A High Class Problem

Here is a nice problem to have: your company is growing too fast. After a couple years of survival and recovery stories, it’s nice to hear that a few technology companies around town are having a huge "problem" with growth. With compelling products and services being effectively marketed and efficiently sold, companies can’t help but grow.

But a few companies hit the sweet spot of market timing and/or a significant partnership and take off like a rocket. A few examples: Vivonet signed a deal in May with a massive customer that compels them to ship five times the point of sale terminals that it has cumulatively shipped to date! Avigilon, the BCTIA Emerging Company of the Year, has seen explosive growth in Europe for its HD video surveillance systems. Pareto Logic has grown immensely on the back of its unique affiliate marketing strategy. Elastic Path is knocking the cover off the ball with huge client wins, such as Symantec, and the massively successful Olympic e-store. Other explosive growers include IQ Metrix, Vision Critical and Make Technologies, all of whom have seen significant uptake of their new products.

Isn’t it nice to have a company’s sales forecast exceeded?

When these disruptively positive changes happen in a company, there is initial celebration at the good fortune. But before the champagne gets sticky on the floor, the realization hits that the Company has changed. Now you need to meet expectations of these new customers; you have to deliver new services and customer care. Your billing and accounting systems might need an overhaul, and your communications strategy needs to keep up. Your hiring practices might go out the window, as you look to accumulate bodies in seats. The company needs to finance the new inventory and/or manage cash flow better.

When you start to drink from the firehose, it is hard not to get wet. Solving these issues is a challenge to management as they transition from start-up to globally-recognized technology company.

In talking with the CEOs or investors in some of the rapidly growing companies in BC, several themes emerge that are remarkably consistent. To be closer to global markets and customers, companies are expanding with US and European offices. All are concerned with access to the type of talent a growing company needs : customer care, sales (direct, channel, inside) and operations (expanded capacity to deliver product or services). Every one of the CEO’s and investors wants to grow a huge BC-based company and not necessarily sell. If they are a "10 year overnight success" then they are exploring ways to get some liquidity for early shareholders and investors, such as adding a private equity firm that will happily buy existing shares. Vivonet did this type of transaction in May.

I am very excited about this new crop of high flyers in the local technology industry, even if they have "problems" to solve. We should be so lucky as to see more like them.

Feeling Younger Every Day

I had an interesting chat with a local Internet Media company founder late this summer. He told me that he needed to hire a "face" for the organization that would be more appealing to the masses, specifically the real-time web, social media (Web 2.0) masses... more commonly referred to as Generation Y. He figured that youth trumped experience from the point of view that anyone over the age of 35 would not be acceptable to the Gen Y users of his site. Twitter’s guy, Biz Stone, not only has a comic book hero name, but he is under 35. Facebook’s Mark Zuckerberg still shows ID at the liquor store. Vancouver’s own Super Rewards face is Jason Bailey... born after 1980. His point: you can’t have a "hip" new social media start-up with a guy creeping up on 50 running the show.

I remember (fondly?) the dot-com bubble of a decade ago where youth was all the rage. Two twenty-five year olds took theGlobe.com public on the NASDAQ. Kids were dropping out of Stanford’s MBA program to raise $20 million to start a company. Then, as now, new trends in consumer software, electronics and media have been adopted rapidly by youth and filter out to the older demographics over time. My friend’s point is that by the time the over-45 crowd is playing with a consumer technology, it ain’t cool anymore and kids drop it like a hot potato. It’s just not right when your Mom is your Facebook friend.

Does youth trump experience? If the goal is to create a corporate persona, embodied by a charismatic leader, then the face must appeal to the audience. If the goal is to convince investors, corporate media partners/advertising buyers and potential business partners that you are credible, go with the experience... and hire the youth to be the corporate evangelist. That was my advice to him.

Some older fellows have pulled off the charismatic "face" of a cool consumer technology company. Steve Jobs gets a liver transplant and looks 75, but the young (and old) audience loves his gadgets. Don’t get me wrong – or assume that because I am not a youth anymore that I am somewhat biased towards my aged peers – young CEOs or senior managers can be brilliant. (Technology’s long list: The aforementioned Steve Jobs, Bill Gates, Larry Ellison, Sergey Brin, Jerry Yang, etc.). Heck, I had raised a venture capital fund by age 29. I look around the city at up and coming Internet media companies and I see many youthful faces... names that you don’t know yet like Milun Tesovic, Mike Tan, Amielle Lake, Ryan Holmes, Jamie Cheng and many others. My sentiment is more related to the blatant reverse self-discrimination of my friend based on his age, because investors and shareholders always prefer experience in starting and running a business.

Perhaps it is just a sign of the times, now that everyone has adopted Web 2.0, that we look to youth to lead innovation. But as the Web 1.0 (dotcom) story developed, it was mostly experienced managers that took over and grew the revenue and profits of the companies we know today. My hunch is that it will be that way again.

