Wednesday, May 28, 2008

Where Do Old VCs Go?

A while back I speculated on the activities of Mclean Watson, once one of Toronto's more active VC funds. The partners had been involved in the formation of a capital pool company and, I speculated, would be using the public markets to generate some near-term high risk returns.

Sure enough, last week Echelon announced that it had entered into a letter of intent to enter into a "qualifying transaction" with MBVax Bioscience. If the transaction is completed, Echelon holders will have the benefit of a private to public "lift" in the price of their original shares plus whatever market value MBVax can generate in the markets. We're seeing more and more high risk investors use the capital pool company program to create a quasi-venture capital portfolio with later stage companies like this. Interesting times.

Why Does Brad Feld Make Me Heave?

Lately, I’ve been spending some time trying to have it all. And by “all”, I mean personal and professional happiness, PLUS smaller hips. Between the ten pounds I added to my frame during my start-up years, the additional weight from my stint as a VC, and the advance of age, I am thisclose to becoming SpongeBob Squarelawyer.

So I’ve taken up running. I’ve even hired someone to coach me through it (I can’t bring myself to call him a “trainer”, since that would imply I am a seal, yet another mammal with no discernable waist). He has that beatific smile that really healthy people have, and he likes to chat about organic food and appropriate sources of breakfast protein while we’re chugging through the neighbourhood. I think I hate him.

Two weeks into this, and I’ve concluded that running is not a natural state of being. Stuff jiggles, for one thing. I can deal with this, since as a woman, my stuff is pretty well anchored to my body. The situation seems far more tenuous for men. Really, I don't know how you fellows get around with those things.

But it’s the monotony of running that’s killing me. Where’s the state of enlightenment that is supposed to occur when endorphins are released?

To get through it, I’ve adopted my own internal mantra to deal. For reasons I can’t explain, repeating ”Brad Feld. Brad Feld. Brad Feld” helps me keep running until I can’t go any farther without dry-heaving. Odd, but true.

Why Brad Feld? Maybe it’s because two of my favourite colleagues have recently relocated to Denver. Or maybe it’s because the question what makes a good regional VC, and whether there’s a lucrative role for regional VCs in the evolving North American ecosystem, is a hot topic here in Ontario. Who's to say? All I know is, invoking the Feld appears to have mystical aerobic properties. Try it during your next set of squats and see if I'm not right.

Back to business tomorrow.

Monday, May 26, 2008

Doing Well and Doing Good

My favourite Guelph start-up, is raising money for womens' shelters by selling some of my company's beauty products. You can read more about it on Ali's blog here, or you can go to directly and support the cause.

Wednesday, May 21, 2008

Is There a Case for Canadian Venture Capital?

I did a guest post for the Canadian Venture Capital Association blog entitled “The Case for Canadian Venture Capital” which you can check out here. Now that I think about it, it probably would have been more accurate to name the piece “Canadian VCs: Wake UP, Already!”

In the last 18 months, the quality of entrepreneurs and business plans coming through our office doors is better than it’s ever been, and I don’t think that’s because we got a new espresso machine. Rather, I think it’s a sign that the community’s grassroots efforts to support itself have paid off in spades.

But while the Canadian start-up scene has exploded, its relationship to the venture capital community has continued to steadily implode. In Canada today, there is little connection between company creation and venture capital. Why?

It’s not just a reflection of the shrinking number of VC funds (although this doesn’t help). It’s also a matter of VC business strategy. Many VCs will tell you that their job is to deploy capital, not to support the entire startup community. They cannot monetize spending significant portions of time with entrepreneurs and companies that may never need their money. Fair enough, in one sense. In another, it represents a huge lost opportunity.

Many Canadian VCs believe that a portfolio of both Canadian and American investments is necessary in order to achieve a decent return to their limited partners. However, accessing deal flow in the US remains a challenge for many.

By contrast, Canadian entrepreneurs are doing a terrific job networking south of the border, creating connections with other startup communities. They are a potentially a terrific source of deal flow for Canadian VCs. Am I connecting the dots here?

As a startup community, I don’t believe we can create sustainable momentum unless we make a conscious choice to buy local when we can. If we become a community funded by angel and venture capital tourists, then we become a community that allows the profits and returns from our efforts to accrue outside our own economy. I wish it were as simple as simply choosing to include local money in any round of funding, but I think there are several baby steps that need to be considered. Is there a way to jointly market VC and startup abroad? Food for thought.

Friday, May 16, 2008

Start-Up Overtime: To Pay, Or Not To Pay?

I keep a running list on my desk of issues to watch. (I know, I know: it’s a pathetic substitute for a hobby. Maybe I should give Sudoku another shot.) Near the top of the list for the last two years has been this note: “watch for class action lawsuit against successful start-ups (and possibly VCs) for unpaid overtime.” Despite the well-publicized lawsuits by bank teller and others, high tech companies in Ontario largely remain in denial about the fact that laws regarding overtime apply to them.

