Wednesday, April 29, 2009

Growthworks Down-Sizes?

..rumours abound this morning of layoffs in the Growthworks team in town. Stay tuned.

Monday, April 27, 2009

Digital Media Gems

Rob Tercek was one of the nicest guys you could meet at Williams. Years later, he has become one of the gurus of digital content, starting in the space when it was a theory and rising to his present position (since late 2008) as President of Digital Media for the Oprah Winfrey Network. His blog, which has gone quiet these last few months, is a terrific resource on Social Media and Content, from the unique point of view of someone from the world of branded entertainment programming and the personal development market (an $11 billion market in the US alone). I recommend you it check out here.

Tuesday, April 21, 2009

Toronto Events: CEO Roundtable

Attention CEOS: the Ivey School of Business will be hosting another event in its CEO Roundtable Series on May 14 at the National Club, Toronto. The topic? "Excelling in Recessionary Times: How Private Equity Creates Value for Business Owners". Speakers include Bill Wignall (Truition),Sacha Guy (McKinsey & Company) and Ron Close.

It's a closed event for CEOS only, and I recommend you contact the folks to ensure a seat. The event is sponsored by Loewen & Partners, whose principals include the esteemed Jacoline Loewen, author of Money Magnet, and a snappy dresser to boot.

TO RSVP, phone (416) 961-0740 and ask for Anastassia Kobeleva.

Thursday, April 16, 2009

Going Outside of Your Comfort Zone

There's lots of rhetoric out there about how in the current economic conditions we should all take risks, embrace failure and, as entrepreneurs, go outside of our comfort zone. Sometimes I think that this is an inspirational message. Then, I see something like THIS:

This is what happens when Brooks Brothers went outside of its comfort zone, and kept going. It's an ensemble from Brooks Brothers' Black Fleece spring collection. The Black Fleece label was created by the traditional clothier to help it capture the more avant-garde men's market. Every season for the last 2-3 years, Brooks Brothers has invited designers like Tom Ford to re-think the Brooks Brothers esthetic under the Black Fleece label. So far, once they've done their damage, no designer has returned.

Maybe fashion is a good metaphor for innovation. Is your latest idea one that will wear well? How would it look on, say, Jason Calcanis or Terry Matthews? Like an Armani tux? Or, like this:

Wednesday, April 15, 2009

Another Dear John (Wilkinson) Letter

Dear John,

I know you don’t like it when I call you at the office, but you don’t seem to return my calls or emails, and, well, I’m beginning to think that you don’t care. We need to talk. About us.

And by “us,” I mean you, me and Ontario’s entrepreneurs. We understand why you’ve been busy with all those VCs and university and hospital researchers. I mean, they prance around you in their pretty white lab coats and their black investor-style mock turtlenecks, talking about genome projects and the loss of future generations of entrepreneurs and investors. What man wouldn’t be distracted?

But you need to turn away from all these fancy promises of future job creation and focus on our needs: the retention of innovation economy jobs that exist today. After all, where have these researchers and investors been when you needed someone to cook your dinners and create jobs for the innovation economy? And when you couldn’t find your socks before the Budget Speech, or VCs who could access the Venture Fund you set up for them, who was there for you, bootstrapping like mad to launch companies to boost your statistics about Ontario’s high tech clusters? We were, and now we want a little respect.

Come July, when the Emerging Technologies Fund is activated, we want you to ensure that investment funds are deployed to match investments in innovation businesses that are made not just by VCs, but by a broad range of others. Let’s face it - until the OVCF deploys more capital, and other VC limited partners ante up alongside them, there just aren’t going to be many VCs with money that, come July will be able to co-invest with ETF, anyhow.

Which means you need to consider whose investments you’ll match. This all turns on who you decide is an “eligible private sector investor.” For example, how do you determine what individual investors trigger matching funds? There is no accepted definition of “angel” nor should we try to craft one now. What if family and friends want to top up an investment offer made by an “eligible private sector investor” – will their funds also be matched by the fund? You want suggested wording for the guidelines? You know all you need to do is ask.

