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).
Something Ventured Archive
Online Venture Capital Guide
Printable
edition
© 2013 T-Net. All Rights Reserved. |