Generally speaking, in Canada overtime is payable at a rate of time and a half for each hour worked in excess of 40-48 per week (depending on the province). This standard does not apply if you are in an exempt category, or in a category for which special rules apply. Here’s where it gets tricky.

In Ontario, the Employment Standards Act is full of special exempt categories. My friend and labour law god Dan McKeown likens the Act to “a big old Victorian house with lots of tiny little rooms.” One such tiny little room is a category called “information technology professionals…[who] work on information systems based on computers and related technology.” In other words, IT help desk and other support people.

Many high tech companies in Ontario are dancing on the head of the “IT professionals” pin and applying it to all of their personnel – code developers, product support, engineering etc. Another technique is to provide most staff with the appearance of a managerial or supervisory role (both of which also are exempt from overtime). It’s not clear to me that either is a good defense to a claim for overtime.

The situation in Ontario differs in British Columbia, where the province has decided, as a policy matter, to create a broad exemption from overtime for “high tech professionals” which would include workers other than IT support. A few years ago, CATA and other groups lobbied for Ontario to adopt a similar change, in order to create a business friendly high tech environment. That appeal has gone unanswered.

Where does that leave Ontario high tech? Larger public companies have, for the most part, have either mandated that there will be no overtime, or acknowledged overtime and, to manage cash flow, indicated that overtime is to be taken as vacation pay. Of course, nothing helps enlightenment like a class action suit; in 2006 a US-wide class-action suit was launched against IBM by its high tech staff, which encouraged IBM and others to address the issue.

But for many start-ups and VC-backed businesses, the issue appears largely unaddressed. As a company scales, this can become a ticking time bomb. There are a number of ways to address the matter early and often. Want information? Give us a call, or come to our workshop on offers May 26.

Tuesday, May 13, 2008

Capital Rants

In preparation for its annual summit, the Canadian Venture Capital Association has launched its own blog, Capital Rants. The blog is designed to be "a showcase of Canada's best and brightest on the good, the bad, and the ugly of Private Equity & Venture Capitalism." I've been tapped to do a few guest posts, and I'm looking forward to seeing what other guest bloggers put up - should be an interesting peek into the VC side of the industry. Check it out.

Sunday, May 11, 2008

Blackberry/JLA Fund

Interesting post over at Techvibes about a possible $150 million fund backed by RIM, RBC and Thomson Reuters that would invest in mobile applications, including applications that would drive Blackberry adoption. Apparently an announcement was posted, then retracted by Venture Beat, in which JLA Ventures was named as co-manager for the fund. YOu can also read about it over at Techcrunch. Could this be the new fund hinted at Friday by the folks at Wellington Fund?

Read all about it at Rick Segal's blog. This may be the canniest move yet in Canadian venture capital.

When to Invest Vs. When to Help

A few weeks ago, I auditioned to be one of the new dragons on CBC’s Dragon’s Den. Now, before any of you purists judge me, let me just say: (a) they called and asked nicely; (b) lunch was provided; and (c) I got fake eyelashes in the bargain. Let him who is without skimpy lashes cast the first stone.

The audition was run like an actual episode, which is where things got interesting. There was one pitch in particular that even now, weeks later, stays with me. If you unpacked the pitch from its elevator formula, it became clear that what the person wanted wasn’t a cash investment but, simply, help in realizing a particular dream. Unfortunately, we as a panel were too busy trying to establish our investor chops; we dismissed the pitch for fairly cursory business reasons. Looking back, I think we missed the point entirely: as an investor, what do you do when someone asks for help, not money?

It’s a question that, as lawyers, my partners and I often ask. How much should we do for X business or Y entrepreneur, if we cannot monetize the effort? We don’t have a good answer; we just know that there are some ideas that are so compelling that they need to be served, even if they seem likely to fail. This is a sentiment we’ve heard time and again from our colleagues in California and Boston, too, and I’ve come to think of this as a fundamental part of the soul of any entrepreneurial community. Have you helped tilt at a windmill today?

Thursday, May 01, 2008

Startup Employment Agreements: What Are You People Signing?

In the current environment, where VC-led early stage deals are scarce, it can be hard to find benchmarks to help you assess employment offers you may receive. But that's no excuse for signing any darn thing an investor puts in front of you. Some of you continue to sign agreements that seem unreasonable on the assumption that certain clauses won't be enforceable down the road. This is a deeply flawed strategy, unless you live in France. But of course, if you lived in France you would not be reading this; most likely, you are off on yet another nationally-legislated holiday, n'est-ce pas?

You and your investors should share a mutual goal of designing an employment offer that will retain you for as long as the business needs you and protects your stake in the business you've created when (and if) it's time for you to leave. That's it.

So here's what we're going to do: May 26, if you're in Toronto, come on by for lunch and we'll take you through OFFERS 101 - how to draft them (if you're a start-up employer), how to negotiate them (if you're an employee), and how to blunt the impact of terms when one party won't budge. Send me a note if you're interested and I'll provide details (time, room) later.

More employment rants to follow here.