Wednesday, May 27, 2009

More on the Embedded Executive Program

Kevin Carroll at OCE has come to the rescue with more details about the embedded executive program. The embedded executive program (also referred to as "embedded coaching") is part of what the OCE calls its Business Growth Program.

Here's how it works: "The company’s management capacity and needs are assessed by OCE commercialization and business development professionals in collaboration with the company. The resulting project plan may include specific measures to strengthen management, often as part of a larger project plan aimed at various aspects of the company’s development.The company, assisted by OCE staff, [then] prepares a proposal for funding and other support from the Business Growth Program."

This support includes sharing the costs of acquiring the services of an experienced entrepreneur or business manager to work inside the company for a limited time as an embedded management coach who provides chief executive functions, business planning, financial management, technology strategy, human resources, marketing, or other areas identified during the needs assessment.

"A typical assignment," the OCE material reads, "would place an embedded coach inside the company on a part-time basis for up to 6 months. Compensation options for coaches may include pro bono arrangements, honoraria, and future considerations such as equity or conditional deferred fees."

Who qualifies as an "embedded coach?" According to the material Kevin provided, "the company and OCE will jointly select a coach from OCE’s extensive network of management experts." This may refer to the large mentor network registry that the resides somewhere over at MARs, but if it were to be truly effective, one would hope that the OCE would also cost share on any exceptional person identified by the company.

There you go. Over to Kevin Carroll for mroe details.

Monday, May 25, 2009

Rule Book for Tough Times: Who Employs You - Your Company or Your VC?

Here’s a story I’ve heard before, both in the last down turn in the early 2000s and today: Start-up Company X is going through a cash crunch. Its backers, VC 1 and 2, approach the CEO and tell him his time is up. However, they advise, they won’t pay him out the full amount of severance he negotiated in his employment contract. The Company doesn’t have the cash, they say, and they’ll bridge the Company with additional funds if and only if the CEO agrees to a lesser payout. The CEO, feeling he has little choice, takes the deal.

Not so fast.

Any investor who tries this out on you is relying on the belief that, as an investor, he’s immune from liability for your severance package. But is this the case? Can VCs/angels who step in like this and control portfolio company operations find themselves liable?

This issue has been lurking over North American venture capital for years. In the US, lawsuits have been brought typically based on the "single enterprise" theory, that when a VC makes executive decisions or takes other controlling action, two different entities, it and its portfolio company are deemed to the same legal entity.

In Canada, a similar theory about the liability of controlling shareholders has been advanced. There are also a number of Statements of Claim that have tied this kind of behaviour to liability for oppressive conduct.

To my knowledge there is still no precedent-setting case on the issue north or south of the border. This is largely because most VCs appear to have settled once litigation was launched.

There is a tendency for VCs (and angels, for that matter) to take over the reins of portfolio companies businesses in troubled times. Unless they do so in a way that keeps them separate themselves from their portfolio companies, they invite exposure. There are a number of factors to assess when determining whether VCs (or angels) have crossed the line into liability, but I’m not going to enumerate them here. You want to know, you can always call me and ply me with flowers. But don’t let your own position (or your company’s ability to continue to restructure with a bridge) be compromised because of overly enthusiastic investors.

i4i: Toronto VC Maclean Watson Proves There's More than One Way to Make a Profit

Last week's $200 million Texas court ruling in favour of Toronto's i4i Inc. may end up returning a gain to holders in Mclean Watson's Fund I and II. The patent infringement lawsuit will no doubt go under appeal, so it is too early to determine if McLean Watson's partners will see any return on their carried interest for their efforts. But kudos to the fund (which has not announced private investments in any new portfolio companies in years)for identifying and assessing that rare bird, an intellectual property portfolio that can be effectively exploited.

Friday, May 22, 2009

Bud-ding into Venture Capital

By far the most interesting VC-watching these days is on the back end, where old fund managers are being replaced by others hired to manage (and exit) portfolio investments. These new managers may well be the new VCs in 18 months or so.