We know you’re concerned about how the Ontario taxpayers will be repaid, and we think that we’ve got you covered. Most investment terms include a right for investors to sell (or “put”) their shares to the Company after a period of time (usually 7 years) has lapsed without a sale or IPO. Which means that, we can ensure the taxpayer is repaid if we don't try and sell or publicly trade our shares (and right now, most innovation companies won't). You need specifics? We can provide them.

We know we haven’t got flashy labs or enhanced portfolios like some of the people you’ve been hanging out with. We’re not asking you to give them up; after all,we’re not ready for a permanent commitment, either. All we want is a little respect. And maybe flowers on our birthday (coincidentally, we were all born Nov. 28).

Tuesday, April 14, 2009

Entrust Goes Private: More Commentary

Those of you considering your own exits(or acquisitions) need to take a look at this evaluation of the Entrust/Thoma Bravo deal in the New York Times.

The Entrust agreement signals a shift away from deals that can be terminated because of a broad range of "material adverse changes." A year ago or more, a buyer would have retained significant rights in a deal like this to walk away before closing for any reason, with little obligation other than to pay a termination fee.

Fast forward to today and it appears that the leverage has shifted to the seller. As the NYT notes, the Entrust deal appears locked in: unless certain minimum working capital requirements are not met, Thoma Bravo has very little ability to terminate the deal. There are 16 carve outs from a formerly typical "mac" clause.

Further, the acquisition agreement (filed yesterday with the SEC) gives Entrust astonishingly broad rights to force the transaction to completion. Entrust can sue Thoma Bravo directly and even force it to complete the transaction. In addition, "Entrust [has the right]to sue for the economic benefit of the transaction if specific performance was unavailable — a way to ensure that Entrust shareholders can receive the share premium in a deal dispute".Entrust's obligations to Thoma Bravo if its shareholders reject the offer? Small; Entrust must reimburse fees and expenses up to $1 million.

Contrast this with BCE's deal, and you'll see the shift.

Check out the rest of the post to get a great review of changes to "MAC" clauses sellers are successfully negotiating.

Return of the Heavyweight Entrepreneurs, Part IV: Cignias

The telecom start-up has returned to Toronto with the quiet launch of our client, Cignias.

Cignias includes a star founding team (some ex-Vixs, another local start-up), which has managed to bootstrap to create working prototypes of their first solutions, the NAO™ docking station and the NAO™suite of applications. NAO "will allow users to truly manage the control and distribution of their multimedia content from anywhere. Functions such as wirelessly controlling the playback of the music on their phone on the NAO™ docking station or wirelessly sending pictures to your NAO™ digital photo frame from anywhere in the world instantly."

Here's yet another example of a start-up that has launched and created jobs and made its first inroads in the market on its own steam.

Monday, April 13, 2009

Entrust Goes Private with Thoma Bravo

This morning former Nortel spinout Entrust announced its agreement to be purchased by Chicago-based Thoma Bravo, a private equity firm that specializes in acquiring and consolidating public and private software companies. It is not yet clear whether Entrust will be the consolidation platform for other Thoma Bravo targets in the security sector, or whether it will be rolled into another TB portfolio company. Entrust has been an Ottawa staple for years and its alumni have gone on to found other companies, including Ottawa's Third Brigade.

This kind of private equity investment makes me happy, as it is based on the theory that value can be built through consolidation (versus the theory that value can be extracted by breaking up the assets of a business and selling them). It's the kind of exit that can give investors and founders some significant upside despite a sterile public market.

Thoma Bravo is not the only PE player nosing around Canadian companies with more than $50 million in sales - stay tuned.

Thursday, April 09, 2009

Pay No Attention to the VC Behind the Curtains: Focus on the Emerging Technologies Fund Instead

What with all the twit-slapping and bloggering that’s been going on in the last week, I’ve ducked my head and avoided any discussion of venture capital here in Canada. If I had time, I’d probably point to the email I received from a US investor saying “THIS is why I don’t like having local VC partners” and note that the dialogue generally has not been that productive from a marketing perspective. I may even suggest that this is no time to man up, but a perfect time to man DOWN.

