February 10th, 2006
By Brent Holliday
Greenstone Venture Partners
“Wash away my troubles,
Wash away my pain
With the rain in Shambala” – Three Dog Night, Shambala
week I’m feeling generous. OK, so
that’s a bit of spin. I include
three mini-columns in this issue, which could be construed as a bonus. Or, the more likely reason: They are three
ideas that could have grown up into columns and I couldn’t make up my mind
which to do, so I am trying all three.
Now that we’re clear…
Coulda Been A Column #1 – NRC/IRAP has become a schedule 1 bank. You didn’t
see the headline? I missed it too. But somewhere between Auditor-General
Sheila Fraser, Judge Gomery and the tightening of
1,000 sphincters in Ottawa, the commercialization assistance loans and
granting programs have become completely inflexible, covenant riddled and,
well, useless to a very early stage company. Might as well be the Royal Bank at this
easy to see why the noose has tightened in Ottawa and depending which side
of the following argument you are on, this is either a good thing or
horrible. The programs that “lent”
or “granted” money to R&D focused early stage companies over the past
number of years were, let’s face it, subsidization of our technology
industry at the point at which most failure happens:
pre-commercialization. The Liberals
took the subsidization to another form of art when they started the
(Technology Partnerships Canada) TPC program which basically doled out
money for votes, better known as pork.
So, if you are a fan of government stepping in where the market
fails, you have to be concerned about the new attitude of NRC and IRAP
programs. If you think the
government should stay out, you are probably happy that a few dozen
start-ups (yes, including three that I know of in BC) in this land are
getting raked over the coals and set up as “precedents” for any future
assistance from Ottawa.
the past, companies took the money from these programs and advanced their
technology. In almost every case,
further investment was required to get to the point where you could pay
back the government in royalties. The risk of the actual principal owed was
viewed as low because if things went awry, as happens to many start-ups,
the government was reasonable as to expectations of being paid back. The agreements were muddy as to whether
they were “secured debt” or not. In
fact, top auditing firms read the agreements and in some cases didn’t
report the assistance as debt on the company’s balance sheet! That’s how low risk the money seemed. Now, all of a sudden, they are asking for
personal guarantees of individual owners for the money, threatening to
enforce their creditor rights to force receivership/bankruptcy in some
cases and absolutely threatening full re-payment in any sale to a foreign
entity or change of control to a foreign entity. These are very reasonable terms for
formalized senior debt. We were
under the assumption that NRC-IRAP money was not senior debt. Bottom line: Who wants to take the money
from them if it harms the chance or restricts the field where an
entrepreneur can go for future capital as any senior debt would?
advice: Stay away from the assistance programs unless it is really small
amounts. It’s too bad it has come to
this. But these programs are more
danger than they are good at the moment for start-ups, especially given the
political situation in Ottawa. It could all blow over soon, though. We’ll see.
Coulda Been A Column #2 – Three years after telling you
about three successful companies that required no VC, I have three
more. First, a reminder about that
column from February 2003. I told
you about Class Systems, ACL Services and Incognito Software as three
multi-million dollar companies that were profitable and growing
organically. Class, as you all know,
was bought by Active in 2004 and is still growing in Burnaby under that new flag. ACL is still growing as well and Harald Will, their CEO, has become much more visible in
the technology community. Incognito
still remains a little like their name, but recent success has propelled
them forward as well.
out in the Valley (OK, Langley), Maddocks Systems was started
by Bob Maddocks 25 years ago. It builds and supports truck fleet
management/logistics software used by hundreds of trucking companies and
transportation logistics companies across North
America. Still private
and still growing on its own cash flow, Maddocks
is a typical 25 year overnight success: Dogged determination by its
founder/CEO in building a business organically. The company has reached many millions of
dollars in sales by riding the wave of transportation company growth and
logistics complexity in the past two decades.
a few ambitious young guys have grown IronPoint Technology to a healthy positive cashflow company that does content and information
management for government, health care and education markets. They are succeeding in the on-demand
software model where others are not as successful and doing it without significant
investment (although I did note that they have a press release talking
about NRC money being raised last year… oops). I know Tyler and Josh and like their
style and their determination.
I am not involved with either Maddocks or IronPoint, I must disclose that my brother works at the
last of the three companies, but is not a significant shareholder
Level Games is one a few success stories locally in the video game
business. Doug Tronsgard founded the
company in 2002 and now has 65+ employees and a mega-hit on his hands:
Super Mario Strikers reportedly has >600,000 units sold since its
November launch and could be on its way to well over 1M. This is amazing when you consider it is
only for the Nintendo Gamecube. They have other games in the works and a
go slow and carefully attitude which fits the organic growth model
perfectly. Once again, another local
success without a need for investment capital.
see how these three are doing in three years time…
Coulda Been A Column #3 – Four more years and we are the
world’s city. It seems like it is
going very fast. We are watching the
last Winter Olympics now before Vancouver’s
own in 2010. It seems like it was
only a few months ago that we won the bid.
Actually, it seems like so many millions of dollars ago that we won
the bid. Ahem.
of Vancouver’s bureaucracy is in Turin, it seems. Even local technology people are there
showing off our city at the log-cabin Canada House (See if you can play
“spot the bureaucrat” at http://www.bccanadaplace.gov.bc.ca/content/home.asp). Of course to keep every Canadian
stereotype in order, all attendees in Turin
have to dress as Mounties, beavers or gamblers (no wait, the Gretzky’s
aren’t Canadian anymore).
has been a lot of talk about getting local companies contracts for their
technology at 2010. I know of a
contract show and tell coming up which you can find at the business web site:
http://www.2010commercecentre.com/ It’s probably the best place to stay in
touch with opportunities for the Games.
I recall, 1998 in Nagano
was the first Olympic Games to really take to the Web. 1996 in Atlanta
was mediocre compared to Nagano. I was able to leave messages and get
messages on the Nagano
web site for my buddy who was playing for the Italian hockey team at those
Games. That interactivity was, at
the time, amazing. He was updating me
on the village life, the US
and Canadian hockey teams and how Wayne Gretzky and others were just
regular athletes in the village.
forward to a real-time Internet in 2006, one with more images, video and
voice communication of high-speed access.
The wireless web is involved now of course, as are the new
technology themes for this Olympics, the blog and
What will 2010 be like? What
will be the new new thing for those Games to show
for one, will be watching a lot of this Olympics. I am a huge fan.
What Do You Think? Talk Back To Brent
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).