Business Strategy

15 Jul 2019

Investing Through The Unfolding Energy Disruption

Although a life long mathematician and technologist, recently much of my focus has been on being a savvy investor, in many asset classes from private seed/angel investing to public markets and alternative investments. While Canadian investors have traditionally thrived on conservative, cash generating value investing and fixed income plays, the future is rendering such risk averse models obsolete, making it critical to adopt a forward lens, looking out, perhaps a decade into the future.

I have lived through many market disruptions in which “software is eating the world.” Such disruptions include the “Kodak Moment” of digital photography rendering mining of silver oxide to supply the ecosystem around film irrelevant in a digital photography age. Another exemplar is the upending the entire value chain for newspapers and other ad-funded media by the likes of Google (Adwords) EBay (classified ads).

Energy has driven world economies for time immemorial and may even have led to the fall of the Roman Empire. As modern societies have become wealthier, energy consumption has seen stratospheric growth. The simple reason is that Energy underpins the creature comforts of modern society, including food, shelter, transportation and consumer consumption. There is widespread concern that this nonstop growth model that underpins our economy is ultimately unsustainable, particularly as rich country ways spread to the rest of the soon to be 10 billion people on planet earth. The younger generation, who will ultimately see the limits of such consumption in their lifetimes, has embraced a more pessimistic view of their future and adopted a focus on lifestyle changes, including low carbon (vegan or vegetarian) diets, not owning a car, and trying to eschew rampant consumerism.

Essentially, there are two paths open to a more sustainable way of living:

conservation, in which individuals strive to lower their environmental (primarily carbon) footprint, and
a technology revolution in which traditional energy is replaced, for example by renewables, and even more radical, technologies that remove carbon from the atmosphere.

Thus, futurists have long predicted the same fate for energy driven by new technologies that include renewables, storage (battery and other), Digital Electricity, subjecting the global energy market to its own “Kodak Moment” of digital disruption. The future has arrived, and today in 2019, this energy disruption is already in full force, potentially rendering oil, gas and coal essentially obsolete over a time as short as the next decade.

What does this mean for the Canadian investor, including business, government and insurance companies who all will see their future results impacted by how this unfolds?

I have been researching a formal presentation around energy disruption for investors, but this recent CBC article spurred me to publish this post and perhaps have readers send me their thoughts and research.

Fighting climate change may be cheaper and more beneficial than we think | CBC News
Governments aren't calculating the true cost of fighting climate change when they fail to take into account side effects such as fewer deaths from air pollution - co-benefits that make the net cost of climate action as low as zero, growing evidence shows.

The above article is instructive inasmuch as it paints a picture of a better world achieved by strategically and aggressively re-allocating resources in our economy. The suggestion is that to do so, far from being foolishly spendthrift, is our most rational and positive outcome. What it doesn’t say is that to delay doing this, by allowing others to capture leadership in the “new”, post fossil fuel, growth industries, render Canada a much poorer (aka “third world”) country in the future.

The fossil fuel (coal, oil and gas) industry is facing many headwinds, which has moved economists from a previous narrative of concern about “Peak Oil” (ie. the world is running out of oil) to the new narrative of “Peak Demand” (ie. demand will drop as energy consumption is disrupted by new technologies). Here are some of the head winds and their implications:

Over the last decade, coal power, one of our greatest carbon producers, has already been rendered uneconomic, with declines in coal mining and production starting from around 2010.
Solar and Wind electricity production costs continue to drop and since 2016 are cheaper at scale than oil, and now gas (including Gas Peaker Plants).
The electrification of transportation, from cars, buses, trucking and more, is continuing to grow rapidly year over year. Current estimates call for Peak Petroleum Vehicle (ie. those “ICE” or Internal Combustion Engine powered) sales to occur by 2023.
New technologies, particularly in the areas of energy storage, are quickly coming on stream. Year over year more than doubling in such storage capacity further indicates exponential disruption at work.
Carbon pricing, in whatever form whether carbon tax or cap and trade, is needed for the market economy to work and will certainly become pervasive as the climate crisis escalates. It will require the majority of people to demand government policy and action. Current government policies seem to be held hostage to the oil and gas lobby instead of the wishes of the general public, although some parties try to disguise oil and gas wishes as “for the people”.
Fossil fuel subsidies in Canada, including taxes and direct subsidies, are estimated to be between $30 and $50 Billion annually. I continue to work at sourcing more definitive subsidy data, but it is clear that simply better allocating these subsidies to a cleaner future must happen.
Because the oil industry has known about our current Climate Crisis for many years (40 or more) and actively spread misinformation and hugely lobbied governments to ignore the long term effects, litigation for the damages caused by climate change will only escalate. This is analogous to the class action suits against tobacco companies for spreading misinformation about smoking in the 1960s and 1970s that have made these industries Wall Street pariahs today. In essence, this misinformation and deflection is an attempt to delay the inevitable, at the cost of real future damage to our world and the people inhabiting it.
Fake News Has a Cost: various industries have spent billions of dollars bombarding us with a continuous stream misinformation in order to distract and deflect us from proper policy. While the Kohl Brothers who make money from coal are legendary, examples of other myths include:
- apparently the power unions and nuclear industry heavily fund anti-wind energy misinformation, such as Wind Turbine Syndrome
- the auto industry funds significant misinformation about EVs, and this isn’t just in Buzzfeed, but in fact finds itself in otherwise reputable news media like The Globe and Mail: See The Trouble with Electric Vehicles – Winter and Out in the Cold with a Hyundai Kona Electric.
- consider both the cost to all of us when this misinformation helps form government policy and also the notion that those promulgating this misinformation may attract future liability for harm stemming from real harm their actions inflict on society.
For those not familiar with Exponential Innovation, it can be deceptive because humans tend to see growth as linear and get caught off guard as what look like small numbers rapidly balloon into much larger ones. The perceptual problem that people have with Exponential Technology Adoption curves is explained here: The Problem With Exponential Innovation : People

