Wild Apricot is a young technology company out of Toronto, Canada. We provide Software-as-as-Service for associations, clubs, and non-profit organizations. This is our story of an investment round that fell through due to economic conditions.

Originally financed by our founders, the company wanted to grow faster and in December 2007 decided to seek additional financing from outside investors. Things progressed quickly, and by February 2008 we shook hands on a deal with a new investor: a very entrepreneurial investment company out of UK. Closing was planned for April 2008.

Of course, things never go as planned (and this is one of the lessons many startups learn the painful way). First, due diligence protracted much longer than expected. This was partially due to the fact that our Canadian-based company has a subsidiary office in Moscow, Russia, where the bulk of software development work takes place. The investor was keen to ensure that the intellectual property was properly protected, and it required changes to the legal setup of the Russian subsidiary, new employment contracts for all employees, and a bunch of other changes.

Then the MBAs and lawyers got their hands on the deal, and it quickly deteriorated from a relatively simple original term sheet to a thick stack of very complicated contracts.

This was to be the first Canadian deal for the investment company, and the deal stalled for a while as the investor's lawyers struggled to reconcile the terms sheet with their standard templates and the wording of UK contractual law with the Canadian legal system and its way of doing things. (That's another lesson for start-ups: making a deal outside of your home base frequently takes much more time and energy.)

The shareholder agreement, articles of association, board by-laws, and all the other fun documents multiplied in versions like rabbits.

Everybody got exhausted, and the deal almost derailed a few times and was only saved thanks to the open dialog between our company and the majority shareholder of the investment company.

Dmitry Buterin, the Chief Apricot (aka President of Wild Apricot), got the final documents on the morning of October 9th, 2008. He was visiting the Moscow office at the time and went to work having the documents signed and faxed between Moscow and Toronto.

Alas, it was not to be. At 4:00 pm, he got a call from the investor. "We are not going to close the deal after all. Our shareholders are panicking and withdrawing their money. We cannot do any new deals now." The financial crisis finally hit home.

After seven months of due diligence, many thousands of dollars spent on accountants and lawyers, and countless hours invested by the management team, Wild Apricot had to write it all off.

It was even more disappointing because our company was delivering on its promises. Back in January 2008, we provided a detailed financial projection, and at the last check-in with the investor team we were proud to show the September and year-to-date numbers were right on the projections.

As the saying goes, in every crisis there is opportunity. So, the Wild Apricot team went searching hard for those opportunities.

The story is still being written because the crisis is still unfolding, but here is what we have achieved so far:

1. We asked nicely, and the investor agreed to reimburse part of Wild Apricot's legal expenses, even though there was no legal obligation on the investor's part.
2. We contacted local media right away to capitalize on all of the hoopla about the crisis and ended up on Canada's CBC television.
3. The founders put together another round of their own money, and while they had to scale back some growth ambitions, we feel comfortable about riding out the current storm and bridging this and the next investment round. (we knew that any deal had a risk of falling through, so we had backup financing arranged in advance, and it came in very handy.)

Wal-Mart has been reporting record growth as of late and McDonalds is stealing market share from Starbucks. So we think Wild Apricot might do even better in these tough times. Non-profits are hurting and have to trim their budgets (just search Google News).

To tell you more about our software: the basic premise is that for a simple, flat monthly fee of $25 to $200, Wild Apricot replaces up to seven separate pieces of software: the content management system for your website, a members database, a secure private website for members and the board, an event registration system, online payments processing, software to send bulk emails and newsletters, and online community facilities, such as blogs and discussion forums. Technical support and updates are free.

For a small association or club, this set-up saves thousands of dollars in software, countless hours of volunteer time usually wasted on copying and pasting and reconciling the data between a dozen Excel files, and paying through the nose for IT services.

Wild Apricot delivers a custom-built website project that would cost the equivalent of $20,000 or more (not to mention hefty ongoing maintenance and support fees).

October 2008 has been our best month in terms of absolute financial growth (meaning our monthly revenue has increased by the biggest amount ever). Percentage-wise, our revenue grew by 11.3% in a single month! And November so far is shaping up to be an even better month for us.

We we are very confident in our ability to keep growing by staying agile on our feet!

And here is the silver lining:

The US dollar is shooting up against most other currencies. Wild Apricot software is priced in US dollars, while its expenditures are largely in Canadian dollars and Russian rubles. This adds a healthy boost to its bottom line.

What are your war stories? How are you navigating these waters, and what new opportunities are opening up for other technology startups?

If you're curious to know more about this 'gritty startup', please click through to Wild Apricot's website and support a RWW sponsor!

But what about now? This is the time to be audacious. The world has changed, totally and irrevocably. Change is the entrepreneur's friend.

I call these Micro Trends. They are not the big obvious trends that everybody is riding - such as mobile, online advertising, search, social networking, globalization etc. If you spotted those 10 years ago, great. Now it is too late. Think surfing. If you see the wave building early on, you get a chance to ride it. If you catch it too late, you get crushed.

How Does The Last Few Weeks Change This List?

For some time I have had a list of Micro Trends on my personal blog. It seems a good time to revisit them to see what might change based on the global credit crisis.

1. Transparency. This wave has been building for a while, but it just got a big boost by recent events. Transparency in financial markets obviously. Then there is Obama's Google for Government initiative. Some of the smartest recent startups we have seen use a mix of technology, insight and hard work to expose the inner working of industries to eliminate information asymmetry and get lower prices for buyers. You can bet that there will be more.