But I figure, my job is to sort out what’s relevant for my clients, who are mostly entrepreneurs. So I ask you now to turn away from the carnage and pay attention:

Here’s what you need to focus on: the as-yet unpublished guidelines for getting matching investment money from Ontario’s Emerging Technology Funds (“ETF”). The guidelines, which the Minister of Research and Innovation (the MRI) says will be available in June, will tell us what kind of investment will qualify for additional funds from the ETF.

Since the ETF was announced March 18, little has been made known beyond the fact that the fund would invest $50 million a year for the next 5 years alongside “qualified venture capital funds and private sector investors”. You should care, and care strongly about how John Wilkinson and his team decide to define these terms in the next few weeks.

Why? On the one hand, if the MRI decides that “qualified private sector investors” means any investor who is considered “accredited” under Ontario securities laws, then the availability of this matching funding becomes a meaningful thing for many Ontario companies.

If, however, ETF funds are available only to a smaller group –perhaps only investments made by VCs, and/or angel groups, then that’s another matter altogether. It’s great news for those portfolio companies who have been stranded by their current VC backers’ low cash reserves(although, note to VCs: what are the guidelines going to say about the terms of the follow-on financings you want to put into your current portfolio? I’d watch closely). But it would have catastrophic consequences for those who’ve managed to bootstrap, create jobs, and innovate outside of the venture capital model of investment. Need some examples?

Example 1: Company A is a digital media tech business which has been in existence for two years. It has managed to build product, file patent applications, create jobs for 20 employees and attract its first set of paying customers, all based on the bootstrapping and personal funding of its own founders. In order to ramp up operations and continue development, its owners need additional money. It can raise some from a local angel, and the founders may put more of their own money in, but there will still be a shortfall in the amount needed to truly expand operations. If ETF money matched both angel and founder money, then the Company could continue growth without cutbacks.

Example 2: Company B is an IT solutions company that has been around for two years and has hit every development and revenue milestone its investors (angels, friends and family) have set. Some local VCs have suggested investment to further growth, but on terms that would effectively wipe out the stake of their current backers. Instead, the Company is electing to raise part funds from its current team of angels and founders on terms that preserve the upside for its original backers,and possibly take the business to break even. Should a company which has proven innovation be forced to accept onerous financing terms in order to qualify for matching funds?

Now, there is an argument that ETF should not hand out its money unless it is on market terms, or it will create a portfolio of government investments that have issues with later-stage investment. But that’s NOT the announced purpose of the ETF: job retention and job creation are. Here’s what John Wilkinson said:

The Emerging Technologies Fund supports the kind of investment that drives innovation, secures jobs today, and creates jobs tomorrow. We’re committed to supporting clean tech and other emerging technology companies in Ontario.”

I don’t see anything in here that suggests the purpose of the ETF is to create only good candidates for venture capital investment in the future. No question, there are some that will emerge as a result of this initiative, but they are not the ETF's sole raison d’etre.

Nor should there be. Ontario’s innovation economy is not made up of businesses that will ultimately be attractive to VCs. Venture capital invests in disruptive innovation (high risk, high reward). Incremental innovations, innovations that will create companies of $30 million or less in revenues – those are generally outside the VC model, and they form the majority of emerging high tech and clean tech businesses in this province. In fact, in the last two years, most of the province’s most promising entrepreneurs have designed and built emerging businesses specifically so they will not need to access venture capital that has not been there. If the provincial government is serious about preserving the current generation of entrepreneurs, then it needs to make sure that those who are in the market today can access ETF funds.

So what do you need to do? This is an entrepreneur’s issue, not a CVCA, MARs or anyone else's issue. You need to advocate yourselves, and to do it now. Go to the MRI website and send an email (there’s a handy contact form) that gives your thoughts. Ask for more insight (and an opportunity to comment) on the guidelines before they are put into place. Send your lawyers flowers and chocolates and get them to do it for you, if you haven’t the time (although really, it’s something you should do yourself.

You've bootstrapped yourselves this far - don't let your company get locked out of this lifeline.

