finance from Red Canary

Venture Capital Investment Up 21% Across Canada In 2007

Wed, 20 Feb 2008 04:28:11 GMT

TORONTO (Canadian Venture Capital & Private Equity Association): Venture capital investment across Canada in 2007 amounted to $2.1 billion, an increase of 21% from the $1.7 billion invested in 2006 according to the industry’s statistical report released today by the CVCA and research partner Thomson Financial. In the fourth quarter, total investment amounted to $500 million, which was roughly equal to Q3 2007 ($513 million) and to activity in Q4 2006 ($504 million). U.S. Venture Firms Drive Canadian Market Growth The increase in investment levels across the market as a whole has been driven by the following key trends: • Significant growth in investment activity by U.S. venture capital firms investing in Canadian companies, who now represent 41% of all investment dollars across Canada and 53% of all investment dollars in Ontario. This represents a new record high in the annual share attributable to foreign investors. • In absolute dollars, the total amount invested by U.S. VC firms amounted to $836 million, an increase of 53% from the total of $548 million recorded in 2006. The increased participation of foreign investors accounted for 82% of the growth in total Canadian investments. Investment activity by Canadian VC firms remained flat. “The growth in new investments into Canadian companies is good news for entrepreneurs,” stated Rick Nathan, President of the CVCA and Managing Director of Kensington Capital Partners Ltd., ”however, a closer look at the data reveals continuing weakness in our Canadian venture capital sector. Virtually all of the growth in our markets has been driven by the increased investments made by U.S. venture firms extending their reach into Canada, demonstrating the high quality of opportunities in our market and a complete absence of growth among our domestic firms. This is particularly evident in Ontario, where U.S. investors now represent a majority of all venture investment dollars – a historic high and roughly double their traditional market share.” Industry Fundraising Declines Sharply As the share of U.S. investment in the Canadian market continues to grow, Canadian venture firms continue to face challenges raising new capital. In contrast to the growth in investments made, Canadian VC firms saw a continued decline in their own fundraising – the amount of new capital raised for their own new investments (the fifth such decline in the past six years) – in sharp contrast to continuing growth in U.S. venture firm fundraising levels. “The fundraising trend for Canadian VC firms is a serious concern,” added Mr. Nathan, “as a shortage of domestic capital may continue to drive the growth of our most innovative emerging companies away from home, and into the U.S. where venture capital is more readily available.” Canadian VC firms raised a total of $1.19 billion in new capital in 2007, which is down significantly from the $1.64 billion in new capital raised in 2006. U.S VC firms, in contrast, raised $34.7 billion in 2006, up from the $31.7 billion it raised in 2006. The new venture capital fundraising for Canadian firms was concentrated in Quebec, which received $816 million, or nearly 70% of the national total. Ontario venture firms raised $267 million in new capital, or 22% of the national total into the Province that represented 46% of all 2007 investment activity. Regional Trends Ontario represented the largest market for venture capital investment in Canada in 2007, receiving a total of $937 million into 124 companies, up 35% from the $695 million invested in 2006 reversing two consecutive years of decline. Investments in Ontario amounted to 46% of all activity in Canada. Quebec investment levels increased for the third consecutive year, with a total of $648 million invested in 189 companies, or 8% more than the $600 million invested in 2006. Investments in Quebec amounted to 31% of all activity in Canada, down slightly from its 35% share in 2006. Investment in British Columbia also increased, with $310 million invested in 49 firms in 2007, or 3% more than the $301 million invested in 2006 for a national market share of 15% of all Canadian activity. Companies Funded and Deal Sizes The number of companies receiving venture capital funding across Canada has remained flat at 411 companies (408 companies in 2006), at levels significantly below prior years. 127 Canadian companies were funded by VC firms in Q4 2007, which is down from the 167 companies funded in Q4 2006. The relative stability in the number of companies funded against the reported increase in the total capital invested led to substantial growth in the average amount invested per company, a positive trend. The average VC investment per Canadian company in 2007 was $5.0 million, up 19% from the $4.2 million average in 2006. While this growth is a positive trend, it still represents only half of the average investment amounts into U.S. companies. North American Context The CVCA has released data showing where the major Canadian markets rank in reported venture capital investment relative to activity in individual U.S. states. Ontario, Quebec and British Columbia finished 2006 in 6th, 10th and 19th place, respectively, compared to 2006 standings of 10th,11th and 18th place. Investor Type Among Canadian investors, investments made by LSVCC’s amounted to $405 million in 2007, up 4% from the $391 million invested by this group in 2006, and accounting for 20% of all venture investment in Canada in 2007. Private independent venture funds invested $353 million in 2007, consistent with the $339 million of 2006 or 17% of all investment activity. Investment by Sector Activity in the Information Technology sectors continued to drive industry investment in 2007, with $1.1 billion invested into 194 companies representing 52% of all disbursements (compared to $888 million in 2006). Within the IT sector, Internet based businesses received $411 million in 2007 – a dramatic increase over the $92 million for this sub-sector in 2006 as a result of two significant transactions. Software firms followed with $266 million ($300 million in 2006), followed by communications and networking with $240 million ($230 million in 2006), and electronics and semiconductors at $126 million (compared to $221 million in 2006). Biopharmaceutical and other life science investments increased in 2007 with $633 million invested in 70 companies, up 23% from the $514 million in 2006. Venture capital investment in the Cleantech sector hit a new high driven mainly by one significant transaction of $63.5 million in Q4, amounting to a total of $169 million into 29 companies through 2007, an increase of 40% over the $120 million invested in 2006. VC Industry Sector Fundraising As noted above, Canadian VC firms raised a total of $1.19 billion in new capital in 2007, which is down significantly from 2006 levels. LSVCC’s raised $741 million in 2007 down 18% from the $907 million raised in 2006. Canadian private independent funds raised $447 million in new commitments in 2007, a drop of 33% from the $666 million raised in 2006. CVCA The CVCA - Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 1400 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within the venture capital and private equity sector and represents the industry in public policy matters. Thomson Financial Thomson Financial is a provider of information and technology solutions to the worldwide financial community. Thomson Financial is part of The Thomson Corporation (www.thomson.com), a global leader in providing essential electronic workflow solutions to business and professional customers. With operational headquarters in Stamford, Conn., Thomson provides value-added information, software tools and applications to professionals in the fields of law, tax, accounting, financial services, scientific research and healthcare. To arrange an interview with Rick Nathan, President of the CVCA and Managing Director of Kensington Capital Partners, please contact Lauren Linton 416 487-4299 llinton@cvca.ca

