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)
- McDonald-Dettwiler (a.k.a. MDA) $993M
- CreoScitex $1,048M
- PMC-Sierra $6,100M
- Sierra Wireless $443M
- Ballard Power Systems $6,255M
- QLT $2,717M
- Angiotech $1,339M
- Pivotal $245M
- HotHaus (Broadcom) $430M
- Abatis Systems (Redback) $1,050M
- Crystal Decisions $??? IPO in 2002?
Then
I put up some Oregon born and bred companies:
- Tektronix $3,490M
- Mentor Graphics $2,436M
- Pixelworks $930M
- FEI $1,590M
- Electro Scientific $1,320M
- TriQuint Semiconductor $2,215M
- Credence Corp. $1,423M
- Lattice Semiconductor $3,756M
- 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:
Hello
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.
Regards,
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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