Eleven Places To Meet In Vancouver

Where in Vancouver do you like to meet to give a pitch, look for a job or hear about a company’s progress? Over coffee or at lunch are the main ways to meet in our town. After 15 years of talking to technology entrepreneurs, angels, fellow VCs and plenty of management types looking for jobs in the sector, I have come to like a few key spots around Vancouver’s downtown for coffee and lunch meetings. I thought I would publish my list of favourite hangouts that seem to be popular with the tech types like me. I probably will miss a few excellent spots and see if I can get a discussion going to find a new place to try.

My criteria is simple: It has to be comfortable to talk business, have great food/coffee and have the off chance that I run into someone else in technology to a) show my guest that I might actually be popular and b) kill two birds in one off-site meeting. Free wi-fi is a given for all demos and the chance to look busy just in case your meeting doesn’t show. Many restaurants lack this feature, but all coffee shops are good to go.

Coffee Meetings: You have 30 minutes to an hour to spend, so the location has to be accessible, the seats comfortable and the coffee good, so that a crummy meeting doesn’t feel like a complete waste of time. My favourites:

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Liquidity For Angels, Family & Friends? Maybe.

Imagine you are an angel investor (perhaps you are). Over the past few years you have made investments and lost a few. The problem today is that all of your other investments have plunged and your net worth is where it was when you graduated from university (hey, you are in good company... Warren Buffet lost $27 billion of his net worth last year according to Forbes). Still, in your portfolio of start-ups are some real solid, growing companies. If only there was an active market to take these things public or sell, giving you some much needed liquidity!

In a well timed attempt to help the poor downtrodden angels of the United States, Sharespost was unveiled this week, listing 200 private angel and venture backed companies that appear to be doing well in the marketplace (Twitter, Facebook and Tesla Motors are among the companies). The idea is that as a common stock holder, you can post your shares (minimum $25,000 worth) at a price and see if buyers will accept your contract. Similarly, buyers can post their wish to purchase at a price per share and see if sellers will comply. This is an extension of, and attempt to grease the skids for, a secondary market that can happen today by chance meeting over cocktails or over the phone. But it is not without complication. One of the main reasons private companies are not liquid is because the insiders don’t want it to be. Most start-ups I have been a part of (some 45 now since 1995) have tight restrictions on transfer of shares, in some cases, even requiring board approval. Sharespost claims (in their FAQs and Legal sections) that they can have you sign agreements to transfer shares that won’t contravene terms like Right of First Refusal and Right of First Offer. One other small issue... No Preferred shares are being offered. Why not? Why can’t the VCs (who typically create and own the Prefs) get a little of this action? Because Prefs are often convertible with conditions like 2 or 3 to 1 into common, liquidation preference and the nasty double-dip: dividend accrual.

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What Happened To Fuel Cells?

My very first Something Ventured column in April 1998 was a breathless description of how the future of BC's technology industry would be on the back of Ballard Power Systems. I had an insider's view of Ballard at the time because I was sitting at BDC Venture Capital and we were still on the Board (BDC and Ventures West were the original institutional investors in Ballard Research in 1987... there is a very good story on how their funding dragged and dragged and closed on Friday October 16th, 1987. For those of you in the Nintendo generation, that was one business day before the crash).

At the time, the fuel cell hype had not quite hit maximium levels. But there were gobs and gobs of money being thrown at Ballard from Daimler and Ford and hundreds of very smart engineers working to make Proton Exchange Membrane (PEM) fuel cells cost effective for automotive, among other applications. The federal government was being lobbied to make Vancouver the "fuel cell" centre of excellence. Baby Ballards, as the companies that sprouted up in Vancouver to take eager VCs money became known, were everywhere (Cellex, QuestAir, Greenlight Power, Angstrom etc.). Indeed, Vancouver became a source of fuel cell frenzy at the turn of the century.

It is with interest then, that we read about Ballard today: selling tax losses to raise money, completely out of the car business and recently getting out of standalone power generation. A shell of its former self. What happened? Why are fuel cells out of favour?

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VCs and Sheep: Separated At Birth?

This just in: VCs are sheep. In case you missed it, they all tend to look and act the same, although they smell much better. The VCs I mean. After being one of the flock for 14 years, I can speak to the herd mentality that drives the up and down cycles of the early stage investment community. The Wall Street Journal, citing Venture Source, reported that 57% of VC deals completed in the first quarter of 2009 were funded by existing investors, up from 44% a year earlier. That is 57% of a much smaller number of total financings that took place in the US (down 47% Y/Y) and Canada (down 25%Y/Y).

Why do VCs tend to invest in less new deals? Because, like sheep, they are skittish. Any loud noise, such as LPs yelling over conference speaker phones, tends to send them scurrying for the comfort of portfolio triage. After all, that's what the first quarter of 2009 was. VCs looked at their portfolio and started to make decisions about who should get more money and who should die a miserable death. Here are a few of the fallen.

We have seen this movie before. In late 2000, early 2001, the same thing happened as the huge hangover of the dotcom/telecom party started. I have two columns that I wrote in March 2001 (they are over in my Archives) that talk about the same thing happening then as now. It is all part of the cycle of funding. The VCs will hunker down and only nibble at new deals for the first year or so, provided that they feel that the valuation is a good deal for them. At the first sign of recovery (VCs think exits, so a few IPOs or some more aggressive M&A), the funds will start flowing.

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