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Now We're Cooking
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

 

Something Ventured:
July 21st, 2000


By Brent Holliday

"Sometimes the faster it gets,
The less you need to know,
But you gotta remember the smarter it gets,
The further its gonna go... "
Tragically Hip, Blowin' At High Dough

{Nothing like a good rant to get the people talking. Last column seemed to spur a lot of reaction and I have taken some time to cull a few good responses in the Letters section after the column. As this took me some time, I have shortened this week's diatribe. Call it being a summer slacker if you want. I can take it.}

Last summer, BC hit the map. It was a summer of IPOs and big purchases. I said then that it would take about a year for the trickle down effects of those successes to be seen in the tech industry. Let's take a minute and take the pulse of the city in 2000.

I have been running the BC Early Stage Technology Index once a month for 6 months now (shamelessly copying the meter from the Industry Standard that takes the pulse of the Net Economy). Last month it was at 7 out of 10. What exactly does that mean? Well, unscientifically, I am trying to gauge how the environment is for starting a new technology business in terms of finding talent, raising capital, getting customers and getting buzz. Circa 1992, the BC ESTI would have been near zero. We were in the throes of a recession, there was little or no early stage capital for technology and there were no $100M technology companies in BC (that's in revenue, people). We were so far from being "on the map" that a search party couldn't have found our tech industry. So, from those meager days, we've come a long way baby.

In the thick of summer 2000, what is happening in our fair province? Well, lots.

After the market correction in April, have the deals slowed down? No. There are even more coming every week. Less pure play B2C plans, for sure. But more deals overall. Our VC firm (Greenstone Venture Partners) is buried in deals. Since I started in this business here in early 1997, I have not seen a proliferation of good ideas and good management teams like this. I've talked to other VCs and the sentiment is the same. The quality is going up along with the quantity. I said last month that many newly funded companies would be announced this summer and I believe it will happen. Some have already been announced: Wavemakers is an exciting new company with a proven CEO running it (Peter van Der Gracht, formerly of Nexus, Scientific Atlanta and Imedia in the Valley). WOF seeded it and Ventures West and WOF just put more money into the company. It is technology from UBC that will augment devices that rely on microphones and human speech: wireless phones, speech-to-text software, voice access to the web, etc. Certainly one to watch. Other companies recently financed include Rentonthedot (Discovery, SmartSeed), Antarcti.ca (WOF, Royal Bank Ventures), Sherlock Online (WOF) and a few others.

What's more exciting is that investors from the US are looking at more deals here too. Whether they are corporate investors or venture funds, the US market has realized that there is strength in this local economy. Moreover, they realize that starting a company in Canada is far cheaper than in the Silicon Valley or even Seattle these days. Why are the US investors paying more attention? We have successful, global technology companies and people want to find the next one. PMC-Sierra is a huge company on the global stage. It is extremely well known in the tech sector and many US people can't believe it is located here. They assume, natch, that it is in the Valley. Sierra Wireless, Pivotal, CreoScitex, QLT, Ballard and relative newcomer, 360 Networks round out the top seven in terms of worldwide recognition.

BC Business just ran an issue ranking the top companies in BC. The tech sector rankings by revenue show that now we have more than 10 tech companies with over $100MM in revenue, led by PMC-Sierra. Three years ago, the hand wringing in the emerging tech sector was that we could not keep our tech companies here and grow them. Seems everyone was growing just big enough to be sold to the US companies and then disassembled and moved south. That concern is now gone. We can and will continue to grow world class technology companies here. Even if they are bought by US firms. Just ask Broadcom Canada, Electronic Arts Canada, Seagate Software Canada, Motorola Wireless Data Group, MDA (still 54% owned by Orbital Sciences even though it just went public on the TSE) and many others. Even companies that had satellite offices here in BC, like Siara and SDL, have been hugely successful and created wealthy, local residents.

There is a buzz around town that someone else is just about to be purchased by a big US firm. And I'm not referring to Workfire in Kelowna, just bought for US$100MM.

Have you been to one of the networking events lately? The venerable Vancouver Enterprise Forum and TIA events have been joined by Net Cache, Ideas on Tap and now the official First Tuesday club. These are bigger, better, well attended events that allow even greater networking and serendipity among the members of the tech community. Keep 'em coming.

