VEF Event Notes September 28, 2004: Early Stage Financing (LONG)

On Tuesday, September 28th, 2004 at Science World, the Vancouver Enterprise Forum held its first session of the new school-year. The first session is always about early stage capital and this year was no exception.

While the general topic was the same as usual, there were some interesting highlights which I have noted here:

Aileen McManamon, Executive Director of the Canadian Institute for Market Intelligence gave a 5 minute talk on the new Integrated Technology Initiative (ITI), a new initiative designed to promote BC Technology to the world as well as to work on issues locally to ensure that we continue to be a good place to live, work, and play. I will write more on this as I learn more about the organization. They have managed to secure a very senior group of executives from many of our leading local tech firms to head up this initiative.

Next, Dave Thomas from Rocketbuilders gave a talk on the upcoming 2004 Canadian IT & Biotech Financing Forum. He noted that it is the largest venture capital funding event in Canada with two events held each year, one in Toronto, and one here in Vancouver. It has been running for nine years and I may have this number incorrect (my notes are fuzzy here) and there has been over $600M invested in the presenting companies during this time. Last year, over 50% of the presenting companies got funded. This event is for companies that are post-angel and that are ready for VC funding. It is an opportunity for that type of company to meet all of the major VC firms in one spot, including 13 people who are representing American VC firms. For more information, people can reach Dave at (604) 861-5882 or dthomas@CanadaIT.com. NOTE the application deadline is October 4th, 2004, if you are planning to present.

Next, we had Mike Volker speak on Angel Financing. Mike just returned from the Angel Investor Summit that was just held in Calgary, Alberta and had some interesting things to share with us:

• In 2003 in the U.S. angels invested $100B in companies, VCs invested $21B. Angels are becoming a serious force in investing and are far out-stripping VC funding.

• Angel investing is becoming an industry. It is developing standards, more syndication, more rigour.

• There are significant angel/VC/entrepreneur tensions that need to be bridged through communication and dialogue. Angels invest up front and distrust VCs who may dilute the early investors. VCs are frustrated with complex term sheets and share structures, and onerous anti-dilution clauses put in place by early round investors. Both angels and VCs are frustrated with entrepreneurs who don’t understand that they need to share equity in order to build a team.

[Note to self: It might be very interesting to have a whole bunch of them get together at the Morris J. Wosk Centre for Dialogue with a lead facilitator such as Charles Holmes and see what each of the three groups can learn from each other. If this mess is not cleaned up, it will continue to inhibit the growth of the technology community and the investment community. It is in all of our best interests to understand how to serve all parties. – Troy]

• At the Angel Summit, one of their speakers was Guy Kawasaki who talked about his new book, The Art of the Start. (Amazon link, ChangeThis PDF link)

Our fourth speaker was Glenn Bindley, CEO of Redlen Technologies (I’m going to have to another local company success-story-in-the-making profile!). Glenn was a founder of PMC-Sierra and is also an angel investor. Redlen is a maker of semi-conductor based sensors for non-visible radiation. (Think of a digital “film plate” for medical scanners and security scanners.)

In any case, Glenn pointed out the differences between raising money in the bubble – “raising money with a napkin based business plan” vs. raising money now. (More to come…I’m waiting for a copy of the presentation.)

Last, we heard from Richard MacKellar, CEO of Sunnybrook Technologies (I feel another profile coming on!), a startup company that has built technology that dramatically enhances the visible spectrum output range of standard LCD panels.

As an aside, Sunnybrook demoed the screen in the main networking and reception area downstairs and always had a crowd around them. The difference between a LCD and their HDR monitor was stunning.

Richard had some really good thoughts on the fund-raising process, some of which I have documented here:

• Building a successful company is like a building a good fire. You need Fuel (the technology), Oxygen (Finance), and Heat (the Market). If any one of the three is limiting, then the size of the fire is also limited.

• In his previous company during the bubble, the technology was MUCH harder than the technology in Sunnybrook, the market was much SMALLER, but the funding was really EASY.

• Now they have easy technology (relatively speaking), a HUGE potential market, but the FUNDING is hard to find.

Other notes included:

• Be frugal; don’t hire; outsource all but your core functions because it’s expensive to hire/fire people;

• Definitely go after government funds – SR&ED Tax credits, IRAP short term non-secured commercialization loans, SBVC – Small Business Venture Capital, and TPC – Technology Partnerships Canada funds.

• Keep three lists: Strategic Funding, Angels, VCs. Keep them all straight, keep your references clear (who led you to whom), and stay in touch with all of them.

• Strategic funding = things like customers who pre-pay for your product, or selling your prototype units to get revenues.

• Angels / entrepreneurs / VCs really have major distrust and communication problems and need to work through them with dialogue and understanding to come to some form of mutually beneficial working relationships.

That pretty much wrapped up the session. The next VEF event is on Tuesday, October 24, 2004 and the subject of the session is Partnering For Growth.