The news made waves since Xtranormal was one of the biggest technology startups in Montreal both in terms of secured funding and number of employees, also due to the fact that it was lead by Richard Szalwinski, and also because they made bold statements in conferences like DEMO. A commenter even compared Xtranormal to Capazoo, maybe due to the fact that Xtranormal was, until October, one of the most secretive company in Montreal, and only a few in Montreal knew what they really wanted to do.

I did visit briefly late last week Xtranormal’s offices, after Richard Gratton expressed concerns that there were inaccuracies in the post.

Since the layoff, all the Xtranormal staff all moved to one big central room, where the engineering, product, administrative, and executive team all worked in an open setting.

They all now share the same furniture, meeting and conference rooms, with product iteration plans and drawing boards highly visible in the central area (you can see one in the left side of the second picture) … maybe to remind everyone of the company’s targets.

Richard Gratton directs product management, and is now busy overseeing the website product, released in October. They do have a CTO, CEO and a CFO, but he and Fred Brunel get most of the responsibility of their products’ design, feature sets, and also lead the projects.

Before the layoff, Xtranormal was doing intensive Research in natural language processing, designing automated cinematics (such as finding automatically the right angle and position for a camera in a user-generated video scene), voice generation, all done by a mix of researchers from academy and also engineers. A team was also in charge of “productizing” the results, and a few of the technologies were integrated in current Xtranormal product’s lineup.

It’s this departement that Richard Szalwinski decided to lay off last week. Xtranormal had very ambitious plans, ultimately offering writers & story tellers a tool that will let them create a short movie from their idea without any cinematic skill whatsoever (think garageband for movie creation), but it appeared that technology development was taking more time than previously planned. The website and also the desktop sofware were planned to get them enough revenues to fund the R&D section, but schedules were delayed, extra iterations had to be inserted, making them impossible to reach all their previous objectives with available resources, which came to last week’s decision. Richard Gratton said cutting back was necessary to get them more time for the website & desktop software, which is planned for release in April.

There’s something tragic in getting rid of a complete division, spending resources for this division for more than 2 years, getting valuable technology, know-how & IP, and to shut it down ultimately, without even getting a product at the end. That’s maybe the core of my comment in the last article. Xtranormal has (luckily?) secured enough funds to go past this, and re-focus in its 2 most immediate projects. Fred Brunel said cutting back was very stressful, but the team is now more focused, leaner, and everyone seems to have grasped the team’s immediate objectives, with a clear target on the product release in April last year.

Time will tell us if the lay-offs were a good idea or not. If you’ve ever heard of the sheer difficulties of building a start-up, and making up with limited resources, Xtranormal is a prime example. They have yet to release their desktop product & getting customers, and until them, the future is uncertain (and up for grabs). But I guess it’s part of the adventure, and why most of the engineers, programmers, artists joined the company. Good luck to everyone at Xtranormal then!

Update & Correction: The automated cinematics (or procedural animation engine), which was part of the long-term research division, has been integrated into Xtranormal’s current product. Not everything has been “scraped”

These were removed:

• capazoo
• bluestreak tech (it’s a 5-year old company)
• jestai
• simon law
• tarantella (service provider doing pretty much everything)
• radiorfid (unavailable website)
• s2i (same as tarantella)
• jeffery thomas, blue chip services (nothing on website)
• navilon (no website avalaible)
• mp3.net, was announced as “launching imminently” a year ago, nothing new since then
• yulnews (acquired)
• videopresse (ended)
• atria rh (also doing services in industrial, sales, everything)
• double v3 (no website)

These were added:

• trap door inc
• identi.ca which is also the same placeholder for criti.ca, ur1.ca, certifi.ca, domesti.ca
• dailydollardeal
• google montreal
• reasonably smart
• seeyourhotel
• Les Laboratoires foulab
• seeyourhotel
• Brouillette & Partners
• BlueSlice Networks
• Fixion Media
• yourteledoctor
• kotsego
• xtranormal

These were changed:

• brigtspark ventures are now brigthspark
• flow consulting is now FlowVentures

View the new map here.

