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

 

 

Something Ventured:
February 10th, 2006


By Brent Holliday
Greenstone Venture Partners

 

Triple Treat

 

“Wash away my troubles,

Wash away my pain
With the rain in Shambala” – Three Dog Night, Shambala

 

This 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 point.

 

It’s 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.

 

In 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?

 

My 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.

 

Way 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.

 

In Vancouver, 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.

 

While 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 (darn!).  Next 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.

 

We’ll 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.

 

Half 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). 

 

There 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. 

 

As 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. 

 

Fast 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 the podcast.  What will 2010 be like?  What will be the new new thing for those Games to show off?

 

I, for one, will be watching a lot of this Olympics.  I am a huge fan.

 

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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