Tuesday, April 07, 2009

New Entrepreneurs: Agent Invitation

And in the category of really smart guys building slick services for industries they understand, check out newly-launched Agent Invitation here. Read the blog and you'll understand the point of pain, the business case, and the customer appeal, all in one post. If only my blogs could do the same......

Return of the Heavyweight Entrepreneurs, Part III: Rypple

For the last 1 - 2 years our firm has been seeing lots of heavyweights return to the market. When I refer to "heavyweights", I'm referring to entrepreneurs who previously led start-ups that had stupendous, home-run sized exits. You'll see some of them mentioned in Part I and II of this series, and it's time to add our clients Rypple to the talley.

Dan Debow and David Stein were part of the Workbrain founding core. In the last 18 months, they have managed to put together a great team, a great beta, build buzz, and attract money from Edgestone and high net worth individuals that include the founder of PayPal, Office Tiger, among others.

You can read more about them at their web site. Why should you monitor their progress? Because repeat founders with a huge return to investors on their resume are an important attraction of outside capital to Ontario - they're a must-have building block for the rest of us. Go team!

Wednesday, April 01, 2009

Nortel Severance Package - Enhanced for Ebay

There are only 3 days left to bid on a wonderful Nortel "enhanced" severance package (eBay item 180340590158). I know others have blogged about it, but I love it so, I must give it the space it deserves. Here are my favourite excerpts from the auction description:

"...This package includes the following items collected largely from Nortel over 17 years of service (subject to change depending on expected Grinch-like behavior from former management; like items will be substituted if reclamation occurs)....

A box. This sturdy 16”x12”x8” box was at one time filled with dreams and unrealized potential. Just like me, you can use this to clear out your personal belongings in 4 hours or less, and later to store mounting unpaid bills as you search for employment in this vibrant economy. In a pinch, you can put it over your head to keep off rain, make “will work for food” signage, or kindle fires in trash bins in back alleys to keep your hands toasty warm. The possibilities are endless. Truly Business Made Simple....

Business Made Simple, Pride In Wireless / The 3+ Club, and “>THIS IS THE WAY >THIS IS NORTEL” mouse pads. ..... First pad features the clever industry catch-phrase ‘hyperconnectivity’, a disease that hopefully will be eradicated in our lifetime.

5 year service coin clock... Unlike our executives, this Birks collectible features hands that do meaningful work. While the hands unfortunately will not wave wildly and seemingly uncontrollably like a certain CEO during employee updates or earnings reports, the upside is that if you were to somehow shake them, you wouldn’t have to wash your hands immediately afterwards either. ......

Nortel Severed Employee’s Enhanced Healthcare package. Everything you’ll need to keep you and your family fit as a fiddle until you can get denied for pre-existing conditions when you do find gainful employment years from now. Contains 500 ibuprofen caplets, a generous supply of band-aids in a protective Medco health band-aid holder, and 300 multi-vitamins. Here’s to your health!...

Plus, if the auction closes before Nortel files for chapter 7, the winning bidder will also get these fine Business Transforming bonus items:

...BIG bonus #2: A Swingline 737 stapler (not to be confused with the inferior 736 or slightly superior 738). This stapler saw me through thick and thin, never complaining about its workload or wanting extra time off, and never once did it jam up while applying cover sheets to countless TPS reports. I got the memo, and I’m going to miss you, buddy.

BIG bonus #3: a sealed pad of NORTEL paper, name tent, name badge, marker and pen. Oh, the fun we had with these babies, learning the whiles of LEAN Six Sigma and how we could improve the invoicing and accounts receivable for a fictitious company then apply it directly to the interworking of a deeply layered, process entrenched, dysfunctional software company with siloed, multi-site and outsourced-to-the-lowest-bidder ownership. It was GEnious. This Is The Way we saved TONS of money.....

Thank you for all that you are doing for this former Team Nortel member. Sleep soundly in knowing that none of the proceeds will go to any member of the ELT or SLT at Nortel. If you are the winning bidder, I promise, not only will you receive the package, you'll get to keep it as well!"

Here's to you, Poppey (eBay member since 1999).