Election Circumspection A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry. Something Ventured: May 11th, 2001 By Brent Holliday Greenstone Venture Partners "Lyin', Cheatin', Hurtin' That's all you seem to do... You been bad to me woman But it's coming back home to you. Your time is gonna come. (Bye, bye. Bye, bye) "– Led Zeppelin, Your Time Is Gonna Come It's hard to get worked up about an election that is a foregone conclusion. It's safe to say we won't need a recount in Florida on this one. The only excitement left is whether the incumbent NDP will even win a single seat on May 16th. But British Columbians will get their chance to vote next week and the technology industry has been promised a completely new style and attitude from the BC Liberal government. Notwithstanding the anti-climactic outcome, I found my anger glands swell up when I read the NDP web site. All it took was a perusal of their "we're-going-to-win-oops-we're-just-trying- to-be-an-effective-opposition-party" rhetoric and I nearly lost my dinner. Sure, it's easy to paint the Premier-in-waiting as a corporate ass kisser and defend the rights of the environment and the average family, but try and defend the impressive record of the high tech industry in BC as though it succeeded because of NDP policies and effective government... well, I lose it. In case you would like to taste some of your stomach bile, I have copied the offending text here (skip ahead a few paragraphs if you are a) pregnant, b) have a history of heart disease or stroke or c) have severe asthma): Gordon Campbell ignores the New Democrat hi-tech record Gordon Campbell today announced-again-his plan to "unleash the power of high technology." Campbell's plan is strikingly similar to the announcement he made on March 6, which for some reason has vanished from the Liberal web site {ed note: here is the speech and power point presentation which has always been on the BC Liberal web site}. Another thing that seems to have disappeared is recognition of the fact that the NDP government's record on the hi-tech industry has received rave reviews from the very industry he purports to be the saviour of. {ed note: never end a sentence with a proposition! Tsk, Tsk, you'd think those champions of education would have taken some grammar courses themselves} In a document that was provided in April to all MLAs, IBM-yes, IBM-reports the following interesting points: - "From 1990 to 1998, revenues for BC high-tech firms grew by 102 per cent to $5,7 billion. This was double the growth rate for the economy as a whole and the industry now accounts for 3 per cent of provincial GDP." - "Through the 1990s, the number of high-tech workers doubled and reached more than 52,000 people or 3.5 per cent of the jobs in the province. Employment growth in 1999 was more than 10 per cent." - "The BC government has taken important steps to attract investment in the province, encourage innovation, assist new business start-ups and promote development and growth in the high-tech and other sectors of the economy." - "The majority of BC's high-tech companies can now take advantage of the 5.5 per cent small business tax rate-the second lowest in Canada." IBM's document provides a number of other points about the state of BC's high-tech industry, all remarkably different from Campbell's morose view. The main thrust of Campbell's plan is to reduce income taxes-though he now claims this is only for people who earn less than $60,000 per year, not exactly the high-tech industry demographic-and a "competitive regulatory environment," code for "longer hours, less pay." Where to start, where to start... I know. How about the authour of the purported study, IBM? Gosh, wouldn't want to bite the hand that feeds. In one shining moment of good judgement, the NDP fought hard to land the IBM Productivity Centre here in Vancouver in 1996. All they had to do was give them an enormous tax incentive and other concessions to locate their facility here. So, IBM (which I am very happy to have here cranking out talented people and ideas) throws in a line about how the BC government has taken important steps to attract investment, blah, blah, blah. Worked for them didn't it? Somehow I don't think the true story of how the NDP opened its arms to big, giant, multinational corporate IBM would be available on the NDP web site. Oversight, I guess. What really pisses me off is where they say "New Democrat Hi-Tech Record" and that their "record" received "rave reviews". Can we sue them for libel? They blatantly state that all of the success of our industry here is somehow directly related to their governance. There was no "record" to speak of by the NDP. Every chance they had to help, with direct feedback from the high-tech sector (think fair treatment of stock options, Employment Standards Act, etc.) they ignored us, preferring to stroke the massive public sector unions. Andrew Petter, the only guy in the party that really "got it" about high technology, was paralyzed by neandrathals that would rather bail out a pulp mill that will never make money than add R&D dollars to stimulate the tech successes of tomorrow. The rest of the