SXSW Accelerator Proves Great Launching Pad for Canadian Startups to Take Off in the U.S.

Financial Post

For lawyer-turned-entrepreneur Cian O’Sullivan, trips to the United States from his home in Kitchener, Ont., are usually worthwhile, and O’Sullivan isn’t alone. He and other Canadian entrepreneurs know they need to get noticed in the U.S. to really take off.

No one can accuse Louis-Victor (LV) Jadavji and Shamil Hargovan, of being shy. The former Claremont McKenna College schoolmates and networked millennials to the core have launched a bionics business that aims, no less, to disrupt the footwear manufacturing industry.

O’Sullivan attended the recent annual two-week SXSW conference in Austin, Tex., where Beagle, his legal tech startup, took third place in his category in the South By Southwest Accelerator awards, finishing in the top four per cent of 470 applicants. The three-day global competition gives young companies an opportunity to present to industry experts, early adopters and investors.

“Being welcomed (in the U.S.) as a Canadian company and now being able to come back and say ‘This is how far we got’ is a great feeling,” said O’Sullivan, who started Beagle two years ago. The firm’s software is designed to help small and medium-sized companies analyze legal contracts.

“We received an immense amount of interest from potential investors, customers and clients,” O’Sullivan said, citing the example of a large real estate company that wants to create a joint venture with help from Beagle.

O’Sullivan, who studied law in Ireland, wants to automate the costly and often repetitive advice regarding contracts that lawyers give clients. “There is little to no legal representation for small and medium-sized businesses,” he said. When a customer uploads a contract to Beagle’s system, it analyzes it and highlights key clauses. “Beagle learns what is important to your company. It’s like training your own contract assistant,” he said.

“Many people get served up contracts and may not necessarily have the amount of capital to understand what these contracts actually mean and how it affects them,” said Robert Smith, a judge for this year’s contest and founder of private equity firm Vista Equity Partners. “Both countries have the common law system, but the U.S. legal services market is multiple the size of the Canadian market. I think the U.S. is the right place to start.”

Chris Valentine, the contest’s producer, said 198 of the 305 companies that took part in the SXSW Accelerator between 2009 and 2015 received funding in excess of a combined US$2.5 billion, and 13 per cent ended up being acquired by giants such as Google, Huffington Post and Constant Contact. This year, 18 of the 48 finalists came from outside the U.S., including three from Canada.

“Canada is not a large enough market to attract big investment,” O’Sullivan said of his interest in the U.S. “VC’s want billion dollar solutions, and Canada’s total population is less than California alone. You have to be thinking global as early as possible.”

"We received an immense amount of interest from potential investors, customers and clients"

Last year, Beagle was the first Canadian company to go through the Microsoft Ventures Accelerator (MVA) in Seattle. Vancouver-based Knomos, a research software that visualizes legal information for law students, lawyers and the public, is participating in the program this year.

“Beagle is completely disrupting the market,” Tim Enger, MVA’s business manager, said. “Its legal AI tool allows anybody to go from zero to 80 per cent comprehension of massive legal documents like non-disclosure agreements.”

A recent study lamented a “global market reach gap” among Canadian startups despite the country’s proximity to the United States. The report noted that Canadian companies routinely send their own teams on sales trips to the U.S., unlike startups from countries such as Israel, which build their sales and marketing teams in the U.S. “around experienced U.S. executives and employees.” The report also confirms the widely-held belief that the U.S. market is key for foreign companies that want to scale quickly and secure a dominant market position.

Montreal-based MakerBloks, which lets children build electric circuits with magnetic building blocks that look like oversized Lego, was also a finalist at the SXSW Accelerator contest. “The U.S. market can be a great launchpad,” for a universal product, said founder Francois Poirier, who competed in the innovative world technology category.

The other Canadian finalist was bionics company FitMyFoot, which produces customized 3D-printed orthotic insoles. Louis-Victor Jadavji, co-founder of FitMyFoot, said he didn’t go to the conference because his company was a backup should another finalist in the category drop out. However, he said conferences such as SXSW can be a great platform to propel a product launch. “Being at the Consumer Electronics Show [in Las Vegas] for the TechCrunch Disrupt Hardware Battlefield built a critical mass in terms of exposure and press,” said Jadavji, who made the Forbes “30 Under 30” list this year.

“(The SXSW Accelerator) is great because it’s short and because it doesn’t cost us anything from a cash or equity perspective,” O’Sullivan said. The only cost is a US$200 application fee.

Beagle has so far raised a total of about US$500,000 from investors, including the Waterloo, Ont.-based Garage Fund, iNovia Capital and the Chinese Canada Angel Alliance, and is now trying to raise US$400,000 in a Series A round. Past participants of the SXSW Accelerator were able to secure funding shortly after the competition, including Swedish startup, Tinitell, last year’s winner in the wearables category, which raised US$2 million in seed funding within 48 hours of leaving Austin.

For Sullivan though, “The training, three separate pitches and the feedback were well worth the trip.”

On the downside he notes, “The interest after events like SXSW can be very distracting. We’re going to spend the next few months filtering through the interest in terms of the potential partners and investors.”

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