The above just skims the surface of the major disconnect between reality and lobbying and misinformation. Those who want to drill deeper into this fascinating world of energy disruption may wish to check out this video by futurist and technologist Ramez Naam from Singularity University.

Ramez Naam - Future of Energy

All of this leads to predictions that, by around 2030, both the price of oil and the public market stock prices of public oil majors crater. In the process, some economists predict that globally US$100 Trillion (yes that’s right) of fossil fuel assets will be kept in the ground, and hence written down. Such a staggering number means a huge economic dislocation for countries, companies [and investors].

Here are some closing thoughts:

Short Coal, Oil and Gas: and their ecosystem. Although no one can be sure about the timing, the fact that the coming energy disruption will have a hugely detrimental effect on these industries is irrefutable. Don’t get caught in the massive price (commodity and stock) swings that this market disruption will unleash. You heard it here first!
See Beyond Partisan Politics: because parties, and elected representatives, seem more beholden to the 100 largest global fossil fuel companies than their own voters, the time is long overdue to return politics to a grassroots level of democracy where the views of citizen voters actually count. In the US, there is a movement to pressure local representative to refuse fossil fuel industry funding. It will be interesting to watch this unfold here in Canada. No doubt our coming economic transition will be a gargantuan effort — I liken our upcoming transition to the effort to win World War II – everyone united, regardless of party line, for a common cause. It would be good to emulate the spirit of such a war effort. In spite of past failures of partisan politics, the net/net is that citizens can mobilize and collectively push our elected officials toward policies that actually help citizens and our planet.
Insurance: The current climate crisis may up-end the property insurance business and make insurance coverage unaffordable for many homeowners. To date, the insurance industry has led in research and advocacy around resilience and adaptation to Climate Change. The day is fast arriving when that will have to change. Increased weather volatility may make the climate so hard to model that realistic pricing of risk, which determines policy premiums, close to impossible. Lastly, as litigation starts to segment companies by liability for knowingly contributing to climate change, the insurance industry will undoubtedly be forced to respond both in their own investment portfolios and in the core insurance business.

As an investor, citizen, and voter I know that we need a significant reset in how we respond to the inevitable decarbonization of our economy. No one suggests it will be easy. Conversely, further inaction and delay will result in hugely greater pain, and suffering.

It’s your choice – where will you place your investment?

8 Mar 2016

Go East Young Startup!

“The journey of a thousand miles begins with one step.”
“千里之行，始於足下”
Laozi c.580 BCE

Building on 19th Century US westward expansion (“Go West Young Man”), much of the current innovation in technology has been West Coast focused, particularly in California’s Silicon Valley, which has for more than 50 years been an intellectual epicentre of the technology world.

Over my long tenure in the vanguard of technology trends, I have witnessed a tectonic shift in this comfortable, yet outdated, world order. Today the best and brightest innovators and entrepreneurs must also look east, especially to China, to fully embrace global reality of the 21st Century.

Many of you might be wondering about the slowing growth rates in China? Like many aspects of China, there are many perplexing contradictions that are beyond the scope of this post. It is certainly true that Chinese infrastructure investments and some manufacturing has been overbuilt. Not so in the technology industry. The difference is that there is a huge gap as the Chinese population increasingly moves to middle class status and the country needs to solve some huge issues (e.g. environmental issues around air quality). As a result, ICT, Green Technology, Life Sciences and other knowledge-based businesses continue to provide huge upside opportunities.

There is no question that China is a complex and difficult market to access. Knowing this, how can Canadian entrepreneurs master the new globalization landscape? Read on …

In 2015, my assistance was requested from an innovative group of investors and social entrepreneurs to pilot a new program, called CAMP (short for China Angel Mentorship Program) aimed at forging new international linkages tied to the momentum of startups. By identifying some of the best Canadian startup entrepreneurs, investing in them and helping them to engage with China, this program has the opportunity to drive a whole new generation of engagement between China and Canada, in the fast moving world of startups, technology and innovation.

CAMP is created and led by Liu Zhishuo (Peter Liu), Wang Tong (Tony Wang), Liu Yingna (Angela Liu), Zhang Yi Chin and Yang Jun (Alan Yang), all very savvy strategists and investors who aspire to “cross-border ecosystem building” between China and Canada. They work in Canada through CCAA (China Canada Angels Alliance) which made 23 investments in 2015 and in China through River Capital which made 50 investments in 2015. Since, as a westerner, you may not know these leaders (pictured below in Beijing), I will provide some background and context.