NDP back patting from the web site spews the numbers that we worked so hard to accumulate to show them how well we were doing DESPITE the red tape, unbearable taxes and ignorance of the future market drivers. The irony, my God, the irony. Ask any of the technology veterans in BC if the last decade of success had anything to do with the NDP. Then ask them if they could have done better, faster with a more tech-friendly regime. Then ask them if they like the NDP riding on the backs of their sweat and hard work. You may not get a verbal answer but look for the throbbing vein in the temple and the general redness around the neck for indications of disagreement. Safe to say that the NDP in BC will be a footnote in history very soon. Our challenge is to hold Gordon to task for undoing some of the barriers to a bigger tech industry and stimulating new investment and growth. For at least five years, the siren song to the government from the technology industry in BC has been "Cut taxes, increase incentives for R&D, help give us more skilled workers, but most of all, get out of the way." So here is my manifesto for a better BC tech industry as we open up a new era in political leadership. Feel free to edit and send to Gordon Campbell as often as you like: Gordon: Canada has always been recognized for its science. After the recent meltdown of the tech markets and return to basic technology company fundamentals, the value of Canadian science has increased. What we have lacked in the past is the commercial experience, the fundamental market certainty about what the customers for technology products and services want today and what they will want tomorrow. That explicit knowledge, and confidence that comes with it, only comes from experience at world-class, global, successful companies, the "anchor" companies that people refer to when speaking of creating a technology "cluster". One city that has reached a critical mass of knowledge through experience at "anchor" companies is Ottawa. Ottawa is happening now. Vancouver is next. In Ottawa, the start-ups are laden with management resumes from senior positions in companies like Nortel, Newbridge, Mitel, JDS Uniphase. The Silicon Valley spews ten times as many equally management-rich companies because of its incredible mass of world-class companies. VCs part with their money a lot easier when the management knows the market and the products that will sell in that market better than anyone. Take a point in time, Mr. Campbell. Say, late February 2001. Count the number of CDN billion dollar technology companies in Canada. Ignore Telus, Rogers, etc. because they are not technology companies, but rather technology users. I came up with 23 companies. The list includes Nortel, RIM, Biochem Pharma, Celestica, Cognos among others. Eight of them are in Vancouver. Four of them are in Ottawa. Five of them are in Toronto. Let me say it again, eight in Vancouver. If you accept that a company must be truly global and a raging success to achieve a billion dollar market capitalization, then I propose that we are about to take off on the backs of PMC-Sierra, Ballard Power, QLT, CreoScitex, Angiotech, 360 Networks, Pivotal and Sierra Wireless. Sure, Pivotal and Sierra Wireless have now fallen below a billion, but so has 7/24 Solutions in Toronto. And McDonald Dettwiler is closing in on a billion after an amazing run. How do we ensure the continued success of these star companies and the resulting spin-outs of people and products that foster the growth and sustainability of a huge industry? Actually, let's not get too far ahead of ourselves. First, what can we do to reach a "critical mass" of people, capital, ideas and infrastructure to ignite the virtuous circle seen in the Silicon Valley and now in Ottawa? People - Attract people through opportunities, keep them with competitive taxes. Sorry about your platform, Gordon, but cutting taxes alone does not magically create a stronger industry. People come for the opportunity to work with the best on the most exciting and challenging projects. They get less disgruntled if their wallets are fatter. So, yes make the taxes competitive. But the people we need to be a world class technology cluster come from three places: anchor companies, other countries or provinces and universities and colleges. I think I made the point that the anchor companies are here. The spin-outs are starting with companies like Inkra and West Bay, both laden with stars from our bigger companies. You can help attract people in two ways immediately. One is effective promotion of what we have and where we are going. Don't hire an ad or PR firm that does not know the technology industry to do this. I don't want any of my tax money going down a hole. Consult with the technology leaders on targeted, inexpensive ways to get the word out. The second way to attract people is to consider Immigration policies that attract skilled tech workers (I know it's a federal jurisdiction, but a special committee or designate that works on NAFTA and other country issues might come up with some ideas). I just met with a very smart group of Chinese immigrants today. They left Shanghai 6 