By Michael
Volker
Financing Innovative
B.C.
Earlier this month, I
attended the "Six Countries" conference organized by Industry
Canada. This is an international network (in existence since 1975) of experts ,
policy makers and practitioners who are engaged in research and policy making
applied to innovation.
Martha Piper,
UBC's President spoke on the B.C. innovation environment. You only need
to drive around the UBC campus to experience the building boom that's taking
place there. In February's federal budget, an increase of almost $2 billion was
announced for R&D and B.C.'s universities are major beneficiaries of this.
For example, $11 billion has been invested since 1997 and for the first time,
indirect research costs are being supported to the tune of $245 million per
year.
Talent has, until
recently, been our biggest export but that trend is reversing due in large part
to the improvements in the innovation climate, she said.
She noted that many
visitors still view Canada as a beautifully endowed country with rich resources
and are not aware of its intellectual capacity. Actually, it isn't only visitors
that think this way. I recently polled a class of SFU engineering
students and found that the overwhelming majority of them thought that Canada's
major export was lumber!
Many Canadians are
trying to change that perception. For
example, when people like former news anchor Pamela Wallin (Canada's
ambassador in New York) speak to American audiences she goes out of her way to
point to Canadian technology that's ubiquitous in the U.S. such as RIM's Blackberry
pager.
An Ottawa journalist
recently noted that Americans don't really care that something happens to come
from Canada. What they care about is that it's good. If it's the best, then
they'll pick buy it and the fact that it's Canadian isn't what makes it sell.
Indeed, in the highly
competitive technology sector, it's all about excellence in management and
producing leading edge products. And that all begins with research and
development and the commercialization thereof.
Now, Finance Minister John
Manley is actively pushing the Canada as a "Northern Tiger" image.
Wallin attends events citing statistics that show mining, agriculture,
forestry and fishing accounting for only about six per cent of the value of
goods and services produced in Canada. Manufacturing, health, financial, real
estate, cultural and science and technology account for the bulk of Canada's
GDP.
Piper noted that Vancouver,
as a technology centre, ranks third in Canada and sixteenth in North America. In
B.C., the Premier's
Technology Council has stated that by 2006, B.C. should be one of the
world's top 10 technology centres!
Great progress has been
made in increasing R&D expenditures. In Canada, we've always groaned about
our meager 1.5% GERD/GDP statistic, which is now more like 1.9% (alas!
only 1.0% in B.C.) on a national level. I always remember an Ottawa Science
Policy leader's frustrating comment, "From 1.5% to 1.5% - my 25 years in
Canadian Science Policy" - but that has changed. Total R&D spending in
Canada - government and private sector now stands at some $20 billion, up from
$15 only a few years ago when Paul Martin, then Finance Minister,
stated an objective of tripling to $45 billion by 2010.
What worries me greatly,
though, is that much of the new knowledge that's being created will sit in
university labs and offices and never see the light of day. That's because
there's a dearth of very early stage funding available to support technology
entrepreneurs in the early pre-commercialization stages of an innovation.
Actually, "dearth" is an exaggeration. There's virtually none. There's
a funding chasm that needs to be crossed. The venture capital industry is
growing in B.C. and R&D output is increasing but a bridge needs to be built
between them.
Americans incubate
technologies a little longer before spinning them out. A recent AUTM
(Association of University Technology Managers) survey, noted that whereas
American universities created 402 spin offs in 2001 at the rate of 1.46
companies per US$100 million in R&D expenditures, Canadian universities
formed 68 such companies at a rate of 3.84 new ventures per US$100 million. And,
B.C., is outperforming other provinces in this regard with SFU, UBC,
and UVic routinely churning out new companies.
This makes me wonder what
the success rate is of the American spin-off companies versus the Canadian ones.
I'll bet that a larger percentage of the Canadian firms flop because they don't
have cash to fuel their burn rate and hence they flame out early.
Indeed, I was recently
looking at some 50+ B.C. companies that have been incubating over the past
decade. Of these, fewer than 20% are still alive today. That may be due to
insufficient funding (I'm sure that's what they'll tell you) but it's probably
also due to lack of experience and skills (good management won't run out of
money!). But, that's good. There are undoubtedly many success stories that we
hardly ever hear about (fodder for a future column!). One often-mentioned trait
that Americans have over Canadians is that failed projects are OK - nothing to
be ashamed about. One report on an American funding program (the SBIR -
read on) noted that only 95% of projects are failing! What a difference
in mind-set that is!
