Innovation and Entrepreneurship, CATA Index, Silicon
Valley Report, TSX vs BBX, Capital Pool Corps
Update, and Local Events
Innovation and Entrepreneurship
A couple of weeks ago, the Canadian Manufacturers and
Exporters Association in conjunction with the National Research
council hosted the B.C. Innovation Summit, a think-tank to address
B.C.'s and Canada's relative decline in productivity.
The World Economic Forum 2002 Competitiveness Report
ranked Canada as a tier two country, ranking 11th in the global innovation
championships. B.C. ranked 58th out of 90 regions in innovation. And in Canada,
B.C. ranked in last place with respect to growth in real per capita GDP and in
productivity growth.
Some of the factors attributing to this poor performance
are low levels of research and development, inadequate investment capital (at
all levels), lack of both technical and managerial talent, high levels of
taxation and regulatory burdens, to name a few.
The Summit identified two
challenges: 1) the need for strong leadership at high levels to advance the
competitiveness and innovation agendas and 2) the importance of collaboration -
in successful jurisdictions, industry and all key stakeholders - all levels of
government, academia and industry organizations worked as a team to bring about
change.
The organizers of the B.C.
Innovation Summit are pressing hard for the creation of a "B.C.
Innovation & Competitiveness Board" that will provide a
collaborative framework and leadership to improve British Columbia 's
competitiveness.
I'm not sure what form such a
"Board" will take. Personally, I hope that it isn't yet another formal
structure. We seem to have so many groups and orgs already (something that
newcomers to B.C. are always amazed at). I find new ones almost daily. There are
so many of these that I felt compelled to put a laundry list of them on a new
website (note that I didn't create an org to do this). You can find this list at
www.hitechbc.com. No doubt
you'll come up with one or two that I've missed (let me know if that's so).
What we really need is dialog
followed by collaboration. We need to get all the groups to talk to each
other. Formal structures may only get in the way of doing this. There should be
open, town-hall style meetings which anyone can attend and contribute to.
The various presentations and speeches will
be posted to the CME's website. As soon as I know what the URL is, I'll put a
link to it at hitechbc.com.
One of the best speeches was by Anthony
von Mandel of Mission Hill Wineries - his success story brought about
by a commitment to quality and excellence is a good example for any company to
follow.
There were some excellent speakers
from other regions, notably two from the U.S. Michigan, the automobile
state, embarked on an interesting economic mission roughly a decade ago. In
order to encourage new technology ventures to locate in that State, they took
the bold initiative of providing a grant to companies equal to the amount of
payroll taxes that they remitted!
Some speakers were perhaps a
little two harsh on our ability to innovate. For example, we often look at the
attractive royalty revenue streams that American universities generate by
licensing their inventions to the corporate sector. In this regard, we don't do
as well but we do, in fact, do better at spinning off new companies which in
turn creates jobs and opportunities. We forget that Canadian inventions include
the telephone, the first desk-top word processor, the zipper, insulin, pablum,
IMAX, cardiac pacemaker and even the sport of basketball!
All this hoopla about innovation
and what it'll mean for our tech industry is good. If I look back to when I
first came to B.C. a dozen years ago, it amazes me just how much progress has
been made. Back then, there wasn't a single company doing more than $100 million
in annual sales. Now there are more than a dozen. Why, there are even two that
have broken the $1 billion milestone. It's hard to imagine what it'll look like
in a dozen years from now. Then again, maybe not - just factor in one order of
magnitude. We'll have over a dozen $1 billion companies - as long as we don't
let up in our innovation quest.
When Canada's Innovation Strategy was launched in
February, 2002, the Minister of Industry committed to extensive consultations
designed to mobilize Canadians to commit themselves to actions that will make
Canada one of the most innovative countries, and provide a way to examine
the government's strategy in reaching this goal.
There'll be a National Innovation Summit on Nov.
6th - refer to www.innovationstrategy.gc.ca.
While some events require pre-registration, all Canadians are invited to submit
their views and ideas directly using the on-line "Do It Yourself Kit".
Interestingly, in early May I went to a Technology
Alliance (of Seattle) lunch which featured Bill Gates Sr and Bill
Gates Jr talking about the fact that Washington State is falling
behind in the technology race and that it needs to pull up its socks. Even with
the University of Washington doing US$750 million in research (compare to
roughly $250 million for UBC and $25 million for Simon Fraser University), not
to mention Microsoft's US$4 billion spent on R&D, they don't think they're
doing enough!
