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A monthly column focusing on new and emerging BC publicly listed technology companies     Technology Futures:     July 1, 2006 By Michael Volker Tech Startups graduating with better grades The date, June 29th, always brings back memories of the start of summer holidays and the graduation from another year of studies. Each year the crop of grads is stronger and better equipped to face the world. And so it is with each new wave of technology companies emerging from the labs and basements making their way to the world of opportunity. There appears to be no shortage of new deals. Each month, when we prepare for our monthly angel meetings, I wonder if we'll get at least three companies on the agenda. By show time, we're usually at double that and fending off more. The Vancouver Technology Angel Network (VANTEC) has been going strong since its inception 7 years ago. It has seen many companies graduate from idea to market. Although more than 300 companies have pitched to angels over that time period, of the 235 that responded to a survey conducted by Rocketbuilders, a Vancouver venture consulting firm, more than 50% raised angel capital, and 20% went on to raise institutional venture capital. While only a handful have provided liquidity to their backers by being acquired or going public, an astounding 85% have continued to grow and prosper! Four that were subsequently venture capital backed have had successful public exits; two by acquisition and two by direct public offerings. The two public offerings were by Aspreva Pharmaceuticals (returning 50X for some lucky investors) and an RTO by Azure Dynamics. The two acquisitions were ActiveState Technologies and NeuroStream Technologies with transaction values of US$23 million and CAN$8 million respectively. ActiveState was acquired by Sophos, an English public company and a leading provider of anti-virus software, in September of 2003. NeuroStream Technologies was acquired by TSX listed Victhom Human Bionics in July of 2004. A few others such as Plutonic Power Corp were already trading on the TSX-V and have shown impressive gains. While the mean amount of angel investing is around $250,000, some companies raise as little as $50,000 and one that I'm aware of has raised over $15 million entirely from angels! The 235 companies raised over $250 million from all sources. From a purely subjective perspective based on my exposure to almost all companies that have pitched at VANTEC, I'm finding that the quality of the companies is getting better and better. The entrepreneurs behind them are more savvy, more realistic, more mature, and generally better prepared while their companies possess stronger teams, better boards, advisors, and mentors. The business plans are stronger, the elevator pitches are more polished and the presenters behind them are more passionate. So why is this? Perhaps the mentoring providing by the many successful entrepreneurs that have started companies over the past three to four decades is paying off. Perhaps it's the infrastructure support - ranging from boot camps (eg Acetech, New Ventures BC) to government programs such as tax credit incentives, increased funding for advanced education and research - just look at the building booms at our university campuses. Many provide incubator or accelerator facilities to encourage startup formation. A few years ago we had just 3 universities. Now, I've lost count. Perhaps it's the influence of successful role models or possibly the realization that a business failure is not a disgrace but rather, a badge of honour. At the California-Canada research summit held earlier this month in Vancouver, the President of the University of California System, Bob Dynes, (an ex-hockey player from London, Ontario turned physicist) noted that success flows not just from an investment in R&D but rather in R&D&D, i.e. Research, Development and Delivery. The latter, I believe, is something we're doing reasonably well in B.C., by building bridges between our academics and businessmen. A good example of this is the recent announcement of the New Centre for Media (to be located on the Great Northern Way campus) announced in the Government's March Budget. The Final Report of the Expert Panel on Commercialization released on 24th April 2006, speaks to the second "D" as well and it is comforting that many of the recommendations therein, especially pertaining to angel networks, have been implemented and practiced in B.C. for some time. At the same conference, Tom Sweeney, a Venture Capitalist from Toronto, noted that Vancouver had one of the most advanced and active angel networks in North America with deal-making prowess exceeding that of most VC's. He further commented that local Angels' ability to negotiate workable term sheets and syndicate deals means that no worthy deals go begging. There are several hundred active angel investors (no kidding) throughout B.C. Angel groups have formed not only in Vancouver, but in regions such as the Okanagan, and Vancouver Island. Angels from Alaska and Washington are getting actively involved in these and have made several investments in B.C. as well. One from Alaska has already had a big winner in B.C. Some angels have pooled their capital in funds such as WUTIF Capital and the Fundamental Technologies Fund. WUTIF, a relatively small VCC that offers its investors the 30% provincial tax credit, has made 31 investments in 22 B.C. companies in less than 20 months. How do you become an angel investor? Other than the desire to take huge risks by helping nascent entrepreneurs, you have to meet the technical qualification of being an "accredited investor" as defined in the Securities Commissions' rules and regulations, i.e. being a millionaire (net assets, including spousal assets, exceeding $1 million - not counting one's principle residence), or having personal annual net income exceeding $200,000 or joint income exceeding $300,000. If you don't meet this test, you are legally not permitted to act as an angel investor unless you personally know the principals behind the company (and there are strict rules and definitions on that, too). Alas, no matter how good a deal may sound and how willing you are to speculate on its success, you are precluded from so doing. Many companies and many investors are not fully aware of this. The only way around this is for a company to give you an "Offering Memorandum" (OM) in a prescribed form or to go all the way to being a public company that any Joe Investor can trade in. The public company option is one that many B.C. tech companies have used to open their doors to the investing public. Unfortunately, this option is becoming increasing costly, time-consuming, and over-regulated due to the proliferation of corporate scandals in the USA. Hey - do you remember the holier-than-thou 1991 Forbes expose of the scams on the Vancouver Stock Exchange? Well, as we learned in Vancouver, more rules don't make companies more honest but the sledge hammer approach of Senators Sarbanes and Oxley with their not-so-classy Act has made the going public route an almost impossible one for junior ventures. But, that's another subject. While Americans will celebrate their July 4th holiday with fireworks, the Vancouver Angel network will be creating a few sparks of its own that day when more startups pitch their deals in the hope of a passing grade.  It's about TIME SFU's TIME Centre in downtown Vancouver recently received support from Western Diversification, NRC and Industry Canada to expand its facilities and services for budding technology entrepreneurs seeking space and help to launch their ventures. This is one of these "accelerators" referred to above. TIME is an acronym for Technology, Innovation, Mentorship, and Entrepreneurship. It's more than just an incubator. Complete, ready-to-go furnished offices with high speed internet, servers, telephone and fax, printing, etc. are only the beginning. Telus New Ventures BC, the Vancouver Enterprise Forum, the VANTEC Angel Network and WUTIF Capital all make TIME their home. TIME's Business Centre (a little like an airport business lounge but without booze) 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. You won't believe the price!  Check www.sfu.ca/time for info.   Michael Volker, a technology entrepreneur, is Director of the University/Industry Liaison Office at Simon Fraser University and President of the Western Universities Technology Innovation Fund. He is a founder of the Vancouver Angel Network and past Chair of the Vancouver Enterprise Forum and past Chair of the B.C. Advanced Systems Institute. He owns shares in many of the companies he writes about. Copyright, 2005. 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.  Printable version: [click here] Contact: risktaker@volker.org Tech Futures Archive B.C. High Tech Links