Peter and Angela Liu at CAMP Beijing 2015

Angela Liu. Tony Wang & Qi Lin at CAMP 2015 Beijing

I was asked to help this core group from CCAA to help find a pivotal group of Canadian mentors, who were able to assist CCAA to shape the CAMP program and ensure that the most qualified cadre of startups were selected to fill the 2015 cohort. Many of us, including Aron Solomon, Peter Evans, Benton Leong, Chris Flood and yours truly were in Beijing to also assist in the work that was much more focused on the Chinese mentor group, many of whom are indicated at this link.

Now let’s turn to the CAMP framework. As a uniquely conceived variant of the classical “startup accelerator”, CAMP involves CCAA, along with the Canadian mentors, selecting the 10 best Canadian startups (initially restricted to Ontario) who are uniquely engaged with:

an up to $200,000 equity investment
a detailed orientation session in Canada to build the groundwork for the best China experience
matchmaking with one or more mentors in China, who are chosen specifically for each company based on market and need.
an intensive 2 week immersion in Beijing, including many company visits, one-on-one meetings and a demo day in front of top Chinese investors
an 18 month post Beijing engagement with the chosen mentor to provide targeted assistance while the company grows and expands.

Because this was a first iteration, many companies had no idea of what to expect. Many were a bit sceptical, but being true entrepreneurs, they took the plunge. I can say that each and every startup from the first 2015 cohort of CAMP found the immersive experience in Beijing to be an exhaustingly intensive experience, but one that was profound and life-changing. The level of access to high level networks (“guanxi”) was extraordinary. That, coupled with the strategic insight of the CAMP organizers, and matched mentors, elevated the experience in Beijing.

Based on the inaugural CAMP, the organizers are committed to making the second cohort in 2016 even better. That call for the best startups will open up in the coming weeks. Until then, you might ask: why should you pay attention to CAMP and what sets it apart?

Access and Understanding: First of all, although China is a huge and growing market, it is very difficult for most companies, not the least a young startup, to properly engage with it. It is a complex market, fraught with pitfalls and unknown territory, from language, customs and even different regulation. CAMP provides personal connections (guanxi) through the mentors, and a degree of wisdom not likely to be available anywhere else. No company should consider China without a strong relationship with a trusted guide and mentor.

Canada-China Engagement: I firmly believe that CAMP has the potential to open up very senior intergovernmental engagement between China and Canada, but through the lens of building the new economy via innovative startups. Yet, startups have not historically been a major focus for governments at the national, provincial or regional level. I firmly believe that CAMP has sown the seeds that may increase bi-literal impact.

Huge Market Gaps: The unprecedented growth and transformation of China over the last quarter century has created huge demand and huge needs. Much has been written about that. But, less obvious, is that there are many companies in China looking for unique international opportunities. It is as challenging for them to engage outside China as it is for a Canadian company to understand China.

Growth Hacking: Perhaps the number one reason that startups go to California is to tap into the “growth hacking” expertise, an area in which Silicon Valley continues to be a world-beating innovator. Less well known in the west is that a new generation of Chinese tech firms, particularly in B2C and mobile, has taken growth hacking skills and strategies into hyperdrive. Surprising as it might seem, these may well make Silicon Valley growth vectors look tame by comparison. Every CAMP participant will have a unique opportunity to tap into this expertise.

Whether you are a startup with world-beating ambition or an tech ecosystem leader looking for future opportunities, stay tuned for the launch of the CAMP website, which will be accompanied by a call to find the 10 best startups Canada has to offer.

Randall (郝狼盾)

Looking east and savouring the journey..

30 May 2015

Snapshot of the ACA Summit 2015

In mid-April, I attended the 10th annual ACA Summit hosted by Angel Capital Association in San Diego. With about 600 people in attendance from dozens of countries, it was an excellent chance to get tuned into the latest trends happening in angel world at large.

And since Angel Investing is now a global phenomenon, it is interesting to note that ACA Summit can have two faces. On one hand, it is a very international gathering of Angel investors and yet sometimes the content reflects the fact that ACA is primarily an association of US Angel investors, for example by showing trends without regard that Canadian angels are just across the border.

The international range of attendees was striking, with many delegations from various European countries; Latin American countries like Mexico, Chile and Barbados; India; a particular concentration from Australia and New Zealand and of course Canada. Regarding this antipodean concentration, one attendee found it odd that there were more of participants from halfway around the world than from Canada.

I am a member of the program committee for Canada’s own 2015 NACO Summit which is being held October 6-8 in Niagara-on-the-Lake, Ontario, right on the US frontier. I see a huge opportunity to learn and connect with more US and global angels.

Each year, the Angel Resource Institute publishes statistical information and trends in US Angel investing and at ACA released their 2014 Halo Report.