months ago and their skills are amazing. They had been working in Victoria and this was their first trip to Vancouver. I watched their wide-eyed wonder at the surroundings and their visceral excitement at the possibilities of working in one of the companies that Greenstone invested in. These folks can contribute to our success today. Now. Education of a skilled workforce seems to be a priority. You co-opted the term "double the pipeline" from groups like eMPOWr to indicate the doubling of engineers in 10 years. I would argue that we don't have to change the curriculum significantly to enhance the skills available. What we need is more world-class teachers and facilities. The Electrical Engineering building at UBC is an embarassment. It's a haggard looking outhouse compared to facilities in the US. Low tuitions are a noble gesture. Free tuition is nobler (shoot for free tuition for any one that stays and works for three years in BC). But how do we pay the salaries we need to for world-class instruction? Universities need to get more private sector help, both in the form of financing and in the teaching. Guest lecturers and real world experience through co-op programs are two glaring deficiencies that could be added today by the very companies that are griping about lack of skills. Make them put their money in alongside ours, Gordon. The NDP does have one ideology that is correct: Our future is directly related to our education. Capital - Aaah, my favourite subject. Being a venture capitalist, I am a bit conflicted in suggesting changes here, Gordon. Nevertheless, I will say that in 1999 and 2000 British Columbia had total venture capital investment lower than its relative population in Canada. We are behind. The rockets can't fly without fuel. There should be an opening up of the policies around labour-sponsored funds as well as incentives for attracting risk capital into the province. I have a few specific suggestions here. Call me, we'll talk. Ideas - We do not lack for ideas. My rather qualitative observation of the early stage or innovation phase in BC since 1997 is that the quality of ideas continues on an upward path. As mentioned, the anchor companies augment this through people that are so strong in their domain knowledge and understanding the customer that we can't help but improve the quality of ideas. But the big push here is to make research and development of basic and applied science a huge priority. We have a diverse technology base which is a double edged sword. On the good side, it helps us weather any downturns in specific sectors of the tech industry. On the bad side, it is hard for central Canada and the Feds to see a technology cluster and invest in directed "centers of excellence" in any particular technology field. We do have the fuel cell research facility, but we need more. Incredible facilities (look back up to the education argument) attract the best and brightest minds. This is a long term investment. But smart deployment of capital to create R&D in the technologies that will be the commercial successes of tomorrow is tantamount to a sustainable industry leadership. No short shrifts here, Gordon. We need you to incent others to match your R&D dollars. Make it a tax credit, like a charitable donation and let individuals feel good about creating the new new thing. Infrastructure - The improvement of our services that support the tech industry will only happen with experience. Not much that the government can do directly here. Unless you can somehow stimulate law firms, accountants, venture capitalists, banks, HR, public relations and all other business services companies to send their people into Ottawa or the Silicon Valley to find out how things work. Naivete is rampant among entrepreneurs and service providers when you compare the relative experience to the well oiled machines in existing technology clusters. Just make a note and see what suggestions there may be to help from a government perspective. But market forces will fix this if left alone. Remember to get out of the way of progress as much as possible. That can be as simple as just not embarrassing us like the NDP liked to do. It can be more proactive in the form of cutting red tape and streamlining necessary bureaucracy. You have a clean slate, Mr. Campbell. Don't blow it. We're willing to help. Just ask us. Letters From Last Time– I wrote last time about the places to find money for your company in this climate. I have received numerous notes since that ask if Greenstone is doing new deals and if the other VCs are still active. The answer is YES. I tried to make the point that Canadian VCs were very much still in the game. For the record then, here is my list of local institutional VCs that have offices here and are investing in early stage BC technology companies today (Check their web sites for criteria on stage and sectors that they invest in): Greenstone Venture Partners Ventures West BDC Venture Capital Growthworks (Working Opportunity Fund) Royal Bank Ventures Discovery Capital BMO Capital Launchworks MDS Capital Banyan Capital Smart Seed Future Fund 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