Canadian Tech IPO Performance: 2006 and 2007

Thu, 14 Feb 2008 23:26:47 GMT

Reprinted with Permission of TechFinance.ca To eliminate any undue stock market influence/fluctuation and to provide a useful performance indication, we have included several composite index performance benchmarks so that the IPO performance can be compared or analyzed in the context of general broad market. Twenty-two (22) and nineteen (19) technology companies went public, raising approximately $667 million and $812 million respectively in 2006 and 2007. Although majority of these companies chose to go public on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange, a few tech companies have elected to go public on the London Stock Exchange's Alternative Investment Market (AIM), either listing solely or cross-listing its stock on TSX. It is worth of noting that two of the four sole AIM listed companies had since re-listed their stock on the TSX. One company had sold its assets and is no longer an operating concern.

See the Details and Original Article on TechFinance.ca

Class 2006 22 technology companies went public in 2006 on five stock exchanges: TSX (6), TSX Venture (9), AIM (3), PLUS Markets plc (1), TSX/AIM (2), and TSX/Nasdaq (1). By the end of December 2007, 9 of the 22 IPOs recorded positive stock price gains, 1 no gain, and 12 losses. 3 companies had since been acquired or its assets sold. The IPO of Oakville, Ontario based Excel-Tech Ltd was the best performer among all 2006 IPOs. Excel-Tech, a venture-backed medical device company, was acquired by Natus Medical Incorporated (Nasdaq: BABY) in November 2007. The acquisition generated a 550% of stock price gain over its IPO price. Evertz Technologies Limited (TSX: ET) went public in June 2006. Its IPO was the best performer among all active companies, having gained 189% in stock price over its IPO listing price. Although Corel Corporation's IPO on TSX in April 2006 was the largest, its stock has been underperforming; by the end of 2007, its stock had lost 33% of its IPO value. Excapsa's IPO in February 2006 on the AIM was the second largest in 2006. The Internet gaming software developer raised £56.2 million. With the passing of the US Internet Gambling Regulation and Enforcement Act, the company sold its assets and the divestiture resulted in an approximately 30% of loss of its IPO price. Venture-backed ESI Entertainment Systems (TSX: ESY), a provider of products and services to the gaming industry, has also been severely affected with the passing of the act; its stock price lost 85% of its IPO value. Royal Bank of Canada, a venture backer of ESI, in October 2007 surrendered all its holdings in ESI, being approximately 25% of ESI's total issued and outstanding common shares. Venture-backed Medicago (TSX-V: MDG)'s IPO on TSX Venture in August was the smallest, raising $2 million. Its stock lost 70% of its IPO value by the end of 2007. Toronto based Silverback Media plc (PLUS: SBMP) in March 2006 acquired the business assets of former Lemontonic Inc. and went public on the PLUS Markets plc in November 2006. It raised approximately £2.1 million. Its stock price declined 67% from its IPO price. Among the 22 tech companies, 12 were venture-backed with 5 having shown positive price gains, 1 no gain, and 6 losses. Class 2007 In 2007, 19 tech companies went public on four stock exchanges: TSX (10), TSX Venture (5), TSX/AIM (2), AIM (1), and Nasdaq (1). Unlike their counterparts in 2006, the majority of the 2007 IPOs were completed on mature and larger exchanges. As a result, those companies raised substantially more money even the total number of IPO was slightly smaller in 2007. Almost two-thirds of the 19 IPOs were completed in later half of the year; the price performance measurements in many cases unlikely are true indicators of their performances. The measurements are included for reference only. 6 companies' stock showed positive price gains while 13 others recorded losses. 5N Plus (TSX: VNP), a nanotech company, so far was the best IPO performer, having gained 165% in stock price since its listing in December 20, 2007. Venture-backed Mecachrome International (TSX: MCH) raised the largest amount in October 2007. Its stock price has since declined 13% from the IPO price. Cambridge, Massachusetts and St. Laurent, Quebec based Targanta Therapeutics (Nasdaq: TARG) went public in October 2007. Its IPO was the third largest, raising US $57.5 million. By year-end, its stock traded 10% below its IPO price. Among the 12 venture-backed IPOs, 2 recorded positive price gains while 10 traded below their IPO prices. To purchase a copy of the analysis or see the original article visit: TechFinance.ca Copyright © 2003-2008 TFmedia Corporation. All rights reserved. Any copying, republication or redistribution of TFmedia content, including by framing or similar means, is expressly prohibited without the prior written consent.