To address this, UW has created a "Venture Creation
Lab" in its B-school which puts teams of students supported by outside
mentors, angels and others, onto a promising technology which they identify not
only by looking at the available tech pool at UW but at other institutions such
as Batelle (which is responsible for supporting the invention of the
photocopier). The idea is to put some rigor into the process to ensure more
successful commercialization of technology.
If
you use the definition that innovation is the process involving the commercial
implementation of ideas and knowledge, then the question becomes how do we do
more of this? Obviously, more R&D (knowledge and ideas), more capital, more
qualified people, less red tape, etc. will all increase the output. But, where
are the weak links in the innovation chain?
For
me, the answer is obvious: entrepreneurship. This is what we're short of.
Not managers. Entrepreneurs. These are the creative, indefatigable risk-takers
that seize new opportunities and turn them into commercial ventures. We often
think that skilled management is missing. How often have you heard someone talk
about recruiting a top CEO from the U.S. to Canada?
Remember
what happened in 2000? Entrepreneurs started lots of new companies. These
received lots of capital from eager investors. The VCs then recruited
high-priced managers to run these companies. And they fizzled. Sure, you need
good management, but you also need entrepreneurs at all stages of business
development - especially at the outset. Entrepreneurs can, and usually do,
become good managers. But you cannot turn a manager into an entrepreneur as
easily.
Our
innovation "solution" must, therefore, promote, encourage and nurture
entrepreneurship. In the U.S., entrepreneurs are knocking at the tech transfer
offices' doors looking for new intellectual properties. Here, in Canada, we're
looking for the entrepreneurs.
One
of the best initiatives I've seen is the establishment of so-called entrepreneur
boot-camps. They help entrepreneurs in getting started, especially in
identifying that which they don't know. It's this ignorance that causes failure.
Sounds easy but it isn't. It's
like making a list of all the words you've never heard of before.
New CATA Index
A new CATAAlliance Tech Index has been created to
keep abreast of the tech industry in Canada. According to CATA's Barry Gander,
"The CATA Tech Index charts the main elements responsible for the growth of
advanced technology. Like our successful TechAction Town Hall series, with its
four elements that gauge a community's readiness to adopt and use advanced
technology, the Tech Index tracks Infrastructure Investment, Employment, Job
Satisfaction, and Community Growth. These factors will be updated regularly, and
more will be added."
The CATA Tech Index, prepared with the help of CATA
partners and experts, is a Web page that can be found at: www.cata.ca/cata/cna/techindex.cfm
Here are some recent findings:
ICT Investment - the Canadian advanced technology sector
hovered at zero growth in the past quarter, with a few hot sectors. The upward
march of ICT investment stopped in 2001, with a decline of $800 million to
$33.6-billion. The decline was even more dramatic for computers, though telecom
investment also weakened. An increase in software sales partly offset this
weakness. In the past 20 years, software has risen from 20% to 50% of total ICT
investment.
Job Satisfaction - there's a wide range of job
satisfaction scores. Because employees today are looking primarily for an
environment in which they can grow, job satisfaction is an extremely important
measurement -- because they can leave very fast! The Job Satisfaction index
shows that executives as a group have the highest job satisfaction scores, while
the employees who are most likely to drive product innovation such as IT
services and R&D round out the bottom with low scores. Hmmmm.....
Employment - measured by the number of software job
postings being advertised on the Internet, has experienced a steady fall since
September, 2001. Employers are now engaged in very specific quests for the one
or two people who can make the critical difference to their company's
prosperity.
Ottawa TechAction Survey - designed by KPMG
and implemented by IPSOS-NPD, is one of ten community surveys that act as
the foundation for blueprints for growth. Ottawa scored highly in the growth
components needed for the advanced technology sector. Access to capital, skilled
human resources, technical infrastructure and leadership are ready-to-hand.
Ottawa's challenge today is to put in place the measures to sustain its momentum
in the coming decade.
We need to do this in Vancouver. Are we at the same
point as Ottawa? Or, is something else missing?
Silicon Valley Report
Since I'm often in Silicon Valley (I'm writing
this column there), I thought that I might amuse readers of this column with the
occasional bit of news from that area - especially since we often think that the
grass is greener elsewhere.
