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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.



Something Ventured:
December 5th, 2005

By Brent Holliday
Greenstone Venture Partners


Tech IPO: Here We Go?


“With my New York brim

And my gold tooth displayed,
Nobody give me trouble cause

They know I got it made.

Welcome back, we’re nationwide,
I'm baaaaad, I'm nationwide.” – ZZ Top, I’m Bad, I’m Nationwide


As I munch on my cranberry blueberry muffin and sip my “regular” large coffee this morning from my (and Canada’s) favourite donut chain, I ponder the possibility of getting me some of this highly profitable action.  Yes folks, it’s true, Tim Horton’s is going public.  Wendy’s bought TH in 1995 and most of its collective profit since then has come from the fanatical demand for a daily dose of donuts through the 2,800 stores across Canada and the northern US.  They are spinning out the chain as a separate public company to try and capture some of that incredible value.  But rather than talk donuts and “double-doubles” with you, I wanted to explore the public markets for technology companies in Canada to see if they are as hot as a Tim’s coffee… or not.


The IPO is the crowning success of any early stage investment as it represents a liquidity event and a validation by the public that your company is a success.  Now I am talking IPO on the TSX or NASDAQ, not the RTO or junior IPO which are more for capital raising.  A large IPO is definitely about capital raising, but it is also about liquidity, which thinly traded juniors are not.  We only need to gaze longingly at IPOs in the US like Google to see that returns can be had at the IPO value of the company and, assuming the company continues to grow and execute, great returns after the IPO for early investors.


First, as usual, some data:


-         Capital inflows to technology mutual funds in the US and Canada increased in late 2005 for the first time since mid-2000.  People believe that money is to be made in the black and blue technology sector.  Some say this is more of a rotation out of the energy and commodity sectors that are running out of gas (pun intended), but generally investment pundits think technology will have an updraft over the next few years.

-         Miranda Technologies of Montreal is going public on the TSX next week and has priced above its target range (to $11.25 a share) and raised 40% more than it intended.  Hungry investors are lined up to drive this stock higher when it opens next week.

-         Genuity Capital Markets, the spin-off of CIBC World Markets, has made their major sector focus in Canada… technology!  What?  Are they nuts?  Well, an un-named senior manager said that Canada was full of profitable, exciting private technology companies that would be as hot as Miranda and recent IPOs, March Networks and VCom. 

-         And yet, IPOs make up a small part of the successful exits in Canada.  Most of the liquidity for shareholders and investors comes from M&A.  The median value of tech IPOs in Canada in the last 6 years (market cap) is $44M US, while it is $224M US in the US.  I think largely that is due to the so-called tech IPOs on junior markets in Canada being very small, but it is still a concern.


Not a wealth of positive data for technology IPOs, but some interesting indicators to be sure. 

So, are IPOs back for technology companies in Canada?  If you meet the qualifications of what makes a solid public company in terms of performance, the world appears to be your oyster right now.  But those qualifications are tough.  Number one, unless you are a development stage biotech or fuel cell company, you need to be profitable.  Number two, you need to be showing great growth for at least 6 quarters.  Probably more.

On the profitability side, let’s look at the post IPO performance of the last nine technology IPOs on the TSX and you will see what I mean (in chronological order, most recent first):



$8.00 IPO

10% up  

$8.80 now                     Very profitable  


$5.00                    10% down           


Barely profitable



104% up


Very profitable



53% down           


Not profitable



20% up


Just profitable



57% down 


Not profitable



44% down


Not profitable

180 Connect      


61% down


Not profitable



27% down




With the exception of Workbrain, a late 2003 IPO that represented the 1st technology IPO since 2001 at that point, the profitable companies have shown good stock appreciation since going public.  Conversely, those that can’t make money are getting pummeled.  March has more than doubled its revenue per quarter, which is outstanding growth. Miranda has solid profits and growth, if you were wondering.


Let’s assume (hope?) that the Genuity spokesperson, that talked of great private technology companies forming solid IPO deal flow for the coming few years, is right.  If so, many private Canadian tech companies are growing in their markets and reaching profitability.  Assuming that you want to go public, your company must be able to hold a market capitalization of >$200M if you want to get someone’s attention at the bigger exchanges.  That means annualized revenue of at least $30-40M and superb growth (again, biotechs have their own set of metrics not related to revenue and profit).  Miranda did $70M in revenue in the first 9 months of its current fiscal year.  VCom has annualized revenue of $70M now.  March Networks just did a $20M quarter.  You get the picture.


But do we have companies showing that type of revenue and growth in BC?  {By the way, VCom may be listed as a BC company, but the employees are all in Saskatoon.  The CEO lives here, so you didn’t miss a good one in our backyard}.  The private companies are hard to pry open and find out.  There are a few rumored to be in the right range.  They may or may not be Convedia, ACL, Maddocks and to name a few. The only thing I can show you with certainty is the public technology company record of profitability.  It is pretty dismal.  I did a very un-scientific search of the news releases on this very web site to look up our public technology companies and counted those that are profitable in the latest quarter and those that are touting a net loss.  On a quick look, the score is 38 companies not profitable to 10 that are profitable.  Yikes.


For the record, I found the following profitable public technology companies and I expect you to notify me of the ones I missed:



Sierra Systems

Web Tech Wireless




Creo (now Kodak)





For every one that you submit to me that I missed as profitable, there are likely 3-4 that aren’t if the ratio holds.  Clearly, we need to improve the profitability picture before going public in order to see good stock growth.  I guess another way of looking at our nest of public tech companies in BC is that most of them would not qualify to be public companies on the TSX in today’s market. And for junior public companies or RTOs into junior shells this is exactly what they hope to do someday, by becoming profitable.


So as you mull the idea of buying into the hottest IPO in Canadian history (Tim Horton’s), consider the technology IPO as back, sort of.  It is back, but you need to be a bigger, profitable company to get the big win.  It’s going to be hard to get there without someone offering to take you out along the way, especially if you are big, growing and profitable.


What 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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