Companies and places are now listed at the bottom, which is much more practical than the previous map. This was done in collaboration with John Beales, who was tremendously helpful to make this happen. Thanks then to John!

If you want to show the map on your website, you can use the code below, thanks to Jean-François Noel

<iframe width="425" height="350" frameborder="0" scrolling="no" marginheight="0" marginwidth="0" src="http://jfno.net/mymap/mtwmap.html"></iframe>

I am not really sure what to think about the case. Threatning a blogger of a lawsuit is frivolous and reveals a big misunderstanding of blogs. Roberto Rocha once called Tyler “one of the most refreshingly candid company chiefs I know”; and it seems he still plays the same character. On the other hand, Techcrunch bloggers are making quick and easy assumptions based on what they see on the website’s homepage, while they are thousands of miles away from the company; fact is that there were reasons behind every criticism they threw at Mediascrape.

One thing is for sure, this is all very stupid; and diverts everyone from what Mediascrape really does. I guess I could try to defend Tyler Cavell in the comments sections (which bash Québec and Canada by the way); but the guy has never participated or went in any tech/network event around here. It’s the sort of person you have no clue what they are doing or thinking, and finish concluding that maybe they think they are better on their own. Heck, I am not even sure he’ll appreciate the support.

So, to any aspiring entrepreneur out there: network, connect, share, learn. Then iterate. Don’t do like the Capazoo or the Mediascrape by staying in your corner. Meet other entrepreneurs in the same space as yours. Go to the 5 à 7. Share what you are doing, and get to know what works out there. Go to the techbreakfasts. Go to conferences. It’s such a business 101 principle that I can’t even believe I am writing it here.

TechnoCompétences said IT was hit very hard in the beginning of the decade, with companies laying off personel by thousands, while the rest of companies just went busted. However, TechnoCompétences’s new study showed that the IT industry is now expanding at very high rates. Between 2001 and 2007, the IT industry in Québec is growing +29% while it’s just at 16% for other Canadian provinces. More details here [pdf]

The organizations also predicts that the industry will hire 7000+ people each year until 2010.

MontrealTechWatch does not specifically track the IT industry, but it’s still good to know the larger picture. It’s well known for instance that youth are shying away from computer science and other related fields. While cégeps could easily fill each 4/5 classes in 2000, they now have trouble filling one small class. Last year (2006 to 2007), applications to CS degrees (and related) fell by 20%. This year (2007 to 2008), applications fell again by 19%. This impacts everyone, from recruiters at Bell Canada, recruiters at videos games companies like Ubisoft, to new technology startups looking to complete their technology team. It’s still possible today to find talent in Québec, but it looks like it will be a major barrier tomorrow.

I am not sure how the situation is in other provinces, and how they are dealing with it. In Québec, I am expecting salaries to go up; specialized recruiters having great business; at the expense of small & new technology companies who might not have the financial resources to compete with large companies like Videotron or big banks. So if you are starting a company, you should be aware of this problem, and try to come up with a great formula to attract talent (office perks like the guys at standoutjobs; high salaries, like what capazoo did; or try to connect from the very beginning with the developer “community” like what Akoha is doing). Or come up with a new solution to solve the problem of IT talent shortage.

Mediascrape’s main idea is to re-broadcast on the web live video feeds, taken from press agencies or major news broadcasters. It then allows users to “tune in” to any geographical region in the world and get video reports, with a 30-minute latency, the time necessary to translate the reports in english. Mediascrape’s added value is the maps functionnality as well as the translation of the reports in English. For users, it also means getting access to a wider array of news, and be able to choose news by topics and broacasters.

Mediascrape will be using the new funds to expand its product features and its business.

They will for instance allow its users to access the live raw video feeds, and voice-over, translate, or edit them, in the wiki way. This means essentially mediascrape users will have the same tools as the company. I am not sure what is the benefit for the user to do this, but I guess it’s a way for mediascrape to get additionnal languages, meta-information and more interesting content in a more “scalable” way.

Mediascrape will also announce a new partnership with Reuters — they are currently installing a 3,000 pound satellite receiver on their office roof to broadcast the Reuters 24/7 live raw breaking news feed.

