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Something Ventured:
September 17th


Insight For BC Technology Entrepreneurs

By
Brent Holliday

Underrated and Under Radar

"I’ll tip my hat to the new constitution,
Take a bow for the new revolution…
Then I get on my knees and pray,
We don’t get fooled again"
- The Who, Won’t Get Fooled Again

Here’s something I bet you didn’t know…

After the almighty US, which country has the most market capitalization of technology stocks on the NY and Nasdaq exchanges? Japan? UK? Germany? Nope. Canada. That’s right, you canuckleheads, we’re number one! And do you know who is next closest after Canada? Finland. Ya… is true.

Here’s the score in US dollars (in fact, the entire column is in US dollars) as of September 16th, 1999:

Canada $114 B (53% Nortel Networks)
Finland $104 B (100% Nokia, baby)
Japan $ 94 B
Sweden $ 58 B (100% Ericsson)
France $ 49 B
Germany $ 20 B
UK $ 15 B
Israel $ 10 B

OK. I left out big pharmaceutical companies. Picky, Picky. Canada only picks up $5B with QLT and Biochem Pharma. The UK rockets to the forefront with $235 B from 3 companies (Astra Zeneca, Glaxo Wellcome and Smith Kline Beecham). Germany gets a boost with $25 B from Hoescht. And Israel gets another $3B with Teva. Is big pharma really tech? Yes. But it makes Canada second… so I left it out.

I only counted companies with at least $200 M in market cap. I am not including giant consumer electronics companies like Sony and Matsushita. I am leaving out Aerospace, because it is usually government subsidized. And I also left out telcos, cablecos and media companies. I’m talking tech companies, like software, computer hardware, biotech, networking gear, fuel cells, Internet and semiconductor. You know, driving the new economy.

Just to show you where the rest of the world is in relation to the US, you can add up that list and it is still less than Microsoft alone. Staggering, isn’t it?

Back to Canada. Not bad for a country noted worldwide for mounties, donuts, hockey and big, stupid government. We rock! Let me just pick a couple from the list here… Mitel: One of the first tech companies in Canada, spawned Newbridge and Corel and all of their descendants, now worth $900 MM on the NYSE. Research in Motion: One of the new breed of wireless tech companies and spawned from the world-renowned University of Waterloo, $2.2 B on the Nasdaq. But the belle of the ball these days is JDS Uniphase. What a story! Easily one of the biggest suppliers of optical networking gear, they have ridden the bandwidth explosion and a huge merger to a mind-boggling $18.6 B market cap on the Nasdaq.

And BC has fairly exploded within the Canadian tech scene: QLT, Ballard, PMC-Sierra, Creo and Pivotal (MDSI missed the $200M cut) add up to $12.4 B right here in our backyard. Five years ago, none of these companies had any market cap to speak of. Two years ago it was less than a quarter of a billion. Uh-huh. Take that you gel-infested, Howe Street mining promoters! No wonder you’re all in a mad dash to make up Internet companies now. Technology is where the real value is and Canada is second only to the mighty US in creating value from it.

Get me the phone. Can Stompin’ Tom Connors do a song about this Canadian tech phenomenon? I want to produce it… make an MP3 version and let the world know. Whew, now I’m rolling… this is exciting stuff. What if I was to add up all of the wealth created in technology by Canadians in the US? Then we’d be talking. Let’s see: Java? Created by a Canadian. So take some of Sun’s market cap. Ebay? Run by a Canadian until just before the IPO (he’s still VP there). We’ll have to take credit for at least half of their market cap. Macromedia? Turned around from the brink by a Canadian. We’ll take some credit where credit is due. Actually the same guy built Alias before SGI swallowed it, so we get even more…

Hey, by the same birthplace measurement, we own half of Hollywood, so were you really surprised?

Now that we’re all smiling and clapping each other on the back, here’s the cold water: Nobody knows this. Not anywhere. Canada’s technology prowess is the best kept secret this side of the grassy knoll in Dallas.

Want to know the hottest spots for investing in early stage technology outside of the US? In order, from hot to absolutely smokin’: UK/Ireland, Germany, Netherlands, Sweden, Finland, Israel. There is a stampede of money across the Atlantic. You’ll have to trust me on this fact. I have been talking to many, many people that make the decisions where the vast sums of money looking for technology venture capital are being placed. And it ain’t in Canada.

Does this matter? Do we need Americans and Europeans helping our tech companies grow with expertise and connections? Ask Norm Francis at Pivotal or Amos Michaelson at Creo. I’ll go out on a limb here and suggest that despite all of our success in technology, we risk falling behind without attracting smart, connected sources of capital. The American (and European) value creation chain for technology companies, from VC to investment banking, thinks Canada has the cooties. And therefore, by and large, they ignore us.