I’ve chosen some personally curated highlights both of that report and the overall conference:

Overall US Angel investment was about US$25 billion in 2014, surpassing venture capital investments. This represents over 300,000 investors in over 70,000 deals. We continue to have less comprehensive data for Canada, but we still lag on a per capita basis, but the gap is narrowing.
Although Crowdfunding was a major topic of discussion, it is still less than 2% of the above $25 billion figure, definitely lagging places like the UK where it is already at 5%.
Median deal size grew over 10% to $2 million in 2014, when co-investment is included. Median pre-money valuation grew 20% to $3 million.
The largest region for deal dollars (17.2%) was the Great Lakes Region (from Wisconsin to Ohio), surprising to those who thought most deals happen in California. Further, almost 50% of all deals are in states on the Canadian border, clearly presenting cross-border syndication opportunities.
Perhaps because of high valuations in the tech “hot spots”, such as New York City and California, more syndication across greater distances was reported, which goes against the traditional notion of investors focusing within a one-hour drive. Again, while the studies of greater cross-country syndication didn’t extend into Canada, it is easy to extend this trend cross-border. A drive could be to focus on those sectors requiring specialized skills such as medical technologies and life sciences.
There were a lot of great sessions on emerging, and ongoing, issues, such as crowdfunding, the new SEC Regulation A+ (mandated by the JOBS Act to simplify raises up to $20 million even from non-accredited investors), an ever increasing push to build new and innovative Angel Funds and even post investment Board governance.
In that vein, I ran an open panel on “Best Practices to Build a Private Equity Portfolio – Tools and Strategies”. What was notable was how primitive such angel portfolio management really was. One participant suggested angels portfolio management was comparable to that of public company portfolios 100 years ago. As Angels learn that a passive approach with little portfolio management is sub-optimal, leading Superangels, the advanced Angel groups and the trend to angel funds are all pushing for more professional portfolio management. Although historically they have worked separately, the increased involvement of Family Offices in the world of angels is also starting to drive greater portfolio discipline. New software tools are emerging to help here as well, such as Seraf – Portfolio Management for Angel Investors which was built by angels unable to find a way to automate their portfolio management.

In summary, ACA Summit 2015 was a fabulous opportunity to meet, network and learn from some of the best global angels and understand about emerging models and best practices. Many side bar conversations, dinners and drinks in the garden were packed with wisdom from around the world.

In October, our own NACO Summit will be a great opportunity for Canadians to similarly share and learn and to connect with a more global perspective as our Angel ecosystem continues to grow from strength to strength.

8 Feb 2015

Top 25 Waterloo Technology Acquisitions – Wisdom from the Data

The acquisition of MKS by PTC in 2011, caused me to reflect a bit on what good acquisitions might look like and what they might teach us about building (sometimes elusive) long term shareholder value. As a result, over the last 6 months, I’ve progressively assembled a collection on the most significant acquisitions in the Waterloo area. To my knowledge, such information has hitherto never been collected. We all love to speculate, but it is more productive to ground that speculation with facts.

The following table is intended to summarize value creation through the lens of several key benchmarks.Read More ..

Angel of the Year Award: Yuri Navarro, Jérôme Nycz, Randall Howard, Michelle Scarborough

3 Oct 2014

Canadian Angel of the Year Award

At the NACO Summit in Québec City, it was truly humbling to receive the Canadian Angel of the Year Award. I see this partly as a calling to be an ambassador to continue to help raise the Angel bar in Canada in the coming years. I wish to thank all those kind colleagues who, unbeknownst to me, wrote letters of nomination. Also, this is all based on the remarkable people at GTAN and in the Waterloo and Canadian ecosystem generally.

In response to the award, and recognizing the opportunity to build on current success, I shared the following observations and future challenges at the closing Keynote on Friday 3 October, 2014.

“TODAY’S CRITICAL MASS CAN POWER A QUANTUM LEAP”

Closing Keynote NACO Summit, Québec City Friday 2 October, 2014

Bonjours, mesdames et messieurs. Good morning, ladies and Gentlemen.

I hope that Yuri was aware of what he was unleashing by inviting me to share perspectives and future challenges of Angel investing in Canada! Not unlike a startup running on “fumes”, Canada’s angel sector reminds me of the quip from cartoonist Bill Hoest: “I just need enough money to tide me over until I need more”. I’ll start by looking back to help us paint a future directional context.

As Angel investors, we’ve watched a powerful people-driven engine, coming from nowhere, to become a key enabler of Canada’s future prosperity. As Angels, we fuel innovation companies with our capital and mentorship, ultimately creating some of the highest value jobs for 21^st century Canada. What’s not to like about that?

Let’s turn the clock back about 5 years. In 2009, the global economy endured the infamous credit crunch, perhaps the worst economic correction since the Great Depression. I observed this to be the final nail in the coffin for a large number of Canadian venture capital firms, for years struggling to generate viable returns. The seeming extinction of venture capital A-rounds and the bleak landscape for young, emerging companies, compelled me, as a seasoned tech investor, to get involved with the founders at Golden Triangle AngelNet (GTAN) in Waterloo-Guelph-Wellington-Stratford area. In a pattern surely repeated across Canada, Angel Groups from a slow start quietly and persistently worked to fill the funding gap through a labour-intensive “syndication” of Angel capital, with other groups and with government co-investment. In Ontario, this meant repurposing MaRS IAF from its origins as a VC on-ramp to co-investment in Angel rounds, lobbying that ultimately led to the Feddev “Investing in Business Innovation” (IBI) program, and BDC convertible notes.