The folks I keep my eye on are over at Kirchner and Company, where Bud Kirchner has amassed a team that includes Barry Gekiere(ex-Ventures West) and Les Lyall (ex-Growthworks). Kirchner is rumoured to have recently taken over management of a number of former Innovatech start-up investments, among other projects.

Thursday, May 21, 2009

Does Ontario's Innovation Minister Wear Pajamas?

I once dated a man I thought was the perfect match. After a particularly romantic night on the town in Manhattan, I decided it was time to take things to the next level. I decided wrong; soooo wrong. We returned to his apartment where he dimmed the lights and (really, I wish I was kidding)……donned pajamas. The same jammies he wore for the rest of our (short) doomed relationship.

The term “jammie man” has since been used by my friends to describe anyone who falls short of their initial promise, either romantically or professionally. Golfer John Daly? Jammie Man. The Segway? Jammie Innovation. Remake of Beverly Hills, 90210 ? Jammie show.

It looks like there's another name to add to this list - our current Minister of Research and Innovation. As June approaches, we have learned nothing about the promised guidelines for Ontario’s Emerging Technologies Fund. You may recall that in March the Ministry announced that guidelines for the fund would be available in June, with matching funds being deployed in July. Now, the Ministry has posted that guidelines will now not be available until the end of July. It is widely expected that won’t see any money deployed until the fall at the earliest.

What seemed to be a savvy, brilliant move by a Ministry that understood how to preserve start-up innovation in the absence of venture capital now appears to have fallen victim to implementation bloat. John Wilkinson, I regret to inform you, may be turning out to be a jammie man.

Timely implementation of the fund is critical to Ontario's innovation economy. There are scores of Ontario companies who have bootstrapped themselves and raised modest friends and family/angel rounds in the last 18 months. Matching funding deployed now would preserve those jobs, plus those Ontario investor dollars that have stepped in to support those businesses.

While there may be additional thought and debate required on how the guidelines should work for 2010-2014, that should have no bearing on the present, very real need to bridge companies in 2009. Easy criteria: if an an accredited investor (as defined by the Ontario Securities Act) wants to invest in you, the Ministry will match that money. A good starting point. One could expand that in a variety of ways, but loosen the coffers first, and deal with intricacies later.

Is there anyone who disagrees that there is an innovation cash crisis? Now is not the time for pajamas. We need a tee shirt and boxers guy.

Wednesday, May 20, 2009

More OCE Funding Opportunities: The Embedded Executive Program

Over the last few months I have found my feelings for Ontario's Centres of Excellence to be changing from ones of friendship to something more. Dare I name it? Can it

When the expanded mandate (including funding for business acceleration, market readiness etc.)for OCE was first announced, many of us treated it as a non-event. But since last December, when it rolled out its first Accelerator Fund investments the OCE has been going full bore. The OCE may well be the single most active early stage investor in Canada at the moment.

You've got to hand it to them - they've filled the current gaps in start-up funding as creatively as possible. The latest addition? According to my clients, OCE has funds for an "Embedded Executive" program. OCE will provide some funds to pay the first 6 months salary of a senior executive that joins the team of Ontario emerging growth companies. This incents start-ups to add bench strength sooner rather than later. Since team strength is an important metric for attracting growth capital, this is a terrific supplement to other OCE programs.

I don't know much more about the program, but suggest those of you engaged with OCE contact them for further details.

Thursday, May 07, 2009

The Challenge (and Opportunity) for Regional VCs

An oft-heard comment about Canadian entrepreneurs is that they don’t aim high enough. Lately I’ve been wondering if our local angels and VCs are doing the same thing. In focusing on nurturing the local startup community, are they missing a larger opportunity?

Let me start by agreeing that, no question, local VCs need to prove to their LPs that there really is a critical mass of fundable entrepreneurs in Canada. But this focus needs to be applied with a sense of the broader trends in North American venture capital. The industry is consolidating and reinventing itself south of the border. Canadian VCs need to think where they fit in this new, emerging industry. Will local excellence be enough?

