Tuesday, March 28, 2006

"Scarcity" of venture capital?

The CVCA -- Canada's Venture Capital and Private Equity Association -- today came out in support of the Ontario budget, praising it for addressing "the scarcity of venture capital" in Canada.

Oh please. VC funds across Canada have hundreds of millions of dollars they would love to invest, if only they could find fundable companies. If they go through that, there's more where it came from. There is no scarcity.

If anyone at the CVCA would like to name a fundable company in Ontario that can't find VC funds, please let me know and I'll be happy to put it in touch with some VCs desperately searching for deals.

Additional sources of funding are always welcome -- different sources have different funding criteria, and the more sources there are, the better a company's odds of finding investment dollars. As much of a farce as LSIFs are in some dimensions, at least they increase the number of sources of VC money. LSIF managers like GrowthWorks and VenGrowth provide additional feet on the street actively looking for and shaping investment opportunities. I don't see anything in this budget announcement to suggest that it will have a similar effect.

Pretending that there's a shortage of venture capital isn't helpful.

Friday, March 24, 2006

Ontario budget - supporting startups?

In its budget yesterday, the Government of Ontario announced that it will spend $160 million over the next four years to "accelerate commercialization and growth of innovative startups."

At first blush, it sounds great that the province is paying attention to the needs of startups -- and I'm still hopeful that this will help in the creation of promising new companies -- but some of the details have me wondering if the government has allocated the funds in the most effective way.

Of the $160 million, the biggest chunk -- $90 million -- has been earmarked for direct investment in early-stage companies "in partnership with venture capital funds, pension funds and the federal government."

The problem is, there's no shortage of VC money out there now waiting to be invested. Startups can find it difficult to reach the point where there are VC-fundable, but once they get there, there's more than enough money to go around. I don't see the point of allocating money to co-invest with VCs. If a company can clear the bar of VC fundability, then the money is already there, and no additional government funding is needed.

VCs certainly aren't going to start investing in companies they otherwise would have judged unfundable just because the province will kick in some funds -- and we wouldn't want them to do that.

If a VC, or group of VCs, was ready to invest $2 million in a company, and now can put in just $1.5 million with the balance coming from the government, I don't see what has been achieved. The end result to the startup is a $2 million investment one way or the other. All it seems to do is delay when a VC fund will have to go back to its LPs to raise another fund. Not harmful, I suppose, but not really helpful either.

The province also allocated $46 million over four years to help startups "become more investor-ready by acquiring business management and entrepreneurial skills and to help them move a product or service idea further along the commercialization process, from the technical feasibility stage into the market feasibility stage." This sounds more encouraging. We'll have to see what the government means by helping people acquire skills. Does this mean subsidizing continuing education classes? I don't see that as a priority either. If they want to put money into efforts like WatStart that immerse very-early-stage managers into an entrepreneurial environment, where they can learn from other entrepreneurs and local resources I can see that being worthwhile, but I suspect that's not what they have in mind.

Getting companies to the point where they can attract investors by achieving some very-early-stage milestones is the piece of the budget that sounds the most promising. I'd want to see how this money will be allocated and managed first, but I think this is looking in the right direction.

But we don't need the government to become a VC, or to top-up VC investments, and it was disappointing to see the bulk of the $160 million being announced for that purpose.

Monday, March 20, 2006

The appeal and perils of alternative markets - the Sandvine IPO

Shares of Sandvine will begin trading tomorrow on the Alternative Investment Market (AIM) of the London Stock Exchange. The IPO is expected to raise £20 million, or about CDN$40 million. That will make it the first significant IPO from a tech company in this area since Descartes was listed on the TSX over eight years ago. (ARISE pulled off an IPO in 2003 -- no small feat for a company in its position -- but it only raised about $1 million.)

AIM and some other international exchanges have become increasingly popular with companies in North America. In Sandvine's case, since it isn't profitable, I don't think that it would yet meet the requirements for a TSX listing, and with that option not available, AIM becomes an alternative to the TSX Venture Exchange.

The allegedly onerous requirements of the U.S. Sarbanes-Oxley Act ("SOX," as it has become known) is usually cited as the main factor in AIM's rise in popularity. Even in Canada, where we don't force companies to wear SOX, there are still several regulatory requirements around disclosure and shareholder and exchange approval of management decisions that companies -- or, more accurately, their executives -- would be happy to avoid.

I say "allegedly onerous" because I'm not convinced that some SOX consultants haven't made the requirements out to be more burdensome than they need be, but there's no question that for smaller companies, all of the public listing requirements in North America -- SOX or no SOX -- are a big drain on resources. If you ever have to prepare quarterly reports, the first thing you learn is just how quickly three months zooms by.

But, as annoying as they may be, disclosure and accountability are vital for public companies. And that brings up the question -- how little is enough? Starting tomorrow, you can buy Sandvine shares, but finding the company's financial statements might prove to be more difficult. In Canada and the U.S., you can look up every listed company's financials and other filings going back for years through SEDAR and EDGAR. You don't get that with AIM, and that does concern me. Companies with, let's say, malleable integrity, might be tempted to loosen the reins more than their shareholders would like.

Sandvine will be a very good test-drive for AIM in this area. It's a real company with solid management, top-notch investors, and real technology -- not some fly-by-night flip play like you see on OTCBB or even, at times, the Venture Exchange. We'll get a chance to see first-hand how it handles disclosure and accountability to shareholders. If it succeeds, Sandvine could make AIM look very attractive to companies in this area.

Sunday, March 19, 2006

What I did on my winter (blog) vacation

When it comes to DVDs, we've always been a bit behind the times in my house, and just after I started my blog in December we bought our first DVD recorder (a Pioneer DVR-633H-S).

And now, with the next generation of DVDs poised to change the world, we've gone from from having zero first-gen DVD writers to having three in about two months, with the subsequent addition of two DVD-writing drives.

So I've been drowning in the arcane world of DVD recording. Learning about VOB and MPEG and DVR-MS (Microsoft's pointless MPEG replacement) and VRO (Pioneer's MPEG replacement) -- and all the esoteric elements of DVD authoring that I've been missing out on.

I soon learned that the Pioneer appliance had spoiled me. The longest it takes to create a finished DVD that can be played on any standard player is about 11 minutes (single layer).

When I got a new computer with Windows XP Media Center Edition and hit the button to create a DVD, a pop-up let me know that this could take "several hours." Even after upgrading the software, it can still take over an hour to create a DVD. I wasn't ready for how slow and inefficient it is to create DVDs on a computer.

I could avoid the whole mess and just keep everything as MPEGs -- I keep all my music as MP3s and WMAs -- but the software I have for playing them is too limited (no fast-forward or rewind in WMP10, for example) and our TV screens are still much bigger and better placed for family viewing than our computer monitors, so that's not really an option now. Some day everything will be integrated ... and I'm sure I'll be behind the curve when that happens too.

So that's where I've been over the winter -- converting videotapes to DVDs, moving files from my hundreds of data CDs to DVDs, recording video with Windows MCE, converting MPEGs to DVDs, configuring my new computer, and learning more than I ever wanted to know about DVD authoring.

I'm sure I've created more coasters in the last two months than I did in the previous five years with my CD writer.

Now I just have two months' worth of untouched weekly magazines and unread blogs to catch up on.

Can Windsor use a non-snub to energize a focus on innovation?

OMG, did you hear? There's a new $100 million "Innovation SuperCorridor" initiative from the province introduced in the budget...