Outcomes vs. Activity

Fri, 18 Jan 2008 21:29:33 GMT

EDITOR'S NOTE This piece comes by way of FoundRead, a blog-style publication that runs under the umbrella of respected technology guru Om Malik. FoundRead's editor, Carleen Hawn, graciously gave Red Canary permission for this to be reprinted. The original article can be found here I am embarrassed to say that it took me 10 years to learn one of the most fundamental pillars of leadership: It is all about outcomes — and not activities. This business truth is simple and obvious, yet, extraordinarily powerful. Unfortunately, it remains strangely elusive for many founders, and most people. I can hear you now, “Of course I knew that,” or “Not me … I’m all about the mission.” Well, in my experience, I have found that most people tend to confuse activity with outcomes — and it is a breathtakingly expensive mistake. In a world of infinite choices, choosing which activities will occupy your day is likely to be your single greatest driver of effectiveness. Beyond picking the right objectives to pursue, you need to focus on the results, not just the means to that end. Some people choose wisely and focus on high-impact activities that truly move the needle. Others, however, work the same number of hours without making clear progress toward measurable results. Focusing on what really matters is a difficult-to-achieve skill in our “attention deficit disorder” world. Successful leaders—and, therefore, successful founders—invest the time to clearly identify, prioritize, and communicate key goals. They then measure their success by real progress against those desired outcomes. By focusing on the end results, creative leaders can identify the shortcuts and often achieve those goals with less work. As we talk about outcomes vs. activity, it is important to nail down the semantics. Outcomes, in this context, means a certain, generally measurable, end result — and one that matters a great deal. Activities, however, are a set of tactics that are used to achieve that outcome. Productivity might then be defined as the value of a certain outcome divided by the cost of the activities used to achieve it — simply put, the return on your investment (ROI). If this is a bit confusing, that is good. Understanding this confusion is the first step to seeing how easily things can go terribly awry. Because many of us founders are so accomplishment driven, we tend to look at both activities and outcomes as accomplishments. While they both could be achievements, results should almost always be valued well ahead of tactics. A long day at the office often creates the illusion that we are creating value and driving the ball downfield. Ticking off tasks on your to-do list fills you with a sense of accomplishments but did you achieve the end goal? Many of the activities create some benefit, but is it making a tangible difference for the organization? Is it the most effective use of your time? Often, the answer is no and, unfortunately, few people are aware of it. I learned this valuable lesson when I founded my first start-up, Military.com. In late 1999, we raised a good deal of venture capital, hired rapidly, and set to work at building the definitive portal for the 30 million members of the military community. In just a few short months, we had over 50 employees and were working non-stop on product development, marketing, hiring, brand strategy, user-testing, public relations – all the things a “dot-com darling” was supposed to do. The activity level could not have been higher. As many of you know, the world came crashing down in the spring of 2000 when the bubble burst. The next two years were exceedingly difficult – layoffs, hurt feelings, and an overwhelming sense of foreboding that we would likely lose the company. In 2002, we were down to just four weeks of cash and about ten employees. It was during this most difficult period that we had little choice but to focus on absolutely the most critical element of corporate life support – cash flow from operations. Against all odds, we were able to drive the company to profitability with less than two weeks of cash in the bank. And in that moment, I realized that our DNA had changed forever…and we would never again confuse outcomes with activities. When forced to make difficult tradeoffs in an exceptionally constrained environment, good leaders focus only on those things that matter. *The pressurization of Military.com leadership forced me to choose only those activities that drove key outcomes: cash-flow, membership growth, and monetization. As I reflect over both those experiences, I realize that I had confused being busy — lots of activity — with accomplishing something of value. Today, Military.com has over 9 million members and has delivered double digit profit and revenue growth since those dark days in our history. In 2004, I sold the company to Monster Worldwide (Nasdaq: MNST). Defending yourself against the myopia of task saturation requires a bit of planning. Defining key outcomes is the first step to getting back on the road to productivity and effectiveness. Are the results that we hope to achieve measurable and meaningful? Can we assign dates to deliveries? What are the key measures of success and an appropriate sampling rate? Successful practitioners focus on the goal despite the forest of tasks, distractions, and nice-to-do activities. Once founders begin to assess their team against key measures, they are often surprised to see how quickly they can create a results-driven culture. In that kind of enlightened organization, it’s about ownership, trust, accountability — and not about hours worked.

Don't try and punch too far above your weight category

Craig Fitzpatrick — Mon, 16 Jul 2007 17:12:38 GMT

Before starting Devshop, I worked for 4 other small to mid-sized software companies. The last 3, as head of engineering. Each of these companies was around the 25 person mark (one of them ballooned to over 100 people during the dot-com boom but came quickly back down to earth shortly afterwards). In each of these companies, the whole management team had gotten it into their minds that they were going to build enterprise class software and sell it for hundreds of thousands of dollars to some of the biggest companies in North America. In a couple cases, the teams were out hunting the elusive "million dollar deals". Back then, I didn't know any better and since I was merely head of R&D, I happily went along with many of the "business" folks and put together the engineering plans to build the enterprise class software for them. They'd look after pulling in the sales.

None of these companies were successful in doing what they were trying to do - land and service the "big deals".