A typical syndication for a top tier investee company might entail half a million dollars of Angel money being spun into $1.5 million or more. I used to describe this approach as providing “half the money of a VC A round for 10 times the effort”. At the time, I imagined this to be a strategy for a short term “bridge” of Canada’s innovation ecosystem to a more sustainable future. How did this market correction turn out for Canadian Angels?

NACO stats show a remarkable growth in total Angel investment. Between 2012 and 2013 alone, Canadian Angel group direct investments grew a stellar 120% from $40 million to $89 million. Of course, this doesn’t capture the aforementioned co-investment leverage that Angel investors attract nor does it cover investments outside of NACO members. All of us rightfully deserve to be proud of such collective impact.

But is it enough? Both from my own international investing and available statistics, it would appear that Canada’s Angel ecosystem is ahead of Europe on the maturity curve. I would estimate Canada has a 3-5 year head start on Europe. On the other hand, our American friends are definitely well ahead in maturity, deal dollars and information gathering. Angel Capital Association (ACA) data shows almost $25 billion of total US angel investment in 2013. To be at this level, on a per capita GDP basis, Canada would need about $2.8 billion of annual Angel investment. Even counting all the leverage, Canadian angel investment needs to grow 5 to 10 times over the coming years just to achieve parity with the US.

In Waterloo, home of Perimeter Institute, we tend to love Quantum Mechanics metaphors. Thus, propelling today’s critical mass through a quantum leap is a mission all of us need to work on collectively and individually, whether as angels, angel groups, NACO, governments, venture capitalists, sponsors, in fact, each and every ecosystem participant.

So, I will conclude by identifying just five of the gaps that we collectively need to fill:

Scaling: Recently, my friend Steve Currie, VP Strategy at Communitech, observed “Canada is great at starting companies, but not so good at growing them beyond the 5 year horizon.” This means less job creation but also smaller exits. In a study of 183 recent high tech exits versus 2300 comparable US exits, the average US valuation was US$384 million versus US$100 million for the Canadian companies. I don’t know about you, but I find it simply tragic to leave so much value on the table. Angels have a huge role both in mentoring management skills around scaling, but also pivotal to financing that scaling. And, bigger exits, will in a virtuous circle, drive more Angel investment.
Giving Back: We need more of our successful serial entrepreneurs to become (super) angels and continue to start new ventures. In the Silicon Valley, Paypal alone had 14 serial entrepreneurs like Peter Thiel and Max Levchin whose experience and wealth helped build legends like LinkedIn, YouTube, Tesla, Kiva and Yelp. While we do have a few super angels, we have yet to spawn someone like Ron Conway whose 600 investments include Google, Facebook and Twitter. Canada needs more titans like Mike Volker and Jim Estill.
Deal Discipline: Great companies grow and scale partly because of external motivations. In the 1990’s the hottest companies all wanted to do an IPO and that involved a playbook of enhanced management, systems and processes that also helped the companies scale into better organizations. VCs also played a part, but today, this role often falls onto Angel investors, hence requiring a more “institutional” approach versus becoming just another retail asset class.
Co-investment: Government funding has been critical to our success and it is key that funding increasingly backs Angel choices rather than governments having to choose winners. That said, there is plenty of room for more. For example, our Feddev IBI program in Ontario provides a 50% match while the almost identical “Double Equity” program in Austria does a 100% match to angels. And, the Angel Tax Credit, so common internationally, in parts of the US and in BC, would provide a much-needed boost to overall Angel resources.
Operational Innovation: Currently, most angel groups run as nonprofits using largely committed volunteer deal structuring and with little automation of the process. A big reason for this is Securities Regulations, especially in Ontario, that put a chill on innovations that might trigger an expensive regulatory burden. While there is some hope that the proposed Equity Crowd Funding rules might provide the clarity for such innovations, there is also the risk that this is a force that further pushes deals into a retail mode when what we need instead is more institutional discipline.

With these key points in mind, and assuming the right environment, I have no doubt that greater innovation in business models will fuel growth of a larger and more sustainable Canadian angel landscape. All of us can play our part. To dial up our game, will be an aggressive, yet I believe achievable challenge. And, we need even better measurement so we can regularly monitor, and report back to ecosystem participants, our progress.

The road forward isn’t just about traditional business. Because Angel investors’ motivations uniquely straddle the ever-blurring boundary between “passion capital” and Wall Street-style finance, Angel investing will increasingly be a great exemplar of Social Innovation. To me, the culture of collegiality and sharing resembles my experiences in nation-building around charitable foundations.

The last five years have witnessed an unprecedented expansion of Canadian Angel investing and we are poised for even more remarkable growth in the next five. In the words of the incomparable Alan Turing,

“We can only see a short distance ahead, but we can see plenty there that needs to be done”.

Now, let’s get to work …

22 Nov 2012

“How ya gonna keep ‘em away from harm?” – The Sequel

Almost four and a half years ago, I penned what some called the obituary of Blackberry (see “How You Gonna Keep ‘Em Down on the Farm”). My intentions in writing that missive were, in fact, quite the opposite. Back in 2008, a year after the first iPhone, Blackberry didn’t appear to be heeding the threat of major market disruption, let alone making a response. I thought that writing such a post might incite some action. Sadly, while I got loads of reaction from all over the world, the one missing piece was that this was singularly not registering inside the “Faraday Cage” of RIM headquarters at Philip and Columbia in Waterloo.