I talked a while back in the summer about the attitudes of Americans to Canada when it comes to looking at technology companies. It is very difficult for a Silicon Valley VC with nearly 10,000 technology companies in their own backyard to decide to look further afield. I am not referring to those investors. They are not looking at Canada or anywhere else. I am talking about the people in VC funds, investment banks and other forms of investment and support for the technology industry that have stated they want to look globally for opportunities. I’m also talking about the massive European sources. These people are completely ignoring Canada.

So far, in a small sample of 50 or so Americans looking at global investment opportunities that I have spoken to in the past few months, roughly 10% didn’t know Nortel was Canadian, 95% had never heard of Ballard Power and over 50% swore that ATI Technologies was in the Valley. These are technology people! I can assure you that 100% of them did not know that Canada was the largest creator of technology value outside of the US. But when you show them the facts, when you make it clear that Canada has more innovation in more diversified technologies and has a much larger number of successful companies than Israel or Scandinavia, they listen. They lean forward on their seat and they listen.

The flood of VC money to Israel is really quite a stroke of marketing by the Israeli tech community and government. Take a little bit of fact (Russian émigrés in the 70’s and 80’s raised the collective IQ massively), sprinkle a little success (Vocaltec, Checkpoint, Backweb, Libit) and add some serious incentives (R&D tax credits, favourable tax treatment for investment) and then promote the hell out of how you want every company to have a US head office and go public on the NASDAQ. Music to the ears of the US sources of money and investment banks.

Now Scandinavia has figured it out. Yes, 85% of Finns have a mobile phone. They are so technically advanced. Send them your money now, so they can make another Nokia. Mark Anderson went over to visit some friends in the research labs in Sweden and Finaland. He talked of the "global startup". The companies would incubate in the research oriented centres in Scandinavia and Israel. Skilled local VCs would see the commercialization opportunities and invite the Americans to get in early to help re-locate the head office to Sunnyvale, CA and hire some hot shot US CEO and senior management team. Development would stay where local advantages (tax credits, skilled pool of much less expensive engineers) would negate any need to move everyone to the US. Mark says it is the model of the future and it is working today. The Global Startup.

I think I know what the problem is. We are too close to the US. They can’t see the opportunity immediately in front of them because they are straining to look further. Maybe we should all relocate to Nunavut, so it sounds exotic and they get more air miles for visiting us.

Why has this happened? Despite the efforts of the incredibly successful Canadian technology companies and their ability to shine the light on the Canadian scenery, US and European investors would rather go to unproven grounds with less success. Sure, the resource based economy albatross is still around our necks, but I think it boils down to a simple communications problem. We have been poor communicators of our own success. But a huge problem is that our government’s policy sucks when it comes to attracting investment. They are under the impression that exporting the products we sell is all that matters.

Hey federal government: Do you want the Canadian technology scene to improve? To grow even faster than it has? To stem the individual brain drain and the start-up company drain that is already happening? Then do this:

1) Concerted effort to show off Canadian public and private technology companies to the world. The big investment banks in the US put on an unbelievable show every year hosting showcase events and putting the companies on a stage in front of analysts, investors and media. Do the same thing as they do, but with Canadian companies and not in Toronto. Do it in San Francisco, New York and London. And do it big. And don’t send a junior minister as the keynote speaker. In fact, don’t send anyone. Just sponsor it.

2) Get indisputable facts and comparisons into the hands of the people that are the ambassadors of Canadian tech, the entrepreneurs themselves. Arm them with propaganda that will dissuade people from focusing on other nations and start focusing on us. Work with the tech community to develop the key messages for promoting Canadian tech to the rest of the world. Then everyone is singing from the same sheet. With enough repetition, the world will start to believe.

3) Foster the Canadian pride in the ex-pats that live and work in the US. Hey, every community has its rabid supporters: East Indian technology entrepreneurs have a tight bond and a huge network of increasingly successful countrymen. The Asian community has the Mt. Jade organization. And Israelis are fierce supporters of their country and its technology success. Where is the Canadian group? What would stir their pride and get them talking and acting on behalf of Canada? Are we too close to being American? So, contact them and feed them some facts. Get them to organize. How about a catchy Canadian name? The Flying Beaver? The Technically Hip? Due South?

