Personal reflections on VCs and the future of high-tech in Canada

Posted by Maher Arar

It is sad news that Nortel Networks, a national icon, has disintegrated into many smaller fragments that have already been swallowed by foreign high-tech companies.  Nortel's demise was almost predictable given the unethical behaviour shown by many of its past executives.

Nortel's death was not the only one though. It just got a lot of publicity because of its size and its iconic significance. While few high-tech start-ups succeeded (one can for example cite the example of DragonWave) many more start-ups have failed for sometimes the same reasons that killed Nortel.  The question is:  why is this happening? While there can be a multitude of reasons, I believe some venture capital firms share the blame as they have been promoting a culture of laziness when it comes to do a proper due diligence on the companies they fund. I witnessed this first hand when I worked for a wireless start-up back in the late 90's. It was extremely easy for the CEO's, the CTO's, the CFO's to convince investors that they were going to meet their deadlines even though all the engineers working on the project said otherwise. End result: $40M spent while sales were extremely negligible.  Of course the company vanished few years later. I was fortunate to have left the company very early.

The problem very much lies at the core of how some venture capitalists choose the companies they fund: they seem to blindly favour more business people over technical people (I am by no means demeaning business people here). It also seems that personal connections make a huge difference to the point where these VCs overlook their own established funding procedures. By doing so they have ended up creating a culture where failure is rewarded as these same failed executives end up being funded by the same VCs again and again!.  I can cite many more explicit examples (it is my habit not to mention names unless it is absolutely necessary).

Knowing the above, along with another experience I had with some VCs in 2001 (I will talk about this story in a follow-up post), I decided not to pursue venture money in 2007. While working on my Ph. D. I invented an energy-efficient parallel MIMO (a hot technology nowadays) algorithm that can send and receive wireless signals. This algorithm can be efficiently implemented on multi-core processors.  I instead decided to sell the rights to my invention to Wilan, a respectable intellectual property company.

The question is how can we fix this. If we assume that we cannot fix how VCs operate (an enormous task indeed) then I believe wannabe entrepreneurs have to start getting used to the idea of bootstrapping their companies. While this may not be possible for hardware start-ups, it is very feasible for a lot of software-based ideas (one can for example think of web and mobile applications). My favourite example is a US-based web company called 37signals . The company has always been profitable since day one. Fortunately, we have recently been witnessing this bootstrapping trend in Canada (Freshbooks and Shopify are two good examples). I believe we have to nurture and encourage this trend as our high-tech future very much depends on smaller companies who can innovate and adapt quickly to change.

Company:
Nortel
Website:
http://www.nortel.com
Location:
Toronto, Ontario, Canada

Hundreds of millions of people, Fortune 500 companies, and government institutions around the world trust their networks to Nortel's reliable and secure solutions. Nortel is a recognized leader in delivering communications capabilities that make the promise of Business Made Simple a reality for our customers. Our next-generation technologies, for both service provider and enterprise networks, support multimedia... more

Company:
FreshBooks
Website:
http://www.freshbooks.com
Location:
Toronto, Ontario, Canada

In 2003, Mike McDerment, co-founder and CEO of FreshBooks, accidently saved over an invoice, snapped and decided to create a better way to manage his books and bill clients. Since then, FreshBooks has emerged as the #1 cloud accounting specialist for small business owners by helping more than 5 million people track time, organize expenses and invoice clients in the cloud. Known for extraordinary customer service... more

Company:
Shopify
Website:
http://www.shopify.ca
Location:
Ottawa, Ontario, Canada

Shopify is an Ottawa based commerce platform that allows anyone to easily sell online, at their retail location, and everywhere in between. Shopify offers a professional online storefront, a payment solution to accept credit cards, a point of sale system to power retail sales and a card reader to accept payments through a mobile phone. Shopify currently powers over 80,000 active online stores around the world,... more


blog comments powered by Disqus

Maher Arar

Maher Arar

Maher Arar is a technology consultant, a blogger and an adjunct professor at the School of Engineering and Computer Science at the University of Ottawa. Maher has been an entrepreneur at various stages of his life. His first entrepreneurial adventure was in running a currency trading micro-business (mostly trading with friends and family members) while he was only 12 years old. He also launched... more




Who's Hiring



Recent Comments

Powered by Disqus