Worse: all of them eventually got crushed under the weight of their own deals and entered a nose dive. Someone trying to convince me today that a small company (< 50 people) is going to go out to land and successfully service million dollar enterprise software deals, would have a really hard time. I don't buy it anymore. The call of the "big deal" is seductive... I know it well. "If we can only land this $x deal, our business will be assured of success! We'll be stars! We'll have enough money to buy anything - hire anyone!" Here's a couple of the reason why I don't believe this strategy works: First of all, small companies can't service big companies effectively. Big companies demand things like: • Escrow agreements • 24x7 support • On-site assistance • Huge price breaks (based on volume) • Maintenance contracts • Hands-on training • lots of customization • And because of the big checks being written, they don't take "no" for an answer, on just about anything. If you even start to utter the "N"-word, you can just see them starting to tear the check up. "Eek! I meant YES, YES we can do that, of course! (fingers crossed)" The trouble is, in the small company's minds, the deal is simple: they build the software, sell it for $1 m-i-l-l-i-o-n dollars, and walk away rich and happy. In reality what happens is some combination of the following: • The deal takes 3x as long to close as you think, depleting your runway and leverage to the point where you become desperate to close at any costs - it becomes more a thing of survival that actually achieving any return on investment • When (if) the deal does close, it's 1/3 the size you were teased with (big companies like to do things in phases or multi-year contracts, for a variety of reasons), so you never actually get the kind of instant influx of cash you thought you were going to get and spent all your time chasing • The pre-sales ordeal defocuses the entire company and everyone believes it's just for a little while until the deal closes and then everyone can get back to building or running the rest of the company • When (if) the deal closes, the amount of attention the customer demands increases, instead of decreasing like you thought it would, since now you're not just dealing with the champion, the legal and purchasing departments, but all of the users and IT folks too! Worst of all (and a little more subtle) is this: Suppose you land your first big deal. Suddenly, you've got a "lead" customer who effectively generates say 50% to 75% of your revenue.

How much leverage do you think you have in any negotiating after that deal closes?

Absolutely none. They own you.

At any point in time, they can switch directions, have a budget cut, fail to renew and instantly decimate your company. I've seen it happen several times. In software, big enterprise deals start to approach "services" businesses, where there is still a core of software in there somewhere, but with all the deployment, training, customization and support, there's often actually more being spent on the people to service the deal than on the software licenses (the high margin piece) themselves. So in general, the bigger the deal, the more people you need to service them. Small companies' advantages are not large amounts of people at their disposal - there's where the disconnect is. A small company needs the kind of leverage where it can build something and sell it many times over without incurring a lot of supporting infrastructure. Otherwise, small companies never have the cash and leverage to grow into medium sized companies, and ultimately grow into large sized companies! Watching this happen over and over again made me a firm believer that small companies shouldn't try to land big shaggy enterprise deals. Instead, sell lots of small ones and maybe a few mid-sized ones. Get really good at that first and grow from your margins. Then take on a slightly bigger deal size. This gives you a sane growth path and ensures you're not going to bite off more than you can actually chew and end up choking on it. It also keeps you firmly in the driver's seat.

Startup success: People, money and opportunity (part II)

Roy Pereira — Tue, 19 Jun 2007 04:00:00 GMT

In "part 1 of this article":http://www.redcanary.ca/view/startup-success I asked the question, "What should come first for a startup, people or money?" I answered, 'people'. This is true, but it is also false. Without funding, a startup is just a hobby.

Strategies for Successful Fundraising

The Opportunity They will always value it more than their investors, causing their startup to fail. Your acceptance to dilution is crucial in the funding of your startup and its future success. Ask yourself: Do you want to own a pond, or share an ocean? Valuation According to Robert Koturbash, the managing director of the new Toronto-based "Maple Leaf Angels,":http://www.mapleleafangels.com/ the biggest mistake that entrepreneurs make is on valuation. Rob says, "Don't hold off for the highest valuation. You will waste valuable time getting to market and will often take money from the wrong types of investors." The average angel deal has a pre-money valuation of just over $2 million, according to the Angel Capital Association. Insisting on a higher valuation will simply cause capital to flow to other startups, leaving you with few options for raising money. Frugality Be frugal. Period. There isn't a single phase where you shouldn't be frugal. When you are starting out and looking for funding, frugality will make or break your success. Don't hire too quickly and don't spend excessively.

Rent, contract and lease wherever and whenever you can.

You will need to stretch the funds that you have longer than you are expecting - it's just a fact of life. Raising capital always takes longer than anticipated. Have a realistic view of how long your cash will last and then add a buffer. Always be Funded As the CEO of your new venture, your number one priority is to make sure you never run out of cash - ever. Therefore, you should devote a large portion of your time to bringing money into the company. Whether incoming cash is through revenue on sales (highly unlikely in a startup), or through investment (your greatest chance of success), cash always needs to be coming in.

There is a saying in the sales world that says you need to 'Always Be Closing' (the sales deal), but a CEO needs to 'Always Be Funding.'

How will your Investors Make Money? No one (except for your mother) is going to give you money just because they want to see you succeed. Investors need to understand how they will make money off of their investment. Prove to them how your exit strategy will bring a sizeable return on their investment. This will demonstrate that your goals are aligned. You will not get rich off your salary - you could potentially become very wealthy off of your exit, though. Too many entrepreneurs forget to think about how their investors will make a profit. Don't be surprised if there are specific exit conditions written into the shareholders' agreement by outside investors. It is that important to them. Ask for Help Make sure to consult knowledgeable people in your community who have gone through fund raising before. Also, you can use Venture Catalysts to help you 'find' funding. They will either take some equity or cost you some cash, but their contacts and experience will prove invaluable.

