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Can't Grow, Supplies Are Low
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
February 1st, 2002

By Brent Holliday
Greenstone Venture Partners

"I know you're standing at the station
I know there's nothing on
I know that alienation
I know the train's long gone "
- Tragically Hip, Something On

On the weekend where Paul Martin and Gordon Campbell are both in New York City talking up Canada and BC at the World Economic Forum, I thought it would be a good time to talk up the tech industry a bit. Since we're all in a promotional mood let's scream from the rooftops and get some folks to pay attention. {Silly me, I forgot to send this article to Gordon before he left. Perhaps he'll give me a call next time he heads out to beat the bushes...}

You have heard me talk about promoting our successes here in BC before. In 1999, when Greenstone raised its first fund, we spent an inordinate amount of time in the US speaking to potential investors about Canada and BC. At the top of the Internet bubble, no one cared. There was so much activity in their own backyard, Canada elicited a yawn at best. With some fantastic technology successes of our own to point to, US investors piled into Canada in 2000 and 2001, but mostly to Ottawa and Toronto.

In BC, we are still the Rodney Dangerfield of Canada's tech industry… we get no respect. For those of you not familiar with Rodney, a brief introduction: Delivered with bulging, hyper-thyroid eyes and a quick tug at his necktie, "I tell ya, I get no respect. My wife says we gotta spice up our love life. So I go to the store and get a water bed. Figure that oughtta help get things moving, you know? Didn't work though. Her side of the bed froze solid. No respect.".

I want to focus on a leading indicator of the future successes of our technology industry: money invested. A rocket can't fly without fuel. Late in November 2001, I was one of a bunch of local VCs and angel investors invited to talk with Rick Thorpe, the Competition, Science and Enterprise Minister, about ways to stimulate the tech sector. At the meeting I lobbed out a fact about the amount of VC investment in Washington State compared to BC in the year 2000. It was a glaring difference (I'll get to the numbers in a moment). John Seminerio, former CEO of Abatis Systems, was at the meeting and he jumped on that point. Why is it that we have so little investment activity compared to central Canada and to the states immediately south of us? Well John, I spent some time digging deeper into the numbers and some things start to become clearer.

As the keynote speaker to a group of Portland venture capitalists in January, I was tasked with demonstrating what was going on here to help attract them to make some investments in BC. I created a presentation that laid out the facts but tried to make the argument that we were North America's best kept secret. Nothing attracts a VC like getting in to a good company just before a major ramp in value. From 2000, the last complete year of statistics available, here is what I showed them:

Year 2000 Technology VC Invested Population
BC $446M 4,000,000
Washington $4,235M 6,000,000
Oregon $1,580M 3,600,000
(sources: CanadaVC.com, Venture Economics, George Hunter and BCTIA)

Seems appalling that Oregon has 10% less people and nearly 4x the money available for its entrepreneurs to start new ventures, doesn't it? The 2001 numbers are not final and they will close this gap thanks to an increase in BC investment, but it will likely still be 2-3x the capital in Oregon vs. BC. A cynic would immediately say that clearly, there are not the opportunities for investment in BC and therefore the investment is not there. In other words a demand side problem exists in BC. There are problems with the demand-side argument. First, it assumes that investors are extremely smart and only invest in good opportunities. Ahem, well, uh, not always. Second, deal sizes have always been smaller in Canada, so the total number of companies funded is a lot closer than the dollars invested shows in the table above. Indeed, massive dollars raised by Xenon Genetics and Xantrex in 2001 locally (note to entrepreneurs: start your company's name with an X and get big dollars) will make BC's dollar numbers look better this year.

I don't buy the demand side argument at all. This is a supply problem, pure and simple. In Portland, this is how I convinced them.

BC born, bred and grown companies: Current Market Cap/Sale Price (CDN)

  1. McDonald-Dettwiler (a.k.a. MDA) $993M
  2. CreoScitex $1,048M
  3. PMC-Sierra $6,100M
  4. Sierra Wireless $443M
  5. Ballard Power Systems $6,255M
  6. QLT $2,717M
  7. Angiotech $1,339M
  8. Pivotal $245M
  9. HotHaus (Broadcom) $430M
  10. Abatis Systems (Redback) $1,050M
  11. Crystal Decisions $??? IPO in 2002?

Then I put up some Oregon born and bred companies:

  1. Tektronix $3,490M
  2. Mentor Graphics $2,436M
  3. Pixelworks $930M
  4. FEI $1,590M
  5. Electro Scientific $1,320M
  6. TriQuint Semiconductor $2,215M
  7. Credence Corp. $1,423M
  8. Lattice Semiconductor $3,756M
  9. Radisys $529M

The eight public Oregon companies had almost exactly the same market capitalization as our eight public companies. Interestingly, with the only exception of Tektronix, every company in Oregon's list made most of its money from the semiconductor industry. That's what happens when Intel, H-P and Fujitsu build semiconductor fab facilities in your state with huge tax breaks (Fujitsu just closed theirs, actually). The largest private sector employer in Oregon is Intel, which, of course, is not Oregon born and bred. I told the Portland VCs that our more diverse industry leads to a more diverse investment portfolio for their funds, which is usually a good thing.

Back to my chart of investment. If we are able to create large, global technology companies here in BC, arguably as large and as global and from more diverse industries as that of Oregon, why do we have ¼ of the investment in the next generation of technology companies? Haven't we proven ourselves to have the ability to create shareholder wealth, jobs, tax-paying corporations and highly trained people? Are we not killing the golden goose by short changing our very own entrepreneurs?

Any way you slice this, we have not got enough investment happening in BC. And this will affect our future in a huge way. All of us. Not just greedy venture capitalists.

The good news is that I think the provincial government, the BC Securities Commission, the CDNX and the venture capital community all are aware of this problem and are moving to help. In the coming months I see three or four distinct trends that will loosen up angel investment capital, change the rules on the venture capital pools and increase the likelihood of more labour sponsored money in the province. But the real value added for the technology industry will be when more sophisticated venture investors, whether from here or from outside the province and the country wake up to the opportunities in BC and invest. Feel free to circulate this article to anyone that you think might want to invest here. We clearly deserve it.

Letters From Last Time:


That was a great article you wrote about the current high tech job market and future trends in the industry. I am a software developer with over 10 years of experience and a computer science degree (I'm working on my masters), and I haven't been able to get work since I was laid off last May.

One comment in the article bugged me, however. You stated "Second, the Canadian brain drain would become a non-issue as Canadians in the US flocked back home for jobs and security.". I can tell you for certain I did not come back to Canada for "jobs" or "security". No one in their right mind thinks job prospects are better in Canada (especially Vancouver) than in the United States. The only reason I came back is because I had no choice. My work visa was tied to my employer, and once I was laid off, I had no choice but to leave the country within a month or two.

Like I said, everything else in the article was good.

Kevin Defoe Kevin:

You are absolutely right and I should have elaborated more on my point. I am in touch with 500 odd Canadians in technology in the US through a web site that I helped create, called TechnicallyHip.ca. The steady stream of job requests and information on Canadian opportunities indicates that Canadians were looking here for work. But, the Canadian situation has not been much better than most parts of the US for job prospects. Surprisingly to you, a lot of people have identified "security" or "wish to be nearer to family" as a reason for coming back to Canada since Sep 11th. But many, as you have indicated, simply had no ability to stay without a sponsor for their TN visa.

Thanks for the letter.

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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