It was interesting to
listen (at the six countries conference) to Charles Wessner of the U.S. National
Academy of Science's National Research Council. To address the early
stage funding gap, he noted that the U.S.'s SBIR program (Small Business
Innovation Research Program) formed in 1982 provides early stage funding, via
ten diverse federal agencies in the $100K range for Proof-of-Principle support.
SBIR is funded at approximately US$1.3 billion per year. This is a competitive
program and applicants compete for support.
Of course, many Canadian
attendees thought that this is pretty good. I guess they're too young to
remember the UP Program - that's the old "unsolicited proposals
program" run by our federal government's Department of Supply and
Services. That strikes me as being very similar to SBIR. Unfortunately, it
was abandoned some years ago.
Another program discussed
by Wessner was the Advanced Technology Program (ATP) which,
although politically controversial, was recognized as one of the most effective
of the major innovation funding programs in the U.S. today. The mission of this
program is to "bridge the gap between the research lab and the
marketplace". Over a 10 year period, some 41 competitions resulted in over
US$1.6 billion in support.
Wessner was comparing
these types of programs with the tax credit programs such as Canada's SRED
tax credits for companies performing R&D. He made a good point in noting
that the competitive programs encourage excellence whereas the tax credit
programs reward activity without necessarily recognizing results. It's hard to
argue with that.
In comparison to the
U.S.'s SBIR and ATP, Canada's SRED program invests more in R&D on an
absolute basis, i.e. in the $1.5 to $2 billion per year range, meaning
effectively 10 times that of the U.S. on a pro-rata basis. Even so, many tech
companies don't understand how this works or, when they do, they choose to
ignore it because they find it too complex. They also don't understand that here
in B.C., they can get up to 68% of their direct R&D salary costs fully
refunded. No kidding! Take a closer
look.
So, we've got a great
innovation climate here in B.C. - fountains of ideas and I.P. at the
universities, not to mention many other research institutions, budding
entrepreneurs, angel investors, mentors, and growing pools of venture capital -
e.g. the newly formed Yaletown Ventures Limited Partnership
($30million) and the BC Discovery Fund (another $30 million in process)
that are ready to fund enterprises when they get to a certain stage. Just this
week, Yaletown Ventures celebrated the closing of its financing with dignitaries
such as Premier Campbell and other politicians in attendance.
Getting companies to the
VC-ready stage is a completely different ball game than getting companies
launched in the first instance. Although some VCs say that they are early stage
or "seed", none actually do this.
Boldly attempting to cross
- more like fill - this chasm are two new early-stage funds. These are the BC
Advantage Fund and WUTIF - the Western
Universities Technology Innovation Fund. Both of these are VCCs (Venture
Capital Corps) that offer B.C. investors a 30% refundable tax credit and RRSP
eligibility. This is the way to get in on the ground floor of the growing
B.C. technology sector. I'll be talking more about these in future columns.
Recent Financings
I thought it would be a
good idea to mention a little about company financings - in B.C. only - on a
regular basis to give some encouragement to those who believe that no one is
investing these days. It would be useful to highlight those companies,
especially startups, that are getting support from angels and government
sources. Unfortunately, these are usually not widely disclosed. (Readers are
invited to let us know about their deals so that hopefully others will benefit
from their experiences.)
Of course, the other
reason for mentioning these, especially those that are publicly traded entities,
is that for the adventuresome among you, they may be worth looking at for
investment purposes. Whenever a company has received financing, one can infer
that it holds some promise (at least for some investors) and has a shot at
hitting some of its milestones.
CRYSTAL DECISIONS
is gearing up to go public in a rare move that is expected to be closely watched
by the North American high-tech sector. The IPO market has been virtually dead
for the past couple of years. Crystal's Decisions decision to forge ahead and
test the water may bode well for other firms waiting in the wings for their
debut opportunity.
AXONWAVE SOFTWARE INC.,
an SFU spin-off company, formerly known as Gavagai Technologies Inc.,
a provider of content intelligence solutions for unstructured information,
announced the completion of a US$2.3 Million second round of financing.