For many years, to continuously hone my expertise as an investor and participant in the next generation mobile ecosystem at VERDEXUS, I have maintained a “production” device and a “testing” device which allows me to sample the greatest number of new applications and platforms in my daily business and personal life. At the time of the 2008 blog, I switched from Blackberry as production device and iPhone as testing device. At that time, I promoted iPhone to production and introduced an early Android device into the testing status.

The four and one-half years since then, representing four to five mobile device generations at the rapid pace in which these are deployed, has seen a lot of innovation and change in the mobile universe. The first production version of Android occurred one month after the aforementioned post. Today, over nine releases later, Android 4.2, known as Jelly Bean, is a mature and polished mobile platform.

Mobile user experience has, as it were, come up from the Farm and we are now definitely in Paree. It’s hard to imagine how things could get much better, yet an even more exciting future in mobile will undoubtedly unfold. The pace of change has been almost mind boggling, with Android appearing to move almost twice as fast as iOS, the more proprietary Apple platform running iPhone and iPad.

As a young platform, Android has long shown promise. Being an open source operating system primarily developed by Google, but customized by various device manufacturers, not to mention the ever-meddling carriers, has been both a blessing and a curse. Initially, Android seemed “rougher around the edges” and more techie in feel than the uber-polished and legendary iPhone experience, which is produced end to end by Apple.

Conversely, the limitations of the Apple closed ecosystem approach are starting overtake the advantages. There are numerous examples. If you simply want to plug in your device via USB and load music and other files, Android shines by bypassing the need to go through iTunes. While iTunes has its advantages, many of us simply want more control over our cross-device media file deployments. Another even more telling example is the recent debacle in which Apple turfed the tried and true Google Maps application in favour of a badly implemented and incomplete version of their own. This is but a single example of where Apple’s legendary quest for control is wearing thin.

While giving more control to mobile application developers has its challenges, it is clear that no one company, no matter how sainted, can determine, let alone sully serve, the desires and needs of the entire mobile universe.

It is a combination of this clear advantage, coupled with the incredible progress inAndroid and its handset manufacturers, that has led me to promote my newest device to production and render the formerly top-billed iPhone second tier status of my test device.

For me that device is the Samsung Galaxy Note 2, which with its 5.5″ screen is sometimes dubbed a “phablet” (ie. a combination of phone and tablet). Essentially a super-sized Galaxy S3, this phone is nimble, fast in computational processing and with speedy network connectivity. I first saw Europeans use it a few months ago, a cool and capable device, but perhaps an acquired taste for some

Perhaps it is simply my poor vision, but the large screen size is versatile and a joy to work with for all sorts of browsing, content and documents. The S Pen stylus, even for those who don’t want to do handwriting or line drawings, transforms the mobile browsing experience by removing the navigation problems on many sites with menus which are small on mobile screens. Samsung has even developed an SDK around the S Pen which could create a whole new application ecosystem, assuming this next generation stylus gains sufficient market traction.

Is my recent promotion of Android to top device spot the end of my quest for mobile perfection? Absolutely not! In fact, only one week ago, I personally promised my colleague Alec Saunders, the ubitquitous and transformational new VP of Developer Relations for Research In Motion, that I will definitely give the new Blackberry BB10 devices a serious try. And, not just because “Devs, Blackberrry Is Going to Keep on Loving You”. I truly do like much of what I’m hearing about their capabilities.

Stay tuned – the mobile world is a fascinating and ever changing one.

29 Oct 2012

Tech Terroir

In the world of wine, the concept of terroir describes a centuries long process in which the climate, soil, grape varieties and dedicated vintners, symbiotically develop a unique “sense of place” for a wine region. A favourite of mine, the garrulous and quintessential Californian vintner, Randall Grahm, while trying to establish the old World notion of terroir in California postulates that it is a long term proposition and can take centuries to develop.

As both a wine lover and serial tech entrepreneur, I firmly believe that building a tech cluster is similarly a very long term process. Ironically, the epicentre of tech clusters is in California. The Silicon Valley, which got its start in the 1950s remains the major cluster worldwide as “… no other place as yet has the Valley’s scale and resilience.”

Although I started my tech startup career in the US, it was in the Canada’s leading tech cluster of Waterloo where I built major companies and was one person who got that cluster started. Like Silicon Valley’s origins in Stanford University, the Waterloo cluster was initially fuelled by University of Waterloo. Over time, a combination of executive and programming talent, capital and professional services capabilites led to the current state of almost 1000 technology companies. By contrast to Silicon Valley, Waterloo is a must younger cluster, having started just over 25 years ago compared to the 60 years of Silicon Valley. It continues to mature around some key ingredients such as global strategic marketing capabilities and sufficient capital to fund on a globally competitive basis. Experienced people may well be the most important ingredient in a cluster’s maturation.