Finally, they are also bringing in Chris Dingle as President and CTO. Chris Dingle was previously the founding CTO of 24/7 Real Media, sold last summer to WPP for $637 million.

There have been questions by a few industry observers, but I guess it’s mainly because nuvu.tv/mediascrape is not from your typical “web-native” people, but from an outsider who thought about addressing a need for diverse and hyper-local news.

Roberto Rocha also reports that there is now a “a louer” (to rent) sign in front of Capazoo’s offices, and I was also told that remaining employees were layed off Monday. There are also rumours that Capazoo is trying to shop itself, to a Toronto-based venture fund interested into acquiring the technology behind Capazoo.

For those who didn’t get the story, the Capazoo adventure was started 2 years ago. It was advertised by its founders to be the next Facebook, and the founders proclaimed they would reach $650millions monthly revenues. Soon, they managed to get funding from athletes and wealthy individuals, up to an announced $10.6 million. The fact though is that audience and revenues never came, probably because the “executive” team knew nothing whatsoever about technology and how to design and market a web product.

So here we are. Lots of talk, lots of money, lots of weird ideas and creative “marketing schemes” thrown around, and now the end of a local company … which, in my opinion, doesn’t even deserve a post on Montreal Tech Watch. But I guess we have to write down history and facts so as the next new entrepreneurs would learn the lesson.

On y apprend que Michel Verville a deposé une requête en cour le 29 janvier dernier, demandant de démettre son frère Luc Verville de la direction de la compagnie et de nommer une équipe de son choix à la tête de capazoo. Dans sa requête, Michel Verville, qui était l’instigateur et le fondateur du projet, affirme avoir été évincé de la compagnie suite à une longue série d’imbroglios et de pratique d’affaires douteuses.

Il y aussi toute une série d’articles dans la suite du journal à propos du manque de transparence dans la gestion de la compagnie, de comissions arbritraires, de réserves provenant des comptables chargés d’auditer la compagnie, de leurs liens avec le milieu du porno, de poursuites judiciaires lancées par des ex-employés qui ont été floués dans leur contrat, et de la longue histoire de faillites et d’affaires douteuses passée des frères Verville, etc.

Par exemple, les fondateurs se prenaient 10% directement dans leur poche des fonds levés des investisseurs, pratique qui en soi n’est pas illégale, mais devrait “faire dresser les cheveux sur la tête” de n’importe quel gestionnaire. Autre point révélateur, les “investisseurs” actuels dans la compagnie avouent ne pas savoir qui contrôle l’entreprise, ni même à quoi sert exactement capazoo. Allez savoir, ils sont sûrement plus occupés à suivre les résultats du hockey ou du football qu’à se demander comment devrait être conçu un service sur Internet.

Je considère que ceci clôt l’affaire capazoo. On en a parlé longuement ici il y a quelques mois de cela, on sait qu’ils ont un modèle d’affaires bancal (ils ont été nommés dans les applications web les plus stupides de 2007 par Mashable), et qu’au rhytme à laquelle ils brûlent leur actifs, ils devraient fermer dans 1 ou 2 mois. Le seul moyen pour continuer était de lever des fonds supplémentaires auprès d’autres investisseurs, mais après la couverture aujourd’hui, il faut être fou pour miser un seul sou dans capazoo. J’imagine que pour les frères Verville, la bataille judiciaire actuelle était leur porte de sortie de l’aventure capazoo et leur permettra dans le futur d’affirmer que capazoo était un échec à cause d’une histoire personnelle, et non à cause de leur pratiques d’affaires.

On pardonne beaucoup dans le milieu de l’entrepreneuriat, par exemple les échecs passés, et on peut même ne pas tenir compte du manque d’expérience en gestion, ou d’expérience, mais une des choses qu’on ne peut oublier est la malversation. Le pire dans l’histoire, c’est que capazoo donne une image d’escrocs de l’entrepreneuriat technologique, et de montréalais qui gagnent malhonnêtement leur vie, et ça c’est quelque chose que je ne peux pas pardonner.