As for the rest of us in technology in Canada, we need to continue to innovate and grow. But, take a minute to look around and see what is going on. Whenever you travel to the US or Europe, or anywhere else, you tell a story about a Canadian success. You know, work it into a story, "Hey Deiter, did you know that Daimler is making cars that run on hydrogen? Did you know that the fuel cell they are using is Canadian?" Or maybe, "That wireless e-mail on a pager is cool, huh. I know it says Bell South on that device, but did you know that that sucker was engineered and built in Waterloo, Ontario? Yup. See, in Canada we knew about that company when it was at $10 a share." If it sounds like we’re all in on it, that we all kind of know what the other Canadian companies are up to, then we build that air of intrigue. Soon, everyone will want in.


Random Thoughts

- I have harped in the past about the need to be more like the Valley and have forums for meeting, sharing ideas and collectively becoming a bit more knowledgeable. Well, an aggressive Internet worker in our midst has taken the initiative to form an informal meeting of Internet entrepreneurs, workers and financiers. The group is called First Tuesday and is modeled after a highly successful UK group of the same name. As the name implies, the group meets on the first Tuesday of every month and October 5th is the kickoff. The ringleader is Mark Bossert of BC Lottery and I think hats go off to him for getting this started. The plan is to have a few cocktails and listen to someone talk for a few minutes and basically network. To kick things off in Vancouver, the first Tuesday Club will listen to some blowhard with a lot of opinions on technology and the Internet in particular. That of course would be me. I will be talking (briefly, unlike my articles) on the subject of "Where are the Big Canadian Internet Companies?" For more information on location and time, e-mail Mark at mbossert@home.com


Response From Last Week's Column:

In case you missed it, last time I outlined an idea that I had and the steps that I went through to find out if it really was an opportunity. You can read that article here. I had a few verbal responses and only a few written responses. Most of the people thought that it was too early to start the business that I described. Another comment was that it meant that consumer behaviour would have to change and that the only thing slower than turning a supertanker, was changing consumer behaviour. In the interest of space, here are a couple of responses that I got by e-mail:

Brent,

I enjoyed your September 3rd installment. Having run a company involved with convergent technologies and dealing with retailers, consumer products companies, advertising agencies, loyalty programs, and the like, I could readily relate to your article's central thesis. Life is a little hectic now so, I will send you comments on your article in a quieter moment. I did want to mention that I took the liberty of forwarding your article to a colleague of mine that is involved in Microcell (Fido) and MCS technology. I thought that he would find the article interesting and thought provoking.

Cheers, Les Lyall

I guess it never got quiet Les, because I never got your thoughts. But your comments about dealing with retailers and consumer products people brings me to the weakest part of my thesis: The value proposition to the retailer needs to supercede the value proposition to the consumer. My idea is great for the consumer, but the retailer has to implement it. I am not so sure that I had come up with the killer reason that a retailer would buy into this. Biggest problem is security and if a retailer has to add cost (i.e. putting active tags on products) there has to be a real big benefit to them.

Let me know if your Fido friend wants to talk…

Hi Brent,

In response to your idea for a wireless consumer shopping system (it needs a shorter name), it seems that it depends entirely on using a cell phone. Most cell phones can't read bar codes and would need hardware and software added to them to do so. This could be a major barrier, as adding even $US0.05 to the cost of manufacturing a cell phone is not done lightly. (I work for one of the top three cell phone manufacturers in the world)

What about a slight modification to the original idea, like "self-serve" checkout counters ? You could still get much of the same benefits (cross marketing, information collection, notification of specials etc.) As much as I like wireless internet, I just can't see the justification. I think that the basic idea needs a bit more polishing before continuing with the process.

Ian Johnson
Software Engineer
Research Triangle Park, NC

P.S. I'm originally from Victoria, where I worked for a wireless applications company and since moved to the US to pursue much greater opportunity.

Damn. The engineer caught me. I was going through the bar code system vendor sites on the night before I published the article and could not find a non-laser system for reading bar codes. Of course Ian, you are talking about the cell phones of today… but what features will we have in the cell phones of tomorrow. We will see multi-function phones with swappable components in the very near future. Is a laser bar code reader a hot extension? Well, no… unless it doubled as a laser pointer for your Power Point presentations and blinding people on the highway. In the end, Ian you are right. The idea needs more polishing. And that is the point of the exercise: Creation is iterative. Don’t give up on the idea, massage it and make sure that customer is looking for it.

I’m glad that you wrote in from North Carolina before Floyd forced you to higher ground.

Hey, Mr. Chretien, there’s no brain drain, right? Ian is a figment of our collective imagination. It’s not like we could use him up here anyway.

Seriously, Ian thanks for writing and I’m glad I’m being read in North Carolina.


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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