Further, I feel that all who have been fortunate to build wealth and experience in business, owe an obligation to “pay it forward” to the next generation. My own contributions include significant startup mentoring, Board and strategic roles in organizations like Communitech and Innovation Guelph, and for the last 3 years a Board role and chairing Selection Committee for the Golden Triangle AngelNet (GTAN). In just 3 years, GTAN has grown to about 150 paid accredited investor members who bring a wealth of experience to the 25 funding transactions to date. And, it goes without saying, that many of those financings might not have happened without GTAN having emerged to fill a significant funding gap as VC’s became largely extinct. Acting as a superangel to syndicate angel network deals is a tremendously labour intensive exercise, but one that I and others believe will pay off in the long term economic prosperity of our region.

I firmly believe knowledge-based companies to be the key ingredient of our future economic prosperity, so such company-building competence is mission critical for our region, province, country and globally. As globalization occurs, we see more and more regions clambering to reap the riches of the innovative, tech startup world.

To that end, at Verdexus, we have always taken a transatlantic perspective, primarily to have a more global window on building companies that can achieve world leadership in their chosen businesses. Over the years, I’ve worked with startups across the United States and Europe in the dominant clusters such as Boston, Chicago, Silicon Valley, London, Munich, Berlin, Stockholm and more. To round out my experience, over the last few years, I’ve sampled some key emerging regions by volunteering as an expert judge in places as diverse as Brussels area, Warsaw and Torino. A week ago, I had the opportunity to judge startups associated with the European Space Agency in Toulouse France as well as in Istanbul, Turkey. The latter Istanbul venue, EU Venture Forum was jointly sponsored by EUREKA (the pan-European research and development funding and coordination organization) and Europe Unlimited from Brussels. Collectively, these more than a dozen regional events ultimately feed into a pan-European venture prize in Berlin in December.

It has been very instructive to visit various clusters. This grassroots view, from the perspective of startups, reveals much in common globally but also a few surprises. Based solely on interacting with local startups, on a global perspective, it is clear that culture and experience vary greatly across various Euroopean regions. For example, I was pleasantly surprised that Warsaw had some of the smartest and most sophisticated business startups I’d seen anywhere. And, remember, they are pitching in English which is not their native language. Conversely, the cluster around Torino appeared to have a long way to go before its startups would begin to measure up globally.

Similarly, the startups I saw in Istanbul were impressive. Some companies, following a model also common to the emerging markets of Central and Eastern Europe, were essentially cloning an existing business model into the 80 million strong Turkish market. More significantly others were clearly building globally strong technology startups. One pleasant surprise was that, of the eight companies that I coached the day before the forum, three had women CEOs. This was a surprise for Turkey, but sadly women-led companies remain all to rare in Canada

The calibre of engineering and basic technology talent was very impressive. That said, it was also clear that the level of support ecosystem around these startups is very limited – at least compared to what we see here in North America. One direct challenge was that in Europe companies appear to receive generous R&D funding which seems to encourage more of an engineering mentality than a market-driven one. In essence, projects stay too long as “science projects” and the culture and skills to get projects to market seem to suffer as a result. Although this is a generalization, there are many exceptions.

In the area of capital, the meltdown in Venture Capital A Round investments is about 3-4 years behind what already occurred in Canada. One particularly European challenge is that more and more of the VC funds have moved their offices and focus from regional markets to London, meaning that companies in the regions often have less direct access to capital. Conversely, the growing role of Angel Networks and Superangels to fill the gap is still in its infancy in Europe. I suspect that will change over the next two or three years. Venture funders like to either be close (1 hour travel) to their portfolio companies or, at the very least, to have a local investor who can “provide adult supervision”. Increasingly, experienced serial entrepreneurs will be called on to fill that key local role as Angels and Superangels. It is clear that the notion of Tim Draper going to Estonia and finding Skype is definitely the exception rather than the rule.

And that takes me right back to the notion of “tech terroir”. As global innovation increases, and people around the world vie to build ever stronger tech startup ecosystems, it is the dedicates entrepreneurs in the sector who magically nurture these maturing ecosystems. As one of the entrepreneurs that I coached mentioned, she wants to:

“make innovation easier in Turkey and to make life easier for entrepreneurs”

So, in addition to building a great global business, she also takes time to help move the needle of her local ecosystem forward. It’s a very encouraging sign that continues to inspire me as I engage with the new globalized world of tech startups.

2 Sep 2012

[Book Review]: The Innovator’s Dilemma

The innovator’s dilemma by Clayton M. Christensen

Published by HarperBusiness
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This summer I took time to re-read an oft-overlooked volume that I believe to be the essential to anyone working in marketing and innovation. In this review, I’ll provide a few examples of why this book needs more attention, particularly here in Canada where we definitely need to up our game in marketing of innovation and technology.

Clayton Christensen, as Associate Professor of Business Administration at Harvard Business School, is a leading academic researcher on innovation. Yet, he still manages to provide practical and pragmatic strategies that real companies can use. And, most importantly, his theoretical groundwork is based on extensive, data intensive research over longer period of time with real companies and markets going through disruptive innovation.

The latter term is often thrown around lightly in technology company circles. A Disruptive technology (or innovation) typically has worse product performance in mainstream markets while having key features that interest fringe and merging markets. By contrast, sustaining technologies provide improved product performance (and often price) in mainstream markets.