About Bell, my conclusion is that the unlimited plan promotion was in fact true, but they messed up real bad, with inconsistancies and hiccups in their customer service, their website and their invoicing system. Their website doesn’t confirm the existence of the unlimited plan, they also have salespeople who are not aware of the plan. The tragic point was reached when we had a Montréaler who was charged 1000$ for one month of Internet service (!!!), even though he took the HTC Touch and the unlimited plan. (read comments)

However, most of the people I’ve seen confirmed that this unlimited Internet plan existed, the only limit being not able to connect the phone to your laptop.

About the post about Capazoo, we have currently a fight between Capazoo’s PR representative and the company’s ex-employees, and it’s quite clear to me they would start calling each other names and get “emotional”, as each commenter seems to be stubborn and wanting to have their own vendetta against Capazoo.

As I see it, we will see results and news from Capazoo soon enough, certainly in the upcoming months.

Comments are more than welcomed on Montreal Tech Watch, and I thank everyone of you for contributing. I read every one of them, even if I don’t have always the time or the expertise to answer to each. However, I think it’s best to stop receiving comments which do not add up to the discussion.

Of course, these might just be rumors, but they might be also signs about capazoo’s misguided efforts. Their technorati trackbacks are flat, and alexa shows they had more visitors November last year than what they have currently, although they officially launched the website last October (!). An “unofficial” blogreveals that in fact they launched in 2006, but failed to get traction, and that’s why they did it again in October 2007.

Official press releases don’t do them justice either. 11 days ago, they struck a deal with Savvis, which will provide them virtual servers and data centers facilities for $5 million. Who the hell pays $5 million to host your website? Certainly not a web entrepreneur, who would rather get an EC2 account from Amazon if he/she really wants a scalable infrastructure.

I really hope I am proven wrong, that their investors didn’t play the lottery game and thoroughly checked that the founders and the management team were wise, smart, honest and perfectly know the web space before putting in $25 million.

First, what is an angel and what are they for? Angels invest into a new promising company that looks like it is going to disrupt the market (think Google, facebook or youtube). Entrepreneurs get access to capital to fund their R&D, launch and make a viable product, while the angels hope for a very high return, proportional to the risks.

In Montréal, known investors are MontrealStartup, Brudder Ventures aka Austin Hill, Brightspark, JLA Ventures Partners, and Codency. However, as Austin Hill said, angels can also be individuals who invest privately, like second-time entrepreneurs, lawyers, accountants, VPs of technology companies or people who sit on the board of directors of those companies. Finally, there are also investors like iNovia Capital, which focuses on projects coming from universities in Québec.

From Austin Hill’s experience, getting funds from an angel is very much like dating. First, you have to make sure that the angel plays in the same space and market you want to play in. In Montréal, if you want to do Internet search for instance, one idea is to see who invested in mamma.com. If you want to go into services for mobile phones, you would want to investigate who invested in OZ Communications or in Bluestreak. If you want to do social networking, then try to get the people who invested privately in capazoo.com. You can also try to hit VPs / boards of directories of tech companies like canoe, Bell, Videotron etc.

Austin Hill

Meeting those people involves a lot of networking in cocktails, 5 à 7 (TechnoMontréal’s for instance), the monthly Montréal Tech Entrepreneur breakfasts, dinners etc. Like in dating, getting introduced by someone they know is a bright idea, which will get your project reviewed with a good eye. Here, you need to focus on a couple of key investors, instead of chasing everyone.

After the meetings, and if the angels are interested by your pitch, there is the due diligence process, where investors will investigate into your team, your competitors, make exhautive checks about your technology and your business plan. Afterwards, they will present you a terms sheet detailing their investment offer. This is the negotiations process, where you will most likely need lawyers and lots of coffee to examine the fine-prints. For reference, angels in Québec will want convertible debt: their investment is a loan (with interests!!), which can be converted into discounted shares when VCs invest into the startup at series A. It’s a bad idea to make a valuation of your company and then finding out afterwards that VCs disagree with the valuation.

Good angels are the ones who will work with you on finding VCs, and who can advise you on your product and the market. Getting the ideal angel is not easy, and will take you a lot of time.

More about angel investments:

• Details about the process at StartupNorth
• How to work your pitch, by Craig Hayashi again
• Angel financing, what they look into a company: product and pain point.