Phases of Funding a Company

Before you go out and start raising investment, you need to know how most startups are funded. First, you bootstrap the startup with funding from yourself. Then, go out to your friends and family. This allows you to do market research and refine the solution that you want to bring to the market.You will be expected to develop at least a proof of concept to demonstrate to outside investors that your solution is feasible. The Seed round is typically raised through Angel investors and high-net-worth friends and family. This infusion of capital often occurs when the product is in Beta, you have a few pilot projects, and are looking to begin your sales and marketing drive in earnest. The next major fundraising event is the Series A round, which will be your first MAJOR fund raising campaign. This is typically handled by VCs only and the proceeds should be used to aggressively ramp your sales and marketing and start generating significant (>$1m per annum) revenue. If you run out of your seed money before completing your Series A (which isn't uncommon),you will need to get a bridge round of financing from your Seed round investors. Be sure to start the bridge process well before you are out of funds, as it is a difficult task to raise two separate rounds of financing at once. There are always multiple rounds of financings, so your A round will lead to a B round, which will lead to a C round. Each time you go back for more investment, you will typically lose more control. Also, each time typically brings in more investors (i.e. VCs) and "too many cooks in the kitchen sometimes spoil the broth..." The last phase of a startup is the exit strategy -- how your investors get their money and their profits out. This will either be an M&A activity (mergers & acquisitions), or turning to the public markets, which will provide for liquidity in their investments.

Part III of Roy's series "Where to Get Funding" is coming soon. Or simply visit "Roy's blog!":http://roypereira.com/blog/16/Startup_Success__People__Money_and_Opportunity_(Part_2)

Teching the plunge: Going from a large company to a small one

Trevor Stafford — Mon, 11 Jun 2007 07:00:00 GMT

Part one of a two-part series Read part II of this series: 5 ways to evaluate a small company

Todd DeLaughter, President of Opalis

When Todd DeLaughter told his colleagues he was stepping down as VP of Hewlett-Packard to join Opalis, people were shocked. It didn’t make sense, they said, that he would give up his high-profile position in a global organization to head an unknown, 60-person company.

“Going to a smaller company made people stand up,”—DeLaughter Why did these three accomplished and secure tech professionals roll the dice with a startup? Because they felt that the reward ultimately outweighed the risk. Taking Career from A to B In DeLaughter’s case, the decision to move from Hewlett-Packard to Opalis was inspired by a need for professional development. “[Despite] having run a division in HP as a general manager, I didn’t have CEO experience, I wanted that,” he says. Peter Ng was looking for similar development, the chance to directly and personally impact on a company’s success.

“I wanted an opportunity to help grow, operation-wise, a successful business,”—Peter Ng For Twinney, joining a young organization meant wider responsibility and more creativity. Morning discussions, afternoon decisions Joining a small company can mean stretching yourself personally and professionally. The work is hands-on and ideas turn into action very quickly. DeLaughter loves that he can enter a meeting in the morning, discuss ideas, and see those ideas implemented by the afternoon. “In a larger company, the process takes a lot longer because there’s more analysis. You can’t do that in a small company, because you’ll get killed by [the] competition,” says DeLaughter.

Greg Twinney, VP of Finance at Opalis

“Being in a smaller company, you’re able to create something as you see it, instead of following the footsteps of someone doing the job before,” he says. Often, he adds, this requires you to take on some interesting roles.

“One moment, you’re preparing financial statements for the bank, and the next you’re [putting] the fire extinguisher back on the wall,”—Twinney Ng compares a small company consisting of 10 employees to one with 10,000 employees. “[In a small company] every single person is a stakeholder. Every single person has to roll up their sleeves. If someone’s not pulling their weight, that’s already 10% of the company,” he says. What it takes All three men agree that fast-growing companies aren’t for everyone. “There are certain attributes that you need to have to work in a small environment,” says DeLaughter. One is being responsive to change and the other is comfort with doing work that lies outside of a job title.

Peter Ng

Ng says that the most successful big-to-small transplants operate well outside of that comfort zone, embrace risk, are creative, and have an entrepreneurial spirit.

“You don’t have an army of people to help you. You have to do more with less. You need can-do type of people.” – Ng. DeLaughter adds that increased responsibility means higher and lower emotional swings. “Every deal takes on a heightened importance,” he says. “Every win is a greater win and every loss is a greater loss.” This also means that working for a smaller company requires more energy and hours spent at the office. “There’s more responsibility because you’re part of the steering mechanism of the company,” says Twinney. Looking before you leap Ng, DeLaughter, and Twinney are all can-do type of people, which might explain their personal and professional success. But all three tech professionals say that making the switch to a small company still requires due diligence.

“There are lots of small companies out there that will just stay small,” says DeLaughter. Delaughter suggests prospects look at the market and see if the company has a compelling product. In the end, DeLaughter, Ng and Twinney not only knew what they were getting into, they were eager to do it. The opportunities and challenges in front of them were fresh and promising, and the trails were theirs to blaze. Each of them found not only success, but professional satisfaction. Asked if they’d take that same plunge, all three replied with an unhesitating yes.

The SR&ED tax credit -- H&R Block for startups

Cristina Howorun — Thu, 07 Jun 2007 07:00:00 GMT

To develop new technology is to invite failure. But software companies don't have to absorb every penny spent on discarded prototypes, algorithmic dead ends and hefty research salaries.