The book covers real markets, including the various generations of disk drives starting with 14″ drives in the 1970’s to today’s 2.5″ (and smaller) drives. By studying hundreds of companies that emerged, thrived and failed over a 25 year period, some clear patterns emerge. Further examples across a broad range of markets, include he microprocessor market, the transition from cable diggers to hydraulic “backhoes”, accounting software and even the transition of industrial motor controllers from mechanical to electronic programmable models.

The key message of the book is that the playbook for normal (“sustaining”) technology innovation must be thrown away for disruptive technologies. Disruptive technologies break traditional rules in many, often counter-intuitive ways:

Financial – typically disruptive technologies are more expensive and have lower performance than existing products. This effect causes financial managers to kill many such innovations.
Marketing: the normal rule to “listen to your customers” must be thrown away – instead many educated guesses with repeated failures are the only path forward.
Organization: given the ability of normal strategies to reject disruptive innovations, such practices as heavyweight teams (which silo the team with more autonomy) and even spin-outs are the order of the day.

Entrepreneurial writings, not to mention my own experience, encourage us to celebrate failure. Beyond the power of learning by trial and error, The Innovator’s Dilemma, for the first time, provides an analytical framework as to why such failure is so critical in new markets.

One area where the book could provide more guidance is that of differentiating disruptive from sustaining technologies. Such discrimination is absolutely critical to ensure the right strategic approach to the new technology is adopted. Generally easy with the benefit of hindsight, such determination can be very tricky, and error prone, when first confronted with such new technologies.

This is a book that anyone working with products in fast moving markets needs to re-read regularly. It surprises me that, 15 years after publication, how few product marketers and senior executives appear to have benefited from the deep wisdom Christensen imparts.

4 Aug 2012

Have Lean Startups Helped Us Scale Larger Technology Companies?

Building larger technology companies is critical for our future economic well being, yet somehow we seem to pay more attention to the seed and startup phase. This post and a subsequent missive, Wisdom from Recent Waterloo Technology Acquisitions, aim to analyze some recipes for building technology businesses to scale first from the perspective of recent companies and then specifically through the lens of local acquisitions. This pair of posts will be based on extensive data, but the findings are intended to start discussion rather than be the last word.

[Book Review]: The Idea Factory

The idea factory by Jon Gernter

Published by Penguin Press
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A marvellous exploration of a research and innovation powerhouse that, even viewed from this age of innovation, surprisingly anticipated many approaches we think of as modern breakthroughs.
I’ve long admired Bell Labs and feel that many of its researchers and innovations interacted with an impacting my own career. While in University, the notion of working with or at Bell Labs was the highest aspiration for top thinkers in many fields. The Idea Factory is an engaging read and showed me how limited my understanding of that institution really was.

First of all, from the 1920s to the 1980s, it was way ahead of its time as an agent of innovation. The approaches were brilliant and could be applied today, including the notion of building architecture and organization structures to encourage interdisciplinary collaboration. Breaking down “knowledge silos” was definitely countercultural in a century known for specialization.

Secondly, the sheer number of transformational inventions, including the laser, transistor, fibre optics, satellite communications, the cellular mobile network, integrated circuits and the notion of information as digital that came from a single institution is both surprising and would be impossible in today’s world. Sadly, in the modern competitive marketplace, there is likely no room for a monolithic regulated monopoly, as was AT&T, to support such a single engine of innovation and basic research.

My primary connection with Bell Labs was through computer science with innovations such as UNIX and C Programming Language. The historical context this book outlines shows how surprising this is because AT&T was, by regulatory decree, precluded from entering the computer industry. That said, it is ironic that most of the inventions of Bell Labs, collectively contrived to make telecommunications as a separate industry obsolete. Instead, as predicted as early as 1948 by the remarkable information age seer, Claude Shannon, much of the modern economy has by transformed by our current digital age of networked and pervasive computing.

Lastly, Gertner explores the culture of those who drove innovation. Often eccentric, and to outsiders perhaps impossible or unemployable individuals, had the sheer force of will and brainpower to achieve breakthroughs that others either hadn’t even considered or thought impossible. Given my own small town origins, the deliberate strategy of finding these small town prodigies to populate the largest research-oriented brain trust in the world resonated.

All too often, societies believe that they are the first to master innovation. Sometimes we should stop and consider successful strategies from the past. Far from being solely a modern preoccupation, innovation has always been a hallmark of human advancement. Yet, with no clear place for a lucrative and regulated monopoly to fund pure research, where will the fundamental research of the future originate?

The book cites John Mayo, a former Bell Labs chief,

“Bell Labs substantial innovations, account for a large fraction of the jobs in this country and around the world”

In a world driven by global markets and the quarterly thinking of Wall Street, we really do need to consider how our next leap of fundamental research will be unleashed. John Pierce, another Bell Labs chief summarized the “Bell Labs formula” in four main points:

“A technically competent management all the way to the top.
Researchers who didn’t have to raise funds.
Research on a topic or system could be, and was, supported for years.
Research could be terminated without damning the researcher.”

Beyond learning from the wisdom of the leading research institution, where will we find the vision and resources to enable innovation on such a transformational scale? Beyond the Venture Capital and now Angel funded technology startup ecosystem, perhaps exemplars like Mike Lazaridis‘s pioneering Perimeter Institute of Theoretical Physics will chart a course for the 21st century.

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