On the downside, the B2C funding waterfall became a desert and some companies are suffering badly. Layoffs happen, but it is not a sign of bad times overall. These people are in such high demand that they will be snapped up shortly, probably into other sectors. The leaner companies may make stunning turnarounds.

It only takes a few large dominos to fall and the momentum becomes unstoppable. Even lousy government initiatives and continued high taxes can't stop the train now. You can feel the buzz on the streets this summer. Things are happening. I'm just happy to be somewhere near the middle of it all.

So, in summary, the pulse of the city is racing. I think that we are definitely at 7.5 out of 10 on the BC ESTI. Announcements of big deals and growing confidence over the next few months will drive it up further, I think it is safe to say.

Letters From Last Week -

From the column a month ago...

Hi Brent,

I enjoy your T-Net columns - found it interesting there have been no "rebukes" on your June 23rd feature on incubators. Came across this article - maybe you've read it already. If not, enjoy (if you find the time to read it)... I like the closing paragraph.  www.inc.com
Ken Fielding

For those of you without the time to read a great article on incubators, here's the last paragraph that Ken liked:
"Howard Anderson, 55, does have a ton of experience. He's a veteran businessman, venture capitalist, and founder of the Internet consulting firm the Yankee Group. He also recently started up his own Internet incubator in Cambridge, YankeeTek. On the subject of how much equity incubators should get, he puts on the boxing gloves (in contrast to Birnbaum's white kid ones). "If anyone is stupid enough to negotiate away 50% of their equity for no investment, then he deserves to wind up owning a very small percentage of his company," he says. "In Michael Lewis's book The New New Thing, Jim Clark makes a pretty elegant case that at the end of the day, the entrepreneur deserves a lion's share of the company."" - Inc. Magazine

Here are the raves pouring in for the rant 2 weeks ago on Atlantic Canada getting $700 MM from the Liberals... I'm blushing.

Good rant. The only one area which gets me more riled up is on the provincial front. Next article?
John D.

Here here! I agree totally.
Reg N.

As usual, your column provided me with many bouts of laughter. Good job with the July 7 column - keep 'em coming.
David I.

Superb column. I've forwarded it to my connections in Ottawa.
Alison S.

I guess that leaves us with Stockwell or Joe!!! Gawd.
Bob C.

Thanks for the good thinking and literate writing.
Brian B.

Some longer and more thoughtful responses:

Hi Brent

Great countries like Canada produce great people. One of the reasons we create better people than the US is because of our belief in the compassionate society which fosters a safe environment and thoughtful people. So it is important to not damn our values too much for the sake of advancing some fuzzy concept of universal business practices that make successful companies and the belief that having a country full of people that follow universal business practices to make successful companies is all there is to having a successful country. On the other hand, we do need to create opportunities so we can keep our great people like James Gosling the inventor of Java etc. For this reason we have to promote our complete value proposition, not reduce our value proposition to just business opportunities. Given the choice, most Canadians will work for 20% less in Canada than move to the US - sometimes more than 20%. Heritage Canada promotes Canada and Canadian traditions which represent part of our value proposition. I believe the US has a culture but not one that most Canadians would aspire to if they recognize real value. Canada has values worth aspiring to, leadership values etc etc. At any rate, perhaps this is our best kept secret - the secret handshake - something that it is good to not get too cocky about because down the road of dogma lies lousy research people and sloppy thinking which results in lousy IT research and product development.

At any rate, Hope this makes sense - I enjoyed most of your commentary regarding government intervention in the domain of business and this has taken long enough, back to creating some business value :)
cheers
Jim

I think I'm with you Jim. I believe that we do have values and priorities ahead of making great businesses. But along with family, friendship, tolerance and honesty comes making a living. And Canada has been headed down a gloomy path of making a living doing what we have been doing for 133 years. It's time to make Canada better than other places for business and prosperity, rather than "just as good as". All of the other things that make us a great place to live are just icing on the cake.

Hi Brent,

While I know very little about economics on any scale, the way you've laid out the problem and how to deal with it makes a great deal of sense to me; pity the government's minds are closed when their doors are open (in those few hours a day when citizens can actually get to them).