CONTEC INNOVATIONS (TSXV:BUZ) has entered into an
agreement with Pacific International Securities and Wolverton
Securities for a private placement offering for gross proceeds of up to
$1.2-million.
IMAGIS TECHNOLOGIES INC. (TSXV:NAB) announced
that the company intends to raise financing of up to $1.0 million through the
issuance of subordinated debentures.
SOFTCARE EC (TSXV:SCE), subject to TSX Venture
Exchange acceptance, will complete a non-brokered convertible debenture private
placement of $343,425.
QUESTAIR TECHNOLOGIES announced that it will
receive $720,000 in partnership funding from the Government of Canada and the
Government of BC under the Western Economic Partnership Agreement.
CONAC SOFTWARE (TSXV:COT) has arranged a private
placement of two million units at five cents per unit to raise $100,000 for
operating expenses.
CARDIOCOMM SOLUTIONS INC (TSXC:CCG) has applied
for final approval to close its offering of redeemable, convertible promissory
notes, with detachable warrants, for an aggregate total amount of US$250,000.
CARDIOME PHARMA CORP (TSX:COM) has obtained
receipts for a final prospectus filed in BC, Ontario and Quebec, in connection
with the bought-deal private placement of special warrants of approximately
$8.0-million, which closed on April 10, 2003.
RAYSTAR ENTERPRISES (TSXV:RYA) has closed a
non-brokered private placement of 200,000 units at five cents per unit.
WESTPORT INNOVATIONS INC. (TSX:WPT) announced
that it has been awarded (euro) 220,000 (C$350,000) in funding from the German
Gas Industry under leadership of Ruhrgas AG, Essen, Germany.
RESPONSE BIOMEDICAL CORP (TSXV:RBM) announced
that it has closed the non-brokered private placement announced in the amount of
$850,000 on April 9, 2003.
D-WAVE SYSTEMS INC. announced the successful
completion of a major financing led by US venture capital firm Draper Fisher
Jurvetson.
PHOTON CONTROL INC (TSXV:PHO) has
completed a first closing of the private placement reported in Stockwatch
on June 9, 2003. A total of 1,946,976 units were issued at a price of 30 cents
per unit for gross proceeds of $584,092.
STOCKGROUP INFORMATION SYSTEMS (TSXV:SWB)
announced that it had issued an aggregate of 2,746,800 Units at $0.37 per Unit
under the terms of a short form offering document of the Company.
NEODYM TECHNOLOGIES INC (TSXV:NEO) has
arranged a private placement for gross proceeds of $81,800 in units of the
company at a price of 10 cents per unit.
Technology Industry Awards
Last week, the BC Technology Industry Association
held its annual awards banquet. This is a convenient way to find out which
emerging companies are worth watching (maybe even investing in!). The publicly
traded ones are identified by exchange and ticker symbol after the name - just
in case you get the urge to make a trade!
The corporate winners are:
Convedia Corp for excellence in product
innovation, Epic Data (TSX:EKD) for the best application of technology, D-Wave
Systems Inc. for the most promising pre-commercial technology, jaalaM
Technologies Inc for the most promising start up, VSM Medtech Ltd for
emerging company of the year, Sierra Wireless Inc (TSX:SW) for leadership
in social responsibility and Creo Inc (TSX:CRE) for Company of the year.
Creo Inc. is the first high tech company in BC to
achieve annual revenue exceeding one billion dollars on its internationally
renowned prepress technology for the printing industry. D-Wave Systems Inc. won
for its quantum leaps toward commercialization of a revolutionary super
conducting quantum computer. This is an interesting one to keep an eye on.
The finalists for these awards included ActiveState
Corp, Azure Dynamics Corp (TSX:AZD), Carmanah Technologies Inc.
(TSX-V:CMH), Delta-Q Technologies, Heatwave Technologies Inc., Municipal
Software Corp., Tantalus Systems Corp, and Telos Technology Inc.
("Technology" sure is a popular descriptor, isn't it?)