To date, Canadian venture capital has not been able to survive as an industry that services solely Canadian start-ups. That doesn’t mean it won’t change, but that’s the track record, neatly summarized in a handful of consultant reports tucked away in certain VC offices. And past results generally drive LP investment decisions.

Expanding investments to the US would be a logical hedge against slower growth here, but this has been difficult for a number of reasons – either LPs (because of their own institutional requirements) require that investment be limited to Canada, or because it been very difficult to get access to quality American deals. What does a Vancouver/Toronto/Montreal investor bring to a syndicate of Silicon Valley investors? Tough question to answer.

These two challenges are also faced by other regional players in the US. And I have to wonder if the needs of regional VCs in, say, Chicago, Philadelphia, Washington and North Carolina present a unique leadership opportunity for Ontario VCs.

Before you tweet away, consider this: in the next few years, American venture capital likely will evolve into a two-part industry, consisting of: (a) a handful of mega funds that operate globally, and (b) some smaller regional players that service start-ups off the Silicon Valley grid. If you believe that Canadian venture capital must expand to survive, then it’s got to figure out how to play in this new North American industry. I think it can do more than play - it can lead. I believe Canadian VCs may be best positioned of all to become leaders in regional venture capital.

Why? Billions of dollars have been to support and grow the venture capital industry in Ontario over the last decade. Since 1998, Ontario has been one of the largest living start-up labs there is – perhaps the largest one outside of Silicon Valley in terms of dollars spent. Ontario VCs and start-ups are uniquely positioned to become strong regional players.

How? We can provide great quality investments in Ontario to regional VCs looking to expand their portfolios, also don't have access to Silicon Valley deals. We can in turn act as good syndicate partners for our US regional partners. We can extend runway for investees by helping them expand by setting up development teams in Canada, taking advantage of job-creation-driven government funding.

As a VC, I was fortunate enough to be part of a fund that could lever its LP’s name (BCE) as a potential strategic partner, allowing us to join US investments and sit at the table with some of the biggest U.S. names in the business. The networking and experience gained was invaluable. Without that kind of entrée, however, Canadian venture capital need to be creative in how we build. And the current consolidation creates a nifty opportunity.

Where will Canada’s start-up industry will fit in the North American ecosystem? Is there an opportunity outside of Silicon Valley that we need to cultivate in order for our local VCs to survive? Is it enough to aim locally? Do we want to go to the matinee, or do we want to go to THE SHOW?

Tuesday, May 05, 2009

Growthworks: Not Just a VC

You have to hand it to Growthworks - when management fees fall across the industry, they find ways to diversify.

Last week Growthworks anounced its intent to acquire Mutual Fund Manager Mavrix. To do so, it is likely GW rolled over some of their own management fees received for managing GW assets into buying, effectively, more management fees (i.e., the one Mavrix earns for managing its own assets).

What does Mavrix have to do with venture capital? Nothing, as far as I can tell. But if they provide one VC which a creative source of operating capital, I'm on board.

Monday, May 04, 2009

Why Customers are Shifting to Smaller Vendors

Great post over at Harvard Business' blog by Peter Bregman on why small businesses will win in the current economy. It was posted back in March, but highlighted today by PE Hub. It many ways, it reflects the experience of many of our emerging tech clients, who have seen meaningful uptake in customer traction in the first quarter of this year.

Bregman suggests that small businesses are benefiting from an across-the-board loss of confidence in larger corporations. Internally, Bregman says, middle and senior management no longer trust that their jobs are secure, which in turn impacts their ability to sell effectively. As a result, large as well as small customers are increasingly turning to lean, smaller businesses where founders are available by phone, and where employees a sense of security and trust, which they in turn communicate to customers.

"We simply don't trust companies anymore," Bregman says. "We trust people."

Bregman concludes that this "gap in confidence" remains a huge opportunity for small companies on the rise: "Small is the new big. Sustainable is the new growth. Trust is the new competitive advantage."

Great stuff. Read it here.