I actually got my first experience with this
back in the early 1980's when I was an angel investor in a Silicon Valley
startup making graphics display terminals. I moved my family here after selling
my Ontario company so that I could experience that Valley feeling first-hand. At
that time, venture capital was a virtually unknown word in Canadian high tech
circles and tech entrepreneurs always drooled when anyone mentioned the green
pastures in the Valley.
The company I invested in was having a tough
time getting any VCs in the Valley interested. I managed to find an angel
investor in Toronto who made an offer to the company. Shortly thereafter, the
local VCs lined up and out-bid the Toronto guy 3:1. Can you believe it? I'm not
sure it's changed all that much - except that now we know how to spell VC in
Canada but recently, it's not flowing well in either location.
The Valley has had a bumpy ride since early 2000 when
office space was so rare that it was being auctioned off. Now the vacancy rate
in certain areas has been reported to be as high as 40%.
A new term has surfaced in the Valley, the
V-word - for Viability. Competing software firms are using it to do
battle with each other - pointing to the weaker one's balance sheet and the fact
that if a customer does business with the weaker opponent, it may not survive
and be around to provide after-sales support. Indeed, companies like Cisco,
known for doing business with young companies have starting asking for quarterly
financial statements from nascent suppliers.
Speaking of Cisco, it, along with several other
valley players, is make huge allowances for potential bad debts. According to USA
Today, Cisco anticipates that 26 cents of every dollar it is owed may be
uncollectable. Ciena, another networking equipment maker, is holding back
20% while HP figures it only needs to potentially write-off 6% of its
IOUs.
Another sign of tough times here is that many
tech firms are requiring employees to take more time off - unpaid, of course.
Don't plan on coming here during the July 4th week. You won't find many
companies open for business! For example, Silicon Graphics, HP, Sun
Microsystems, Adobe Systems, and Novell are all
closing down that week. Another, Verisign, has asked its people to take
an extra 6 days unpaid leave over the next several months.
If you read the local papers such as the San
Jose Mercury News, don't be surprised to see ads by local institutions
offering courses and programs to encourage entrepreneurship and skills training
for managers.
At a recent lunch meeting with a few Valley
guys, I asked them what they saw as the next big thing. Their answer really
worried me. They didn't have an answer. One fellow said that he couldn't think
of anything to buy. Always on the lookout for the next gadget, he hasn't heard
of anything coming along that he didn't already have. Hmmm....
A final observation on the Valley - you'd think
that this region would be well wired - both wire-wise and wirelessly. Last week
I picked up a Rogers ATT GPRS-equipped GSM cellphone so that I could
connect my laptop to the web at 50Kbps+ rates while on the go. To my
disappointment, although the cellphone worked in the Valley, the GPRS (data
service) didn't. We're a lot further ahead in Vancouver. Even high speed wired
connections are not easy to be had. Maybe that explains why some of those
million-dollar Whistler condos are being snapped up by American tech
entrepreneurs - so that they can get high speed internet access, Canadian-style.
TSX vs BBX
Although many of our tech ventures are doing some
exciting and hopefully profitable things, it's not fun to write about them while
the market is still in the doldrums. The junior market, in a category of its
own, is especially lackluster.
In town this week, the TSX Venture Exchange's Linda
Hohol noted, in her first speech as president, that foreign
stock exchanges are "beating the bush" for junior Canadian listings.
The London Stock Exchange's Alternative Investment Market (AIM) is
scouting new mining listings and Nasdaq is also "rummaging
around" for new listings.
She noted that the TSX Venture Exchange has cost and
reputation advantages. Even so, Venture Exchange officials are looking at ways
to speed up and reduce the cost of listings and financings - two main complaints
from market participants, according to Hohol. She mentioned that it took one
company six months and about C$350,000 to list on the TSX Venture Exchange
recently.
She acknowledged that the U.S. Bulletin Board
Exchange, or BBX - which is scheduled to replace the OTC Bulletin
Board in 2003 - is another potential threat to the TSX Venture Exchange. It will
be a less-regulated environment for companies and investors.
But that's exactly why the BBX will probably attract a
number of Canadian listings, according to many brokers and investors.
The U.S. market has adopted the red herring, or caveat
emptor approach and does not get involved with any form of due diligence
(similar to what has happened in Canada). Regulators there simply require a
certain level of disclosure (volume, not content) so that investors can make
their own informed decisions. Fortunately, we're moving closer to that approach
here in B.C.
