bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
October 27th, 2006
Greenstone Venture Partners
Bears and Bulls In BC
“I don't wanna be a tiger
'Cause tigers play to rough.
I don't wanna be a lion
'Cause lions ain't the kind.” – Elvis Presley, Your
It’s about this time of year when
bears begin to hibernate. But first they fatten up
before the long sleep. If you are a metaphorical bear
regarding BC’s technology industry, then it follows that
you believe the short term is very bearish and that
perhaps in a little while the bear will go to sleep and
things will get better.
Of course the opposite animal
metaphor in finance circles is the bull. We have a few
bulls here in BC, ranging the giant ranches of the
Thompson/Chilcotin. They have tons ranging the prairie
grasslands of Alberta. No need to draw the comparisons
about the overall economies in these two provinces.
Things are still hot in resources and that’s no bull.
But back to the tech sector here in
BC. Let’s look at some data points that have me
believing a bear is awake and has been fattening up
recently to hopefully head for a long sleep:
The public BC companies have taken
it in the shorts in 2006, although some have rebounded
off their lows in the summer (All USD):
Angiotech – bad drug coated stent study brings
its market cap to a cool $800M today from a hot $2.4B
in 2004, although its low after the news in the summer
QLT – Its swoon from $2.5B value in April of 2004
continues. Today it sits at $735M.
More bad news in life sciences from Aspreva, the
IPO darling of early 2005. Today it is at $680M
value, up from its post IPO low of $423M, but
dramatically down in 2006 from $1.1B just five months
The lone bright spot in life sciences is AnorMed,
only because it is in a huge acquisition tussle and
has tripled its value to $455M in two months as a
Ballard Power is cruising along at a value of
$800M, down from $1.1B in 2004. Its stock has done
little in 2 years. QuestAir has had its stock move up
and down, but its market capitalization is still small
PMC-Sierra has shown good financial results
lately, but the company value is $1.37B now, down from
$4.4B in 2004! It is up slightly from its low if
$1.1B nine months ago.
Sierra Wireless is over $300M in value today, a
dramatic improvement on $168M in March of 2005, but
down a lot from $921M in July of 2004.
MDA was on a huge roll coming into 2006 and
peaked in April at $52 a share. Then it plummeted to
$36 in August and has recovered slightly. They report
on Halloween, so let’s hope their 3rd
quarter is not scary.
Business Objects (owner of Crystal Decisions) has
been on a sickening roller coaster in 2006, peaking at
$3.88B value in March, careening down to $1.77B in
July only to rebound dramatically to $3.4B today.
Hang on to your seats over there in Yaletown.
Finally, Electronic Arts fell to $12.5B in value
in the middle of 2006 only to recover to $16.8B
today. But still, it is off of the $21B level seen in
Convedia comes to mind as the only successful
technology exit this year in BC. Some smaller ones
happened (I don’t count Sierra Systems, which was
Venture funding is a reasonable
indication of whether the up and coming technology
companies are doing well. Looking at the 2006 data (Q3
numbers have yet to be released, so I will await those
BC saw $226M invested in 2005 and $212M in the
first half of 2006, shaping up for a huge year…
Remember that Xenon and Zeugma alone counted for $50M
of that $212M. The announcement of $26M invested just
yesterday in Layer 7 and Talent Technologies pushes us
over last year without seeing what happened in Q3.
Great job BC!
Looking deeper in the numbers
across Canada gives me pause however:
Our deal level is down, meaning less companies
are receiving more money. This is a good thing if we
are trying to build more large tech companies. While
this increase to $2.7M per deal is impressive over the
last year, the US average deal size is $9M. So we are
going the right way, but are not even in the game with
New financings are declining in comparison to
follow-on financings. The new companies represented
20% or less of the total money for four of the last
five quarters, where previously it was 25-30% on
We now rely on 35-40% of the money invested to
come from foreign sources. Why? Companies are forced
to go look elsewhere when things like this are
happening in Canada: Average quarterly investment in
VC backed companies has been steady at $400-450M for 3
years. The amount of foreign investment has increased
steadily, ergo Canadian VCs are declining their
investment totals. Q1 2006 was the lowest collective
total since 1996. Labour sponsored funds (such as
Working Opportunity Fund) invested 39% less in Q2 2006
over the previous year.
VC fund raising is down 20% year over year in
Canada. In the US it is up 20%. Oh-oh.
Enough data, what about the
anecdotal evidence? Recruiters are smiling these days
in BC as there is continued strength in job demand at
every level. Hiring is the best leading indicator of
confidence among technology CEOs. It seems to be
continuing here. Most BC technology CEOs I have talked
to are predicting growth in 2007. But, then again, who
wouldn’t be predicting growth if they want to stay in
There has been some grumbling about
a lack of new opportunities over the past year and if
you look at one more fact about financing that “bears”
repeating: New investments by VCs are down. They are
putting more money in existing companies. If you are a
bull, you might point to heightened angel activity
(purely anecdotal) and say that the VCs just aren’t as
risky as they used to be. Perhaps.
If you are a bear, you might say
that the big public BC technology companies are having
recent troubles that may continue. If you are a bull,
you point to the recovery from some very low lows. It’s
tough to be bearish about the early stage when the
evidence, anecdotal and real, points to the opposite.
But I spoke of some alarming trends that may spook the
early stage, especially if they are looking for
capital. Let’s hope that BC bucks what looks like a
Canadian trend in the wrong direction. So, it seems
that the bears win when it comes to the big companies
around town, for now, but they are hibernating still at
the early stage in BC. Let’s hope they stay asleep and
let the bulls run.
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
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