A monthly column focusing on new and emerging BC publicly listed technology companies     Technology Futures By Michael Volker Hot Companies: Ready to Rocket 2009 Last week, I attended Rocket Builders' annual "Ready to Rocket" seminar at which Geoffrey Hansen presented his firm's picks for the top 25 technology ventures in BC. These companies are: Antarctica Digital Marketing Ltd. Aquatic Informatics Inc. Avigilon Corporation Bycast Inc. Carbonetworks Corporation Colligo Networks Inc. Contigo Systems Inc. Digital Payment Technologies Fit Brains (Vivity Labs Inc) GenoLogics Life Science Software Inc. Guard RFID Solutions In Motion Technology Inc. Inetco Systems Ltd. Layer 7 Technologies Inc. MovieSet Inc, Neoteric Technologies Ltd. QuIC Financial Technologies Inc RFind Systems Inc. RX Networks Inc. Sempa Power Systems Ltd. Sutus, Inc. Tantalus Systems Corporation TenDigits Software Inc. Teradici Corporation Vivonet Inc. More information on these companies is on the Ready to Rocket 2009 website. I'm always on the lookout for promising companies to invest in at the early stages. With that in mind, I thought I'd ask Geoff a few questions. These, and his answers follow: How do companies qualify for the list? To qualify for the 'Ready to Rocket 25' list, companies must be private, Canadian-controlled corporations and must have a fully commercialized technology along with customer traction with their products. In general, this means they have over $300K in revenue. To be considered for the list, the company must be nominated by any of the following: - by the company itself - by an investor in the company - by a company board member - by a professional advisor (such as a lawyer or accountant) As well, as the BC technology industry has matured, past companies on the list approaching $15M in revenue are dropped from consideration for renomination. "Graduates" of the Ready to Rocket recognition in recent years include AbeBooks, AirG, Elastic Path and Vision Critical. How did you pick the top 25? The selection committee is made up of a team of analysts on staff at Rocket Builders and involves consideration of the following factors: - revenue growth momentum - favorable market dynamics such as high annual growth rate for their product category - intellectual property that provides a competitive advantage - ability to leverage key vendor partnerships Also, we are very careful to remove conflicts of interest from our selection process. Some of the market trends we identified included a wide variety of emerging technologies and business models. Among the technology being watched for 2009 include information technology areas such as Software-as-a-Service, Wireless, Location Based Services and Web 2.0. In the Cleantech area, we looked for technologies capitalizing on regulatory change (ie. emission tracking) and technologies that are adoption-ready (ie. hybrid approaches). In the HealthTech area, we looked for technologies that will impact the cost and complexity of delivering healthcare. Special consideration was made for this year's list to consider the potential impact of the economic downturn on revenue growth. This meant a careful examination of vertical markets and the nature of each solution's "fit" with customers. In a slowing economy, customers still buy "must have" solution essential to business success, but they tend to defer "nice to have" solutions which enhance their business incrementally. Why do you profile only private companies and not public companies? Public companies tend to have strong publicity programs in place and therefore tend to be better known and are able to leverage public capital to accelerate growth. Young private companies tend to not have the resources for publicity and need to grow organically by leveraging market trends. This recognition list educates the public about those market trends and provides a means for private companies to enhance their public profile to attract employees, investors and potential business partners. In fact, the general public tends to assume that small private companies face the same challenges as large public companies. In the recent economic downturn, small private companies have continued to grow while large public companies have been faced with layoffs and decreasing revenue. A small private company tends to see market shifts earlier and is able to adapt more quickly, which tends to be easier without the burden of reporting quarterly results publicly. Do you see any future "RIM" (i.e. the Blackberry guys) type prospects in this batch? Although the list in very predictive of growth in the coming year, predicting the sustainable growth and long term competitive advantage is difficult. Many of the companies have very unique and disruptive technology (as RIM had at their stage), but will need world-class marketing and executive leadership to sustain their growth trajectory. It will be fun to watch these companies evolve. One company on the list, Teradici, seems to be a truly disruptive technology that has huge potential. In past this has been an InfoTech list. I note that this year your list includes Cleantech and HealthTech companies as well. What trends influenced the decision to make the list cover these other sectors too? In past, the cluster of information technology companies provided a predictable market where many potential companies were easy to identify. As B.C.'s technology industry has evolved, we have had to expand our Rocket Recognition Program to include many technology sectors. This year, we noted that Cleantech and HealthTech sectors began to have BC companies with predictable growth and defined paths to market, hence their inclusion in the "Ready to Rocket" list. The "Emerging Rockets" list features the BioTech/HealthTech, CleanTech, Wireless, New Media and Web 2.0 sectors in addition to infotech. The "Emerging" label is meant to signify earlier stages of growth and not necesserily maximal revenue growth (yet). In future, companies in each of these emerging sectors will be featured in the "Ready to Rocket" list. When taken as a group, what would be the total revenue and employment numbers? The 2008 list