A New Kind of Mafia in Montreal? How a Culture of Startup CEOs are Playing the Angel Game

There’s a mafia brewing in Montreal, involving several notable figures. They made names for themselves during their careers, and now they’re taking extra measures.

No, they’re not involved in racketeering scandals or embezzlement and fraud charges. Their surnames aren’t Rizutto and the Charbonneau commission isn’t grilling their bosses in court. Rather, these core individuals form a group of active startup entrepreneurs who are putting their money back into new ventures in Montreal.

The group includes names like Wajam founder Martin-Luc Archambault, PasswordBox CEO Dan Robichaud, 5by founder Greg Isenberg, Busbud founder LP Maurice and Coffee Enterprise CEO Brett Patrontasch.

Influenced by PayPal

The group resembles the famous “PayPal Mafia” in Silicon Valley. In 2002 PayPal went public and was purchased for $1.5 billion by eBay, and several early employees got very wealthy overnight. These employees went on to make massive impacts on the Silicon Valley tech ecosystem by investing in or founding other technology companies.

These Mafioso include Dave McClure, founder of 500 Startups, Reid Hoffman, founder of LinkedIn, Peter Thiel, or the “don” of the PayPal mafia, who was an early investor in Facebook and created the Founders Fund, and Elon Musk, founder of Tesla Motors.

While Montreal hasn’t yet experienced a “massive exit” on the scale of PayPal’s, the city can boast many successful entrepreneurs who are now reinvesting their capital into the city’s new innovative startups. Often they’re investing with one another too.

Gabriel Sundaram, an investment analyst at Montreal-based Real Ventures, said that active entrepreneur-investors help to create a “second layer of maturity” in startup communities. This second layer is a strong differentiator between established startup mega communities like Silicon Valley and other places. According to Sundaram, it also represents a newer relationship between entrepreneurs and their wealth. Instead of making big money and stashing it away or spending it, these entrepreneurs are actively trying to build up their communities.

“We’ve seen it happen for a long time in other, more mature markets, and it takes time because it happens in waves, like a ripple effect. You need entrepreneurs to have successful exits who have time to come back and invest,” Sundaram told Betakit. “It’s normal that it took a while in Montreal but we’re now seeing it happening more.”

According to Sundaram, one of the first persons to do this in Montreal was serial entrepreneur Austin Hill. “He set the precedence of an entrepreneur who was successful and then went back, not only to start more companies but also invest in other companies.”

Montreal’s “Don”?

Montreal’s “Don” could arguably be Hill, who cofounded one of the city’s first Internet service providers (ISP) in 1994. Total.Net became one of the largest Canadian ISPs at the time, servicing over 60,000 users. Following this he cofounded Zero Knowledge Systems, an internet privacy company that raised $75 million in venture capital funding. The company rebranded into Radialpoint and eventually achieved a $300 million exit. As one might imagine, Mr. Hill ended up a wealthy man, and began making angel investments soon after.

Hill figures he’s made 11 angel investments over his career, the majority of which went to Montreal companies. One of those was Standout Jobs in 2008, a recruitment communication platform that was later acquired by Talent Technology in 2010.

Not only does the community benefit from this reinvesting, but the startups who take on that money are able to work with an angel who’s currently building a company, just like they are.

“It is a sign of maturity,” said Hill. “It’s the best scenario when you start to have a qualified group of angel investors who actually have operational experience. They know how to do their social media and product development, they have UX experience and they’re close enough to it that they have banks of CVs and relationships, so its definitely positive.”

Not long after Hill came the Anges Quebec network, a formal group of angel investors primarily located in Montreal, as well as two entrepreneurs who ended up founding several companies in the city and invested in others. They are Martin-Luc Archambault and Dan Robichaud.

Archambault heads up Montreal-based startup Wajam, a social search engine that makes searching the web more personal by adding results from friends. Archambault said he’s made angel investments into 20 companies, most of which are Montreal-based technology startups. They include Frank & Oak and ViralNinjas, among others. The investments range from $25,000 to “hundreds of thousands”.

Archambault said that while he knows some of the investments will fail, he invests so he can learn and surround himself with the next great entrepreneurs. “Some of those entrepreneurs that I invested in could have done it without me and that’s what I think is really important, it means I can learn a lot from it. And vice versa, I’m helping them to not make the same mistakes I did,” he said.

