Insight For BC Technology
By Brent Holliday
Summer Better Than Others
Must come down,
Got to go round." - Blood,
Sweat and Tears – Spinning Wheel
is usually a time for reflection.
Before he handed the day-to-day reins to Steve
Ballmer, Bill Gates used to take a couple of weeks of summer
time to kick back, relax and strategize.
Depending on your point of view, he was either a)
reading someone’s business plan and taking notes on how to
“embrace and extend” them out of the market OR b)
setting the course for our collective technology road
ahead… (the smart kids picked a).
is also hot. Except
in Vancouver. In
fact, the only thing hot in Vancouver this summer has been
Haus. But, I
wrote about that last time.
while reflecting in the heat (in Toronto, not Vancouver), I
have come up with a few random thoughts on the events that
affect our lives in BC technology circles this summer.
It is also an excuse to write a shorter column, with
little preparation, from a crappy, borrowed computer with a
28.8 modem, while away from home.
Hot IPOs? – Mike Volker, my partner columnist, will
no doubt write about the Pivotal and Creo IPOs
on the NASDAQ over the past 7 days.
Suffice to say that Creo exceeded expectation and
Pivotal wilted below expectation. The Creo opening (up 48% on the first day) was as lofty as a
few recent Net IPOs. It
was quite amazing when you consider the NASDAQ was in the
middle of an official correction.
I think Pivotal is a victim of bad timing.
Its competitor, Onyx (ONXS:NASDAQ), went public in
March of this year at the peak of market hysteria and jumped
50% on its opening day.
But it is now trading below its IPO price.
Combine that company’s stock performance with a
dismal market over the past two weeks and you have a recipe
for a flat opening.
Only two months ago, Sierra Wireless opened trading on the
TSE. It was
also flat. Then it dropped like a stone, only to come back near its IPO
price with an outstanding quarterly performance. This is a very solid company that has zero visibility to the
US market. Sorry
to say, but the TSE is a farmer’s market in the world of
Wall Street. Did
you know that Tuesday July 7th, Sierra Wireless
traded zero shares in eight hours of trading?
Today, Pivotal traded 2.7M shares (granted, it was an
opening day and the average volume will be lower), Creo did
360,000 shares and PMC-Sierra traded 1.6M shares all on the
I believe that all of these companies are on the track to
bigger and better success.
And that helps all of us.
Cooling Markets? – I don’t need to tell you that the Net
stocks have been battered recently.
The broader markets have cooled, as well.
Call it the summer doldrums… call it whatever you
want. I read
today that there are 100 Net IPOs in registration, yet to
hit the market. You
will start seeing the postponements in the next few days.
Like déjà vu all over again, last August/September
we saw a big correction and a whole slate of cancelled IPOs. One lonely company braved the waters in late September.
That was eBay. That’s when this whole silly season got started.
Along the technology company equity financing food chain,
there are angels, VCs, mezzanine players or strategic
partners and finally the public markets.
This is a very well-connected chain.
Shake it at the public market end and watch the
ripples spread quickly down to the other end. VC’s have been accused of travelling in herds, which they
do, but the real reason for pouring money into a particular
industry segment is because at the end of the day, the
public market is buying. A valley VC told me in May that when the ducks are quacking,
you feed them (meaning that if the public markets are
paying, take the companies public).
That’s great, if you have a pipeline of companies
that you already invested in that are in the hot segment.
The real trick for VC’s (and entrepreneurs) is to
predict a couple of years ahead what the hot segments will
The most recent quarter, ending June 30, showed a massive
increase in VC funding of technology companies in the US.
The $8.7 billion invested in the quarter is more than
half of what was invested in all of 1998!
Guess which segment received the most money?
The dotcoms. Well,
gosh, if the market keeps crashing and all those Net IPOs
get postponed, then the segment that just received the most
money may not be hot. Then
what? If these
fledgling companies with no hope of profitability (because
they need to achieve market share) can’t access the hordes
of public money, how will they survive?
It’s not as simple as saying that “They
there will be consolidation and a few will crash and burn.
When the IPO well runs dry, the private financiers
must pick up the slack.
There is a ton of money out there today being
invested in early stage companies. It won’t dry up immediately.
If the market stays cool until the end of the year, you will
see a slowdown in new
venture financings. There
is no doubt about that.
It might be time for the VC’s pouring money down
the dotcom drain to consider what might be hot in a couple
of years. Wireless
data? Post Y2K service companies?
Business to business e-commerce?
Dare we say, interactive content?
3) Makes Me Hot Under The Collar – Government that is out
of touch with reality. Can you believe the arrogance of
Chretien last week? In
response to a question about lowering taxes to stem the
brain drain (which he has concluded does not exist) he says
that if we don’t like it, we should leave.
Yeah, and that’s exactly what the captain of the
Titanic said when the boat was listing to one side.
What an ass! Then he tells us the next week that if we want to stay then
he would be happy to lead us through a third mandate. His first term was great.
His second is mediocre.
A third would be a disaster.
This is not a man that will help change Canada into a
global technology player.
(along with a growing chorus of Ottawa people) says that
lowering taxes will not help productivity and will only hurt
health and education. Let’s
see, Mike Harris cut taxes and Toronto now has a .9%
residential vacancy rate and health and education don’t
seem to have suffered.
Ask Quebecers what their high health tax bill has
gotten them recently. Well,
Jean, if you don’t want broad tax cuts, then how about
getting a little creative for the technology sector.
Here’s one from California that I bet you haven’t
heard of: Any
taxes for personal capital gains made through investment (or
holdings) in private companies (when they are bought or go
public) can be deferred indefinitely if the gain is
reinvested by calendar year end.
What does this do for technology?
Angel investors can defer capital gains taxes by
investing their money back into new companies.
So, let’s say the new multi-millionaires at Creo or
HotHaus want to avoid paying tax on their gains for a few
of putting it in some off-shore tax avoidance scheme, they
can put some of it into new emerging companies.
This has the huge circular effect in California of
putting money back to work in growing new companies.
Since most of the gains in California are by
technology entrepreneurs, they become sophisticated value
add investors for these new companies.
is no longer the speed limit for the Net.
Some sites don’t even work at this godforsaken
speed. Give me
back my cable modem…
That’s all from the weary traveller. I will be back in a
couple of weeks with a full-length feature and responses
from my last column on HotHaus.
Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).
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