & outdoors centers, ...
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Before Defensio
• Adonis Technologies (acquired in 2006)
• Management software for leisure organization: camps, municipalities,
conference & outdoors centers, ...
• AjaxWhois.com (acquired in 2008)
• Ajaxified domain name lookup
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Before Defensio
• Adonis Technologies (acquired in 2006)
• Management software for leisure organization: camps, municipalities,
conference & outdoors centers, ...
• AjaxWhois.com (acquired in 2008)
• Ajaxified domain name lookup
• MyBinaries.com (acquired in 2004)
• Premium newsgroups/usenet provider, e.g.: giganews.com, usenet.com
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Before Defensio
• Adonis Technologies (acquired in 2006)
• Management software for leisure organization: camps, municipalities,
conference & outdoors centers, ...
• AjaxWhois.com (acquired in 2008)
• Ajaxified domain name lookup
• MyBinaries.com (acquired in 2004)
• Premium newsgroups/usenet provider, e.g.: giganews.com, usenet.com
• Bincrawler.com (acquired in 2003)
• One of the first alt.binaries search engine
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bootstrapped.
All of them
choice.
by
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Making money on the
(some)
web is not that hard.
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Making money on the
(some)
web is not that hard.
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Making money on the
(some)
web is not that hard.
Making hundreds of millions is VERY hard.
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Building a
great product is
NOT ENOUGH.
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Your product is 100% of the business.
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Your product is 100% of the business.
Marketing is
the other 100%.
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Stop thinking,
Start working.
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Great hackers rarely
make great businesses.
1337_H4X0R != :epic_win
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Starting a business is
like running a marathon
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Starting a business is
like running a marathon
and a sprint.
(at the same time? OMG!)
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NEVER
GIVE UP
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Working alone
sucks.
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Finding co-founders
is hard.
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Great strategies come up by
bouncing ideas around.
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Always focus on the
end goal.
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Always focus on the
end goal.
Only execute on what
really matters.
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Never neglect
the business aspect.
Wait a minute, I never signed up for this BS!
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Passionate users are
your best asset.
Please them.
Let them spread the word.
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Frugality rules
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Frugality rules
I’m the cheapest bastard alive!
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You need to survive
2 years
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How do you
make money?
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It depends.
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Charging money is a
good start!
Duh! Who would have thought?
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Avoid competing with free
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if business_model == :ads
forget_it!
end
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unless...
The user profits from
clicking the ads.
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unless...
The user profits from
clicking the ads.
or you’re Google.
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I’m a big fan of
bootstrapping
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The joys of bootstrapping
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The joys of bootstrapping
• Independence & Freedom
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The joys of bootstrapping
• Independence & Freedom
• You call your own shots
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The joys of bootstrapping
• Independence & Freedom
• You call your own shots
• You can exit whenever you want, at the price you
want
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The joys of bootstrapping
• Independence & Freedom
• You call your own shots
• You can exit whenever you want, at the price you
want
• VCs are looking for the next Google. Chances
are, it won’t be you.
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How many millions do
you need to be happy?
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Example:VC Funded
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Example:VC Funded
• Early stage funding, series A.
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Example:VC Funded
• Early stage funding, series A.
• $1.5M investment at $1.5M pre-money valuation.
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Example:VC Funded
• Early stage funding, series A.
• $1.5M investment at $1.5M pre-money valuation.
• $3M post-money valuation.
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Example:VC Funded
• Early stage funding, series A.
• $1.5M investment at $1.5M pre-money valuation.
• $3M post-money valuation.
• 1.5/3 = 50% That’s the equity you have to give up.
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Example:VC Funded
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Example:VC Funded
• VCs will want at least 10x return
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Example:VC Funded
• VCs will want at least 10x return
• $1.5M * 10 = $15M (for 50% of the company)
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Example:VC Funded
• VCs will want at least 10x return
• $1.5M * 10 = $15M (for 50% of the company)
• The minimum exit is therefore $30M.
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Example:VC Funded
• VCs will want at least 10x return
• $1.5M * 10 = $15M (for 50% of the company)
• The minimum exit is therefore $30M.
• Founders & VC each make $15M.
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Example: Bootstrapping
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Example: Bootstrapping
• Build a great product that matters
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Example: Bootstrapping
• Build a great product that matters
• Market it properly
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Example: Bootstrapping
• Build a great product that matters
• Market it properly
• Have a price, generate real revenues
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Example: Bootstrapping
• Build a great product that matters
• Market it properly
• Have a price, generate real revenues
• Gain traction
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Example: Bootstrapping
• Build a great product that matters
• Market it properly
• Have a price, generate real revenues
• Gain traction
• Get on people’s radar
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Example: Bootstrapping
• Build a great product that matters
• Market it properly
• Have a price, generate real revenues
• Gain traction
• Get on people’s radar
• Optional: Sell for 7-8 figures.
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The odds are
not created equal!
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Exiting for $30M is
100 times less likely
than exiting for $3M
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But if you really
need to raise money...
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But if you really
need to raise money...
• Launch & get some buzz
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But if you really
need to raise money...
• Launch & get some buzz
• Show traction
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But if you really
need to raise money...
• Launch & get some buzz
• Show traction
• Let THEM approach you
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But if you really
need to raise money...
• Launch & get some buzz
• Show traction
• Let THEM approach you
• Wait as long as you can
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Delaware Inc.
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850,000 business entities have their legal
Over
home in Delaware
More than 50% of all U.S. publicly-traded companies
63% of the Fortune 500
Delaware population: 865,000. Toronto (GTA) is 5.5M.
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Probably the way to go if...
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Probably the way to go if...
• You want/need/expect to raise money
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Probably the way to go if...
• You want/need/expect to raise money
• Your company might be acquired by a US entity
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Probably the way to go if...
• You want/need/expect to raise money
• Your company might be acquired by a US entity
• You want to partner with other US corporations
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But why?
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But why?
• Most companies you’ll deal with are in DE
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But why?
• Most companies you’ll deal with are in DE
• Nobody wants to deal with a Canadian corporation
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But why?
• Most companies you’ll deal with are in DE
• Nobody wants to deal with a Canadian corporation
• Even less with a provincial company
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But why?
• Most companies you’ll deal with are in DE
• Nobody wants to deal with a Canadian corporation
• Even less with a provincial company
• Delaware has great business laws
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But why?
• Most companies you’ll deal with are in DE
• Nobody wants to deal with a Canadian corporation
• Even less with a provincial company
• Delaware has great business laws
• Merging a foreign entity with a DE Inc. is impossible
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But why?
• Most companies you’ll deal with are in DE
• Nobody wants to deal with a Canadian corporation
• Even less with a provincial company
• Delaware has great business laws
• Merging a foreign entity with a DE Inc. is impossible
• Cheap, fast and easy
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Karabunga Inc. Structure
ME
Karabunga Inc. CM Enterprise
owns Defensio.com (no employee) Consulting company (all employees)
Delaware C corp Quebec Inc.
Employees Karabunga outsources to CM
(stock options)
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Advantages
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Advantages
• Simple (and 100% legal) structure
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Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
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Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
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Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
• All IP is in Delaware
O U T S M A R T I N G E V I L S PA M

Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
• All IP is in Delaware
• The “real” company is in Delaware
O U T S M A R T I N G E V I L S PA M

Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
• All IP is in Delaware
• The “real” company is in Delaware
• Easy to do business with or get acquired by
Americans
O U T S M A R T I N G E V I L S PA M

Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
• All IP is in Delaware
• The “real” company is in Delaware
• Easy to do business with or get acquired by
Americans
• R&D tax credits
O U T S M A R T I N G E V I L S PA M

Advantages
• Simple (and 100% legal) structure
• No day-to-day stuff in Delaware
• Canadian employees in a US corporation is a pain
• All IP is in Delaware
• The “real” company is in Delaware
• Easy to do business with or get acquired by
Americans
• R&D tax credits
• Makes you feel warm inside.
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Drawbacks
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Drawbacks
• 2 companies to manage
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Drawbacks
• 2 companies to manage
• You have to do things right or you might get in
trouble
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Drawbacks
• 2 companies to manage
• You have to do things right or you might get in
trouble
• No capital gain exemption in Canada (750k)
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Drawbacks
• 2 companies to manage
• You have to do things right or you might get in
trouble
• No capital gain exemption in Canada (750k)
• Getting a bank account is a mess (tip: RBC Centura)
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Important!
Talk to a
US-Canadian tax specialist!
I know a great one, just ask me.
I cannot be held responsible, bla bla bla.
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Remember...
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Remember...
• Stop fooling around and GET GOING
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Remember...
• Stop fooling around and GET GOING
Evolve.
• Never give up.
O U T S M A R T I N G E V I L S PA M

MUST WATCH!
David Heinemeier Hanson aka DHH, the Rails guy
The Secret to Making Money Online
http://tinyurl.com/dhh4president
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echo $QUESTION > mic
echo $COMPLAINTS > /dev/null ;-)
Carl Mercier (@cmercier)
cmercier@websense.com
O U T S M A R T I N G E V I L S PA M