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Andrea Johnson of Fraser Milner Casgrain LLP. (Etienne Ranger, OBJ)

The ultimate funding vehicle: sales

It was 8:30 in the morning and already Brad Stewart was up and at 'em. After all, it's not every day that your startup comes out of stealth mode.

He spent a full day in late November driving to southern Ontario universities touting the benefits of Advergive, a service that pays both charities and advertisers when users watch public service announcements.

"I'm marketing. Trying to get (students) to add our Facebook application," the Ottawa-based founder of Paymail said on his cellphone. "We're creating a new concept for charitable giving and branding and marketing."

Mr. Stewart's approach of wearing holes in his sneakers and car tires, literally going door to door in search of funding, echoes the strategy into which many startups are forced these days to raise the funding they need.

The recent economic downturn – coupled with a series of relatively low returns on many Ottawa-based investments in recent years – have made angel investors and venture capital firms extremely wary of doling out cash, Ottawa industry observers have said.

So the sentiment among startups is to bootstrap from day one, according to Andrea Johnson, a lawyer at Fraser Milner Casgrain LLP who specializes in advising new businesses.

"This (sentiment) includes people who are serial entrepreneurs who might have exited a couple of businesses already," said Ms. Johnson, who also spoke at a startup primer session held at TheCodeFactory Nov. 24.

"Even the ones who previously had venture capital for their company are now looking at models that are not venture capital-dependent. They felt that they were spending 50, 60, 70 per cent of time seeking their funding – which may not ever materialize.

"Instead of doing that," she added, "they preferred getting their first customer and having an early path to revenue."

Looking for customers first is a fairly new concept to some tech startups, but not to other companies in Ottawa – the aerospace industry, for instance, has tolerated years of minimal funding from the cash-strapped Canadian Space Agency.

In response, national companies such as COM DEV – which has operations in Ottawa – have focused their efforts on building many small satellites in a short period of time.

They then tack the beer fridge-sized satellites onto a small commercial rocket that hauls multiple payloads into orbit. It's quick, it's cheap, and it allows the company to pour more resources into development and less into raising funds.

"It's an approach or mentality more than a specific size of satellite; it's a way of doing things," explained Perry Edmundson, of COM DEV's mission development group, during a recent space summit in Montreal.

That sentiment seems to have spread to Ottawa's tech startups. With little VC in sight, Ms. Johnson and other industry players are calling upon OCRI (the Ottawa Centre for Research and Innovation) to replace the 'venture capital' meter on their website with one tracking startup activity.

They say that would present a more accurate picture of new tech ventures in the city.

OCRI would gladly jump on board that idea, said Michelle Scarborough, its vice-president of investment and commercialization. But she said there's no accurate way to track startups just yet.

"I have no problem at all talking about new startups starting up in the market but (only if) the community is prepared to provide us with that information," she said.

"I think it would do a lot of good to talk about more of those kinds of stories, because even within our own portfolio of companies we are actively pursuing aggressive investment for a number of them."

Even startups that previously hitched a ride on government funding are aggressively pursuing customers after leaving the lab.

The University of Ottawa's provincially funded technology transfer office spawned a startup called Incogna, which also emerged from stealth mode last week. It's an image search engine that allows users to specify more precisely what kind of picture they're looking for.

But even with a plethora of funding provided to the university, sales are still a necessary part of getting a university-incubated business off the ground, said Joe Irvine, the office's director of technology transfer and business enterprise.

"Currently in Ontario we have quite a bit of support for research commercialization through the Ministry of Research and Innovation, and it's allowed us to do a lot more things than we have in the past," he said.

"And other organizations like ... OCRI play a role, but it's by using the network (of local companies) and using the money wisely that you can advance technology."

From his office's point of view, they also want to make sure each project is a worthy investment of their time, efforts and money, he added.

"The challenge from a university standpoint, with startups, is in addition to a technology risk you have the risk of a new venture. You have the economic risks of a new venture, if it's successful," he said.

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VC DEALS: 2008

YTD: 14 deals, $120.09 million)

Q1 – 5 deals, $42.79 million

Q2 – 3 deals, $9.2 million

Q3 – 4 deals, $50.3 million

Q4 – 2 deals, $17.8 million

Source: OCRI (Ottawa Centre for Research and Innovation)