2. Relocalization. We have already written about this here. Tough times will accentuate this trend. The solutions are not obvious (so Momentum VC won't touch them), they could be game changing.

3. Reduced power of gatekeepers. This relates to Transparency. Reduced information asymmetry reduces the power of gatekepeepers/intermediaries/tollbooths. The Financial Services industry is the mother of all gatekeepers. The Economist states that in the early 1980s, the financial services industry accounted for 10% of GDP, but last year it rose to 40%. One change arising from the recent turmoil we can be totally confident about is that the current financial services intermediaries are weakened and new models will arise. Who will do a craigslist on the financial services industry (or at least segments of that vast industry)?

4. Micro-trend Slopes replace Chasms. Alex Iskold started an interesting conversation about whether the Internet has made the Chasm adoption model less relevant. Biking up and down slopes may be the better analogy today. Catch a new trend and you can cruise down a slope, picking up speed effortlessly. As trend-spotting me-too ventures join the race (the Internet spreads ideas instantaneously) the slope flattens out and curves uphill. In good times, a bit of pushing gets you over the top and catching another micro trend slope on the way down. If your up slope coincides with a cyclical down turn (and we are certainly in a big cyclical downturn today), you will get a flat tire and have to carry your bike up the hill and mend it at the top. Don't worry, the other racers will have given up at that point. Starting in a cyclical downturn, make sure you are on a down slope!

5. Changing balance of power between big and small businesses. Yes we have been "banging on" about this for a long time. For the most long-winded description (sorry), read this. This could be the biggest micro trend, even a Tsunami that few people have spotted. Which the current crisis just accentuated. Which the incoming President might actually do something positive about for a change.

6. Self-organizing networks beat command and control structures. This is the story of Enterprise 2.0 - aka, social media meets the enterprise.

7. The end of mass markets. This relates to most of the other trends. Small, niche, specialist will beat mass produced. This is why Etsy may be a big winner from this Web 2.0 cycle. There are probably other opportunities around this trend.

8. Ad $$$ will flow to measurable ROI models. OK, that falls into the no-duh category! But surely Google Adwords is not the only winner in this category? There must be a better ad targeting model out there somewhere? Not better search, you can just use Yahoo Boss for search - that game was totally over well before the credit crisis. But better ad targeting that does not infringe privacy is a big winner.

9. Bubbles will form and pop faster. Bubbles are like booze. With a horrible hangover we say "never again". But guess what.... They don't reappear in the same place until a generation that was bruised has moved on. So the big bubble may be a thing of the past. But we will get lots of small ones. That is kind of like moderate drinking, actually quite good for us. My motto is "moderation in all things, including moderation".

10. The end of 11 point lists. I used to do 10 point lists until a commenter showed me this wonderful Spinal Tap video. Seriously, 10 point lists indicated limits and space on the Internet is unlimited. But then I noticed many people doing 11 point lists. In the spirit of back to basics discipline, 10 point lists will make a comeback.

Image credit: Thomas Hawk

See also: What's Next After Web 2.0

Seeing the Blogosphere afire with tales of crisis in start-up land, with emails going from the wise investors to their portfolio companies, makes me think: no duh! Driving with your eye only on the rear view mirror is not smart. I hate to say "I told you so" but some times I cannot help myself. We have been banging this drum for a year. Not that it took a genius to see that a downturn was coming, it was bleeding obvious! We followed up with perspective here and here. When the sky started to fall a few weeks ago we started to look on the positive side.

Of course companies should keep their costs as low as possible. That has been the obvious for centuries. So last week the advice was "spend like drunken sailors?". Seriously, this kind of boom one day, gloom the next reminds me of the crazy behavior that got us into this mess and which, if you want a good laugh, you can watch here or embedded below. By the way, that video was from a year ago!

Blurb Is Just An Old Fashioned Story

The key points that came from Eileen Gittins don't sound terribly interesting, except that in today's world they are so unusual:

1. A "seasoned" management team. Like somebody at the helm who has sailed through a storm before.

2. Aligned with their VC. Some VCs push the "shoot for the moon at all costs" approach. Blurb's backer, Canaan Partners, was aligned with the push to profitability before that was fashionable.

3. Willingness to make trade offs. Sure we all want profits asap. But in the real world there are decisions and trade-offs. These may involve deferring features, leaving a market until later, being more niche than generalist. It is almost always a growth vs profit trade-off ("revenues are vanity, profits are sanity"). The Blurb story is full of those. Now Blurb are in a position to do the things they delayed earlier, while their competition is retrenching.

4. Being contrarian to some degree. Blurb got funded in 2005. They had nothing to do with advertising and you would have to be a spinmeister to call Blurb "Web 2.0". Blurb uses Internet technology (er, who doesn't) to deliver a different value proposition to satisfy a demand that has not changed since Gutenberg. Canaan was clearly ready to be Real VC and back an unfashionable concept.

And, What About The Impact Of The Financial Crisis?

We ask that question to everybody. Eileen Gittins said "we watch the economy like a hawk, because that is what we have always done, it is in our DNA". But so far, so good, they grew in September and the last quarter looks very strong. At least they don't need to go to (more) VCs, who are spending all their time with their problem companies, to ask for more capital. With all the talk of revenue vs profits trade-offs, Blurb grew revenues this year around 3x - not shabby.