I'm kinda hoping that the Internet will spell the end of the existing government structure simply because it responds far too slowly compared with the rest of the world and especially the IT sector.... and all of this is echoing some of what Frank Ogden had to say in his book (The Last Book You'll Ever Read).... and if what you say about research is happening terrestrially, what happens when someone has the innovation and the resources to start expanding into space and bringing the benefits of zero-gravity medical treatment, fantastically precise optics, greater life spans for the elderly, the trickle-down effect from all of the technologies needed to survive in space....?

Maybe a communications-campaign: send your column to all the politicians and see what happens? Aside from them filing it, I mean....
Roger Brown

Roger: Already done. I filed my rant with Canadian Consulate personnel and with a certain provincial politician that might win the next election. I even told Gordon that if he responded, I'd print his letter. Of course, I'd sign it "Gordon C." so it's not obvious who he is.

Brent,

Saying that you were "steamed" might have been a bit of an understatement. While I agree that the Federal Government's clear "vote-buying" in Atlantic Canada is infuriating, I treat these events as $700 million symptoms of a much bigger ailment. Politicians may not clearly understand their natural role in new technology development, but politics is a short term business and we, as new technology business leaders, are not helping politicians to exercise Government resources at their greatest leverage point.

The role of Government in new technology should be to create "building blocks" (education, tax incentives for new ventures, FDI, promotion of standards, etc) and to open doors (promotion, and work like what the Canadian Consulate is doing in Silicon Valley). These are the points of maximum leverage for government and where business needs the most help. But, we need to understand that these are long term investments.

Canadian Politicians are in trouble. While we've turned the corner on the deficit, unemployment remains stubbornly high. The dollar is weak and the Bank of Canada is not in complete control of Canada's monetary policy. The amount of venture capital available in Canada (and Atlantic Canada in particular) is thought to be insufficient (this should get a reaction).

Ahah! Politicians say. The Federal Government can act as VC's. And think, we don't even have limited partners who expect a return (voters don't count). Politicians are naturally short term thinkers. After all, their mandate is only 5 years long. This leads to not creating "building blocks" because those activities require a more long term perspective. And so Government is led by Politicians into business' space - in the hope of creating jobs which they can take credit for.

So, what is the solution? Partnership between Government, Education, and Business. Together, the three groups need to understand what their natural role is and where they have the greatest leverage. From there will come understanding of where the groups activities overlap and synergies will be gained. Out of this exercise would come an opportunity for Business to make it clear to Government where we need their help. And then when Government does something right, we need to acknowledge it. And when the returns are calculated, Government needs to get their fair share.

What of a white paper on growing a high technology centre in the lower mainland proposing such a model? And the returns that would be generated. Actually, think of it as more of a government/education/business plan than a white paper.

If such a vision exists, I don't know of it. And if I were still living in the lower mainland I'd be the first person to volunteer to participate. However, I am one of the many Canadians who now lives in the US because the opportunity here was too good to pass up. But, that is another story.
Roy Sawyer
Boston

Roy: No reaction from me on the VC amounts. Canadian VCs raised a record $2.3 B of newly available Canadian cash for investment in all of 1999 (almost 70% more than what was raised in 1998). Wanna know what was raised in the US in just the first 3 months of 2000? $18 B (US$12.4 B). If we are 10% their size, then we should have a rate of $1.8 B invested in the first quarter of 2000. My guess is we did about $500M. We are falling further behind.

As for the white paper idea, well I am in agreement that it needs to be done. Bob Bailey, CEO of PMC-Sierra said as much at the Vancouver Board of Trade the other day. He was referring to the BC Business Summit, being redone again this fall. Also, PwC started a process here about 2 years ago where they invited the stakeholders to a conference on the 4 (not three) pillars of growth: Government, Education, Industry and Finance. Some statements came out of that, but fell on deaf ears. Another run at this should be taken immediately and it should be more cooperative in spirit, instead of telling them continually how dumb they are in Victoria (Something that is I take great pleasure in doing, nonetheless). Now how is it that we get you back here again, Roy?

Also, a German student doing his Master's degree (MBA equivalent, I think), wrote a paper on the effect of foreign investment on high technology in BC. It was quite long and exhaustive and had many good points on how to stimulate more action here in BC. Yes, that's right, a German student. In Germany. Not one from one of very own MBA schools or one of our very own academics. Seems to me there are lots of resources available locally to help you with your idea.


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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