Properly claimed, the Scientific Research and Experimental Development (SR & ED) program can give some of those dollars back. Last year, the Canadian Revenue Agency handled more than 18,000 claims and doled out over $3 billion in refunds.

The SR&ED program encourages Canadian businesses to develop or improve products and processes. As long as R&D is conducted in-country, Canadian-controlled private corporations, partnerships and sole proprietorships are eligible for refunds. Applicants can enjoy up to a 68 per cent refund in salaries, 41 per cent on materials and 17 per cent on research-related capital expenditures.

Many startups and medium-sized companies are familiar with the program, in part thanks to the free, monthly how-to sessions hosted by the CRA. But navigating the bureaucratic maze can be onerous, time consuming and confusing. Do-it-yourselfers can expect months of distraction from their primary business.

Jamie Neilson, a senior associate with James Perly Consultants Inc., says most of his clients' claims are valued between $60,000 and $250,000.

What we do is take on the role of detectives. We look for a trail of crumbs, so to speak. Sometimes companies have good records, sometimes they don't," says Neilson. "Our job is to build a case and describe why (the process) was a technical challenge and why it was an uncertainty," he says from his Ottawa office. "A common mistake that people make is having too much pride. In a discovery process a government representative will often ask the project manager or engineer if they knew their particular process would work."

Neilson, who handles about three claims a month, explains. "A lot of times, these people will puff out their chests and say, 'yes, of course.' Well, that's not the answer they want to hear." Through preparation and coaching, consultants can help make sure that pride doesn't come at the expense of profits.

Feeding your employees a slice of humble pie may help them celebrate technical failures, but changing the way company's owners get paid will be anything but a cake-walk.

When it comes to payday, many owners choose to cash in only when the going is good, taking their pay straight from the company's coffers. Sacrificing a cheque for the good of the company may seem like good financial sense, but it could end up costing you thousands of dollars.

Martha Oner, OME Group Consultants

According to Martha Oner, business development manager with OME Group Consultants, employees that own more than 10 per cent of the company should get regular paycheques and T4 slips in order to secure refunds on labour dollars. "Random monthly draws, amounts based on quarterly profits or T4As are not eligible expenses for the SR & ED program and will end up being excluded from the SR & ED pot."

A consultant can help you to track down the specific time these employees spend on eligible work, giving you more time to concentrate on your business.

Consultants can also unlock expenses that are often overlooked, such as overhead costs. "Proxy method is used when salaries are large for directly engaged employees and there has been little time spend on support activities," Oner explains.

Neilson uses the example of a software engineer who spends all their time engaged in SR & ED work, at a salary of $100,000 a year. The engineer needs an office, computer and phone, all of which can qualify for refunds with a skilled consultant. "It could work out that the $100,000 salary of someone who works in research and development gets bumped up by 65 per cent. So, it becomes $165,000 that's now eligible for your tax credit," explains Neilson. But SR & ED claims for overhead expenses don't have to be immediately tied into your work. "A traditional method (of overhead calculation) should be used if significant work relating to SR & ED projects has been done in the areas of long-term forecasting, HR staffing, contract administration, technical training and clerical support of SR&ED projects," adds Oner, whose company processes around 300 claims a year.

Andrew Muroff, COO of Toronto-based 80/20 Solutions received $32,000 -- 100 per cent of his first claim- in 2005, with OME's help. "We tried to keep our books up-to-date, but in terms of tracking time spent on SR & ED tasks, we weren't very specific," he says. 80/20, which develops platforms for interactive marketing, now tracks the work of their employees with SR & ED claims in mind and Muroff says filing his 2006 claim was much easier.

Even so, Muroff isn't quite ready to go it alone. "We learned a lot about what's applicable and how to track time spent," he explains. "But any company should use a consulting group for their first few times. There's a lot of technicalities and I think the professionals know how to handle it best." New development and research will always court failure, but they don't have to wed a startup to bankruptcy.

The Sandvine way

Scott Valentine — Mon, 07 May 2007 07:00:00 GMT

On August 31, 2001 – eleven days before 9/11 and fresh on the heels of dot-bom; Sandvine Inc. opened its doors for business. They had no product, no business plan, and the entire staff was hung over. We'd had a little BBQ the night before to kick things off, says Dave Caputo, President and CEO of Sandvine. "It may have been 10 or 11 a.m. before anyone made it in to work." The 30 people that did show up for work may have been bleary-eyed, but their long-term vision was crystal clear: create a winning product and a successful company. "We just said, Here's a group of smart people. We don't know what we're going to do but we need money. And we got it," recalls Siim, Sandvine's COO and vice-president of engineering. Sandvine's genesis is rare if not unique among Canadian startups - a talented collection of people with a track record of success brought together to invent a commercial product. In 2001, even major companies with sexy product suites and established clientele were having trouble raising capital. But Caputo, Brad Siim and a handful of other dot-com survivors had something a lot of the "old school" dot-com-ers didn't have. Each other. "It probably helped that we were all coming from good places," says Caputo. That investors had faith in Sandvine's team is evident in the $19.5 million in startup money they were able to raise in the middle of an investment dark age. SANDVINE'S TECH PEDIGREE Sandvine was founded by the same management team that had founded Pixstream in 1997 and sold it to Cisco for more than half-a-billion. A few months after the deal was done, the dot-com bubble burst and Cisco had its first quarterly loss in company history. Seemingly moments later, the Pixstream operating unit was shut down.