collectively (meaning totals across all 25 companies) had over $130 Million in revenue last year and employ over 1200 employees (employment increased by 129 people). This is a significant amount for 25 young companies. The average increase in headcount for the 25 companies was 12%, with median annual revenue for 2008 benchmarked at $2.5 million dollars. What was the growth rate of companies on the 2008 List? Although companies identified on this year's "Ready to Rocket 25" did not grow at the pace of the previous year, the group still experienced a median growth rate of 50%, and an average growth rate of more than 100%. Of the identified twenty-five companies on the list: 76% exceeded 25% growth 58% exceeded 50% growth 44% exceeded 100% growth What are the biggest barriers and challenges facing these companies? Since almost all of the companies depend on the United States for the majority of their revenue, the value of the U.S. Dollar and the health of the U.S. Economy are important considerations. However, many of the companies are fortunate that the market demand for their products far exceed any potential impact by these factors. Given the global markets for technology, each of these companies will need to develop expertise on doing business in Europe and Asia. As they strengthen their skills for these overseas markets, they will lessen their dependency on the United States. Do these companies focus mostly on business in Canada? The market for British Columbia's technology exports is clearly global. When Ready to Rocket companies were asked about geographic markets that were driving their revenue growth: * 76% reported the United States as the region driving most of their growth * 16% reported Europe, the Middle East and Africa (EMEA) as the region driving most of their growth * 8% reported Canada as the region driving most of their growth Things have changed a lot in the last year. It's a lot tougher to raise capital in these tough economic circumstances. How are these growth companies going to deal with this challenge? Is VC funding drying up? Are angels up to the task? Historically, the number and size of Venture Capital investments decrease with a downturn in the economy. But we also know that historically, VC's have experienced some of their best successes by investing during a poor economy. VC's will continue to invest, but will be wanting to be more selective. Other VC's may seek greener pastures for investment (Cleantech is the only area of increasing Venture Capital investment in 2008). Companies with strong revenue growth driven by customer validation will be in the best position to raise capital in these times difficult times. For companies at earlier, riskier phases in their development with an unproven yet promising technology, they will likely seek angel investors. The availability of capital from angel investors is a little harder to predict in the economic downturn.  Some high-worth individuals report an increased eagerness for angel investing given that startups appear to have more tangible potential for growth than the stock market or real estate. Other high-worth individuals report decreasing interest in angel investing due to losses in the stock market and in real estate. Companies need to seek angel investors that see the current climate as an opportunity. Do you see any IPO (Initial Public Offering) or RTO (Reverse Take Over) prospects or are most of these companies likely to get acquired in M&A transactions? Many "Ready to Rocket" companies report increases in activity from Investment Bankers (wanting to fund the preliminary steps leading to IPO) and Large Vendors (wanting to acquire them). Most of the executives predict that being acquired is far more likely. Last Question: How can investors get a piece of the action in these? Most of the Ready to Rocket companies have institutional investors already, so they are not likely looking for small private investors. However, the Emerging Rockets list features earlier stage technology ventures that are likely seeking Angel investors. (check this out at www.readytorocket.com).   For more information on angel investing in B.C., check out Basil Peter’s Angelblog and Bob Chaworth-Muster’s semi-annual Angel Forum and of course, the monthly Vantec Angel Network run by Thealzel Lee and yours truly and the WUTIF Angel Fund. The WUTIF Fund has invested in 5 of the Ready to Rocket 25 and several of the emerging ventures that have been identified by Rocketbuilders. It's about "TIME" Simon Fraser University's TIME Centre in downtown Vancouver recently expanded to SFU's Burnaby campus (Discovery Park) to offer incubator offices to entrepreneurs at both locations. TIME is an acronym for Technology, Innovation, Mentorship, and Entrepreneurship. It's more than just an incubator. Complete, ready-to-go furnished offices with high speed internet, servers, telephone and fax, printing, etc. are only the beginning. New Ventures BC, the Vancouver Enterprise Forum, the VANTEC Angel Network and WUTIF Capital all make TIME their home. Within TIME there is also the TIME Business Centre (a little like an airport business lounge but without booze) that is open to technology entrepreneurs and business people to use as a drop-in downtown office facility. Need to plug-in? Make some calls? Do some work? Hold a meeting? There are some great facilities for holding your company's AGM. Why hang out at MacDonald's when you can work productively at the TIME Centre? Drop by and check it out! It is located at SFU's downtown campus at 515 West Hastings St. You won't believe the price!  Check www.sfu.ca/time for info. Michael Volker, a technology entrepreneur, is Director of the University-Industry Liaison Office at Simon Fraser University and President of the Western Universities Technology Innovation Fund. He is a founder of the Vancouver Angel Network and past Chair of the Vancouver Enterprise Forum and past Chair of the B.C. Advanced Systems Institute. He owns shares in many of the companies he writes about. Copyright, 2008. What Do You Think? Talk Back To Mike Volker   Contact: mike@volker.org Tech Futures Archive B.C. High Tech Links