The OTCBB is being replaced by a new
"regulated" market that will be called the Bulletin Board Exchange
(BBX). This is a joint initiative of the Securities and Exchange
Commission (SEC) and the National Association of Securities
Dealers. The BBX will introduce certain listing standards (quite
minimal, though). The BBX website, www.bbxchange.com
just went live last month.
I'm still of the opinion that the TSX Venture Exchange
could fill the niche of being the junior exchange for Canadian and
U.S. tech startups. But, they're going to have to be a little more aggressive.
The CDNX was struggling with this and had a bit
of an identity crisis. The TSX acquisition of the CDNX, now called the
TSX Venture Exchange, may help because of the branding associated with the TSE
(as long as investors don't get too confused by all these name changes and
branding exercises!).
The TSX itself announced that it plans to do an IPO -
i.e. go public by listing on itself. This has been slowed slightly as more
people need to "comment" on the matter. However, anything to raise the
profile - and increase investor interest in the TSX-V will help.
On the regulatory front, there's renewed discussion
about the establishment of a Canada-wide securities regulator. Much of the
debate has focused on differences in regulatory requirements among
Canada's provinces and territories.
But, according to Doug Hyndman of the B.C.
Securities Commission, the biggest problem - and the one that a
national regulator wouldn't necessarily solve - is the volume and complexity of
regulatory requirements themselves.
Much of the talk about a national regulator is taking
place in Toronto. Hyndman suggests that voices from British Columbia need to
speak up. A national regulatory commission wouldn't guarantee streamlined rules,
he said, adding, "that's not something you normally see from monolithic
bureaucracies." Hyndman also said that regulations are directed at people
living in different places, which requires local knowledge and sensitivity, and
said he is concerned that the debate over a national regulator will distract
provincial regulators from getting on with real reform of securities regulation.
Capital Pool Corporation (CPC) Comments and
Update
In this column, I keep track of Capital
Pool Corporation ("CPC") companies as defined by the TSX Venture
Exchange (the former CDNX) because they may provide funding and management to,
and in the process acquire, technology companies. They provide companies with an
alternative to traditional venture capital financing. It lets the public
investor get into the game.
Check our Capital
Pool Corporation chart (in .pdf format) for a complete list of the CDNX's
CPC and VCP companies, thanks to David Ing of Pacific International
Securities. This list is updated on a regular, e.g. monthly basis. It is now
current to the end of April, 2002. (previous update was March, 2002). The list
is shrinking a bit with only about 220 active CPCs. There'll be another update
next month (we're skipping it this month.)
An introductory
article explaining CPCs may be found at http://www.bctechnology.com
Local Events
Last month's Vancouver Enterprise Forum (VEF)
event on the Photonics Industry was an eye-opener. Attendees learned that the
photonics industry has been hit hard by the tech downturn and by a surge in
overcapacity in the telecommunications business. However, when (not
"if") the markets turn up, photonics technologies will drive the next
stage of the Internet and other areas of science such as biotechnology.
Photonics industry analyst Mark Langley of Needham and Company in
New York provided some startling information on the number of bankruptcy
protection filings that have been taking place. Dr. Jay Smith, of the National
Center for Biophotonics, Science and Technology in Sacramento, along with Leslie
Sandberg from the University of California at Davis invited Canadian
companies to join them in some exciting collaborative projects in this field. Alan
Guest, founder and CEO of JGKB Photonics, acted as a superb MC for
this event.
In June, the VEF will host its final event before the
summer recess. Instead of the usual rubber-chicken dinner, this will be an
informal reception/networking event to be held at the B.C. Law Courts on June
25th. See the VEF website for more details and to register.
A complete calendar of technology events can be
found on T-Net's
Events page.
Footnotes
If you're an entrepreneur looking for a place
to get your company started; there's some great space available at Harbour
Centre downtown. The New Media Innovation Centre (NewMIC) and SFU's
TIME Centre have teemed up to provide not only office space but also access
to various resources, e.g. tech advisors, access to capital, mentors, etc.
Worried about the high cost of being downtown? Well, not to worry - they'll even
reduce the fees and take some payment in the form of equity. Check www.sfu.ca/time
for contact info.
A reminder: SFU's TIME Centre is open for
business - business folks, that is. TIME is an acronym for Technology,
Innovation, Management, and Entrepreneurship. TIME supports the growth and
development of the tech industry in B.C. TIME features a "Business Centre"
(looks like an airport business lounge) which 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.
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