Dave Caputo, Sandvine Co-Founder and CEO

"It was like we had gone from the best of times to the worst of times almost overnight," says Caputo. "But we also saw that the tech crash had created a huge pool of talented people that all of a sudden had some time on their hands." So, Sandvine's founders reached out to their peers in the tech world and secured commitments from about 30 people with several hundred years of collective experience and success between them. "Getting the money was pretty easy after that," says Caputo. "These people had made a lot of money for a lot of people, so investors were amenable to keeping the team together." MARKET ANALYSIS AND PRODUCT MANAGEMENT 101 Sandvine's success is a case study in analyzing an emerging market and building a product to capitalize on it. Because there was no product the core team was able to operate exclusively in the realm of opportunity. "We split everyone into four teams and asked each time to focus on a potential product area," says Caputo. "They spoke to industry analysts, engineers, customers, other founders . . . really, they just got out there and dug around." The teams gathered once a week to exchange findings and zero-in on opportunities. Everyone learned from what everyone else was doing and ideas pulled forward from one area began to feed in to another. Eventually, one course of inquiry was discarded and the four teams became three. "And then there were two, and then there was one and that team became Sandvine," says Caputo. A SOLUTION FOR BROADBAND PROVIDERS Today, Sandvine's solution puts an intelligence layer across the networks of broadband Internet providers, helping them identify bottlenecks, improve efficiency and apply actions and policies to traffic management. "User experience goes up, operating costs go down, the network is more secure, and there's a better opportunity for the ISP to deliver services the consumer actually wants," says Caputo. Sandvine thinks there is a better and more profitable way for broadband providers to manage and scale their services: stop worrying about building out what you have and focus on delivering a quality user experience. "Multimedia downloads and such create big network packets," says Caputo. "Users don't want to know what it takes to deliver them to their desktop or what-have-you. they just want to watch a video or play an online game that's smooth and doesn't freeze up on them." Full screen shot here "The typical approach [for broadband providers] is to throw more bandwidth at it," says Caputo. "But the problem isn't about having a big enough channel to deliver through. It's about optimizing packet delivery in a way that gels with user preference and experience." Sandvine makes existing networks more efficient, reducing build-out expenses. According to Caputo, that means lower capital equipment costs, more intelligent traffic management and - key to the future of broadband service providers - superior customer retention. "People don't really switch broadband providers much yet," says Siim. "The mentality is that a broadband connection is a fragile thing and people are kind of afraid to touch it." Think: circa mid 1990's when the long distance market de-regulated. At first, consumers were hesitant to make a change. But within a matter of a few years, billions of dollars in consumer services shifted hands. "The highest correlation to profitability in the consumer facing portion of the tech world is churn," says Caputo. "I'm here to tell you that pretty soon broadband is going to be no more complex to the consumer than any plug and play function. When that happens, the quality of experience is going to be the biggest driver of customer churn." "People's kids are going to go to them and say, 'Hey, all my friends have way better connections to play Halo 2 . . . you pay for the change and I'll take care of hooking up the little box.'" THE PAYOFF

Brad Siim, Co-Founder, COO, VP-Eng, Sandvine

Nearly six years down the line, the human-centric experiment in company-building that defines The Sandvine Way has paid off in spades for investors. Today, Sandvine is a profitable company with a market cap approaching the $600 million mark. Almost the entire original group of 30 is still with the company and Sandvine now employs nearly 200 people. In April of 2007, Canadian Business Magazine named Sandvine as one of the Top-50 Great Places to Work in Canada, recognizing the company's unique approach to building a fun and productive environment for employees. It might have been luck, or the benefit of good historical relationships with investors that helped get the company rolling, but it is unquestionably the culture of Sandvine that continues to define the company today. "I don't know that it would be possible to replicate a lot of what we did when the company was first started," says Caputo. "The investment market isn't all that friendly to the idea of simply putting money into people." But, six years and a complete re-shifting of the technology investment market later, "The Sandvine Way" - as unique as the company's story may be - seems to have worked. "It's not that hard," says Siim. "Hire intelligent, creative, kickass people. You shouldn't care about what language they know or whether you have a position that's right for them." "Get a team together and the rest will play itself out."

Great expectations then; deflated now

Rohan Jayasekera — Fri, 12 Jan 2007 05:00:00 GMT

On Wednesday I attended the "Toronto Venture Group's":http://tvg.org/ monthly breakfast talk. "Mark Evans":http://www.markevanstech.com/ of "b5media":http://www.b5media.com/ spoke on the topic "Two Solitudes: The real differences between running an Internet start-up now and during the dot-com boom.":http://markevanstech.com/?p=1971 You can see the posts linked to by Mark for summaries, as well as "one by Tom Purves,":http://www.thomaspurves.com/2006/12/13/getting-behind-b5-media/ but I'd like to focus on the phrase that Mark emphasized: It's all about the chairs. The chairs he refers to are those used by the typical startup during the two periods: thousand-dollar Aeron chairs then, cheap but acceptable ones now They symbolize the respectively free-spending and frugal ways. Why the change? Since the tanking of the market for tech stocks starting in 2000, the expectations of riches and the accompanying appetite for risk have been greatly diminished. But that doesn't fully explain it, not with the skyrocketing price of Google stock and the sale of YouTube for US$1.65 billion. Part of the answer is that costs are much lower now (for a number of reasons). But that can't be the whole story, because lower costs imply higher profits, not lower. I think the key difference is that the Web 2.0 startups expect much smaller revenues than the dot-coms did, and have set their expectations of potential wealth accordingly. An Entrepreneur 2.0 probably wouldn't mind getting rich by selling the company, but doesn't see the probability of that as particularly high. So spending is kept low in order to keep the business going, and these people are very smart at doing that. Mark spoke of how at b5media they use Skype to avoid paying significant long-distance telephone charges, and how they work from home to avoid paying for office space - something that they can do effectively because I'm sure they use the Internet to its fullest advantage for online collaboration etc. In addition to having a frontier spirit, Web 2.0 entrepreneurs are those most capable of using Web 2.0 tools to keep costs minimal, and those most willing to help work out the bugs. Methods they use now that turn out to work effectively will be copied by companies in other industries to cut their own costs. And when costs decrease in any competitive industry, so do prices. "Deflation 2.0(tm).":http://www.rohanjayasekera.com/blog/2006/12/deflation-20.html