Other nominees for the awards included Absolute
Software (TSXV:ABT), ACD Systems International (TSX:ASA), BCNET,
BSB Utilities, Burntsand Inc. (TSX:BRT), Bycast, Con-Space
Communications (TSXV:CCB), Covenant Corporation, Custom FAQs
Solutions, Fincentric, Greenlight Power Technologies, iGEN
Knowledge Solutions, Incognito Software Inc., Intrinsyc Software
(TSX:ICS), IP Applications Corp (TSXV:IAP), Layer7, LogicLynx
Technologies Inc., MRX Solutions, OMNEX Control Systems Inc., Paradata,
Protexis Inc., QHR Software Group, QualitE-Learning Assurance,
Radiant Communications, Responsetek, RewardStream, Tap
Solutions, Tetrad Computer Applications, TIR Systems (TSXV:TIY),
Unity Wireless (TSXV:UWC), Vancouver Island Technology Park, Vigil
Health Management Inc., Vortek Industries Ltd., Webnames.ca,
and WebTech Wireless Inc.
UPDATES
It's that AGM time of year
again. Because many companies' fiscal year end is the calendar year, June is the
month in which Annual General Meetings are held. You can always tell this when
your mailbox starts filling up with the annual reports that public companies are
required to distribute. I wonder how long this practice will continue especially
since all these reports - and more - are readily available on www.sedar.com,
for example. Although it's not high tech, I'd encourage readers to take a look
at WestJet's Annual report. I
found mine in the seat pocket in front of me while on a recent flight- which
itself is a novel idea. And a very impressive well-presented report as well.
Companies like Air Canada can take a lesson on marketing and
communications from this example.
Capital Pool Corporation (CPC) 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 TSX-Venture
Exchange's CPC companies, thanks to David Ing
of Pacific International Securities. This list is updated on a regular
basis. It is now current to the end of May, 2003.
New additions to the list are: Dupont Capital Inc.,
Ramco Inc., Skoobins Resources Inc., Transborder Capital Inc. C88 Capital
Corporation, Canatech Capital Partners Ltd., Juno Capital Corp., Saintstar
Ventures Inc. and Stanstead Capital Inc.
The following companies have come to trade: ESS
Capital Inc., Leonids Investments Inc., Innovotech Inc., Ore-Leave Capital Inc. and
Vinson Biotech Inc.
Since the previous update, the following companies have
been removed from the list because they have completed their Qualifying
Transactions: Apsley Management Group Inc., Caliente Capital Corp.,
CastleRock Capital Inc., Dream Wizards Investments Ltd., Ergo Ventures Inc.,
EVEolution Ventures Inc., Mega Capital Investments Inc., PCG Ventures Inc.,
Salish Ventures Inc., TheraMed Capital Corp., Vista Investments Inc., WWS
Capital Inc. Acacia Capital Corporation, Coventry Charter Corporation, First
Trimark Ventures Inc. and Tulane Capital Corp.
An introductory
article explaining CPCs may be found at http://www.bctechnology.com
VEF UPDATES
Last
month's Vancouver Enterprise Forum
event, held on May 27th, was titled, "Founder/CEO War Stories"
featuring Alexander Fernandes of QImaging and Steve Munford of
ActiveState. Both of these companies were sponsored by local angel
investors less than four years ago and both have become successful tech
ventures, notably QImaging which was sold not long ago to a US corporation for
US$12 million. The VEF’s June 24th celebration dinner at the Law
Courts Inn will offer something a little different from the regular format and
will be entirely focused on networking with no formal presentations or seating.
Featuring live music entertainment, outdoor patios, a great barbecue dinner, a
city view and plenty of space to mix, Law Courts Inn will provide a superb
relaxed setting for our season-ending event. Join us to make new contacts and
catch up with old friends before the VEF breaks for the summer.
A complete calendar of local 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.
Michael Volker,
a technology entrepreneur, is Director of the University/Industry Liaison
Office at Simon Fraser University, Chair of the B.C. Advanced Systems
Institute, Chair of the Vancouver
Angel Network and past Chair of the Vancouver
Enterprise Forum. He owns shares in many of the companies he writes about. Copyright,
2003.
What
Do You Think? Talk Back To Mike Volker
Tech Futures is
a bi-weekly column that focuses attention on new and emerging BC publicly listed
technology companies.
Contact: risktaker@volker.org
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