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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