Closed door, glass ceiling

Paddy Kamen — Tue, 09 Jan 2007 08:00:00 GMT

There’s a gender imbalance in the software industry, where the majority of employees at every level are male. This lopsided HR equation means many firms are losing out in a big way. Women bring diversity of thought into male dominated workplaces, the ability to multi-task and a listening style of leadership, say the female startup execs Red Canary spoke with. While only one reported encountering a significant barrier to personal advancement, all confirm that those barriers exist. Women make up only 27.4 per cent of the total IT workforce and only 13 per cent of software engineers. Given the numbers entering the education system, overall female representation may not increase anytime soon. While female enrollment in mathematics, computer science and engineering rose 20 per cent from 1997-2000, more recent numbers are down. In 2004, when Canadian universities recorded their strongest enrollment increase in 28 years, the number of women in IT-related programs dropped 6.1 per cent.

Cindy Gordon of
Helix Commerce
International

Cindy Gordon is CEO and founder of Helix Commerce International, a Toronto-based consulting boutique that helps clients accelerate growth. She is alarmed by the statistics. “Women’s participation in the IT sector is decreasing,” she notes. “And in Canadian business overall, fewer than 30 per cent of companies have women directors on their boards and far fewer than 10 per cent have female CEOs. In addition, less than one per cent of venture capital goes to women.” Gordon notes that CEOs invariably say that women work harder than men. “Why then are there so few companies founded by women that have achieved $500 million in revenue? I have to think hard to name even a couple of role models at that level.”

"Women still feel they are not being listened to. They put ideas out and they’re ignored until a male picks them up and then everyone’s onside. I see this happen all the time." – Cindy Gordon, CEO, Helix

A Venture Capitalist’s View Jacqui Murphy agrees that women in start-ups are few and far between. The vice president of Tech Capital Partners, a venture capital firm in Waterloo, Jacqui has been a start-up executive and taught business to university undergrads. “Women congregate in administration and marketing, with very few in engineering and management. But to some extent it also depends on the company’s size and orientation. Those with a more commercial focus, like RIM, employ more women, whereas businesses at the developmental stage employ fewer.”

Jacqui Murphy
Tech Capital
Partners

Murphy says the start-up environment is difficult for women with young families. “It’s very demanding from a time perspective and so are young children. Most of the people in start-ups are aged 25-40 and that’s when women have children, so they may not want such time-intensive jobs. Having said that, the women I’ve worked with have overcome these challenges and are phenomenal.”

A Corporate Ceiling To what extent does corporate culture create roadblocks to women’s advancement? Cindy Gordon finds that if a company’s male senior executives have working wives there are fewer barriers. “But if you have an executive suite full of men whose wives are not working outside the home, they don’t push their female employees along the career path like they do with men.” Sharon Barnes was a project manager in the software industry, working for a European-owned company for several years. Now the founder and CEO of Rfind Systems, a company that provides radio frequency ID solutions for industrial clients, Barnes says women can have trouble advancing into upper management in European-owned firms. “I’m not the type of person who will fight with an entrenched management team. I’ll simply leave and go somewhere more progressive. If an executive team isn’t willing to promote women, you can spend a lot of time and effort trying to change minds without advancing yourself, and that can harm your self-esteem.” The Better Selling Sex? Some people prefer to hire women. Christine Tutssel has sold software for 23 years. Now director of sales for Covarity Inc., Tutssel, “Will hire a woman over a man any day, and so will the men who have hired me in the past.” “Women come with innate tools that are well suited to the sales role. You can teach an industry and process but you cannot teach people to be motivated or to multi-task. Even listening skills are very difficult to teach.” In contrast to other areas of the industry, Tutssel says women are entering software sales in increased numbers. Keeping talented women Once hired, retaining good women can be a challenge, says Jacqui Murphy. “If women want children and their work environment makes that difficult, they may take less challenging jobs. A lot of my really talented female peers have left the workforce entirely for that reason.”

"I’ve never felt at a disadvantage to a man. Sales is all about results. Being able to juggle a number of things is a female trait and good sales people have to be able to do this to keep the pipeline full and bring results across the line." – Christine Tutssel, director of sales, Covarity Inc.

When Tech Capital offered Murphy her job, they knew she was six months’ pregnant. “Here I can work flex hours and telecommute,” she says. “The people who support women in these professions reap the rewards because there is nothing like having an incredibly committed and efficient woman in the company.” Looking for more? Read about the harsdhips and ultimate success of startup founder Sofia Passova here.