He prefers to invest in companies in his city for the proximity factor. If he’s going to write a cheque, Archambault wants to be able to speak with the entrepreneurs face-to-face.

Meanwhile his friend Dan Robichaud is also notable for experiencing success, boasting an enviable five exits with past startup companies. His current startup PasswordBox is slowly creeping up on one million users. The company provides users with a one-click login for all of a their passwords.

About 15 of Robichaud’s 18 investments have gone to Montreal-based companies. He said there’s a great deal of talent in the city that doesn’t necessarily have access to the connections he’s been able to build for himself over years. “I’m giving back to Montreal because I believe in entrepreneurs, and that drives me. If we leverage their talents with the connections that we have it’s going to bring them a lot of value,” he said.

Like Hill, Robichaud said that the active entrepreneurs are the ones who can help steer a founder out of danger, and not necessarily a venture capitalist who might only provide financial help. “We’ve been through many challenges, we’ve been stressed in our past lives and we can help you navigate when shit hits the fan.”

Shmata, and the younger generation of entrepreneur-investors

Perhaps the interest in investing in Montreal comes back to the city’s hustle. Before the ecommerce startups, before the big gaming companies, and before the online porn industry (yes, Montreal is known for lots of different things), there was the shmata business.

As 5by’s Greg Isenberg explained, from around 1870 to 1900 the city held the position as the garment capital of Canada. “Shmata” is a Yiddish word for an article of clothing, sometimes even for a rag or towel. Then, Montreal’s large Jewish working-class population filled the garment factories, producing “cheap quality garments aimed essentially at the laboring population,” according to McGill researcher Michelle Payette-Daoust.

Isenberg draw’s the parallel between the city’s “grimy” and hard-nosed industrial history and today’s talented, cheap labour in the tech space. “The way I see it is, Montreal is really great for arbitrage. Why? Because there’s a ton of great talent, you don’t have to pay them a lot of money and you have this sense of hustle that’s in our blood,” said Isenberg. “That’s why I’ve bet on the Montreal startup community. No, they don’t have the connections and no, they don’t have all the past exits but hustle is hard to recreate.”

Isenberg and Budbud’s LP Maurice detail the latest chapter of Montreal’s story, revolving around the younger generation of entrepreneur-investors. Isenberg helped develop Wall Street Survivor, the most popular online stock market simulator, and was Canada’s youngest angel investor when he started at 22. The Harvard-educated Maurice founded Busbud in 2011 and raised $1 million in venture capital in May.

Maurice has made four angel investments thus far, including one into Montreal-based farm-to-fork food startup Provender. He wants to get up to seven deals by the end of the year, and typically writes cheques between $25,000 and $50,000.

According to Maurice, the new tech entrepreneur is less interested in investing into market stocks and bonds, but rather they want to pay it forward. “As entrepreneurs become successful over time they have this desire to re-invest in the community, the same community where they came from and that made them successful,” said the 32-year-old. “I think now we’re at a point in the Montreal ecosystem where they’re successful and they’re ready to give back.”

The ever-elusive “big exit”

Montreal can have all of its entrepreneur-investors but the fact remains that the PayPal Mafia was the result of a $1.5 billion acquisition.

The city hasn’t had an exit even close to that range and all of the investors unanimously agreed that for the community to forge ahead as a global startup destination, there must be a big sale. Or a billion-dollar company (local fashion e-retailer Beyond The Rack might be the city’s first, but it likely won’t happen for another five years).

Hill may have put it best. It’s healthy that more and more entrepreneur-investors are dipping their feet in the water, but at this point, “we’re still in a waiting pool.”

“More people putting their foot in the water does not necessarily increase the depth of the pool. It creates more people to talk to, but we’re still missing some things,” said Hill. “We need more early-stage VCs, more active lead investors and larger, successful companies.

It won’t happen over night, said Archambault. “Are we really going to get there? I don’t really see it happening in the next five to ten years. I’m happy where we are now but I think we need to do a bit more to secure this position as a leading tech startup ecosystem in Canada,” he said.

But for successful companies like Beyond The Rack, Frank & Oak, Wajam or PasswordBox, growth needs to start somewhere. The entrepreneur-investors, said Robichaud, are necessary no matter how long it takes Montreal to prove itself as a world-class destination. “I’m working on that and I hope it’s going to work but I think in order to build success and put this city on the map we need these types of investors.”

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