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5 Mar 2023

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Adrenaline Fund Continues to Power Early Stage Ecosystem in 2022

Adrenaline Fund marks its second full year of investing as it completed its 2022 Vintage. Adrenaline Fund, was founded in 2020 as part of the multi-fund Archangel Network of Funds, uniquely applies a hyper efficient passive model, fuelled by our startup and angel ecosystem, to early stage investing. .

We are fuelled by a  remarkable group of Limited Partners who are accredited investors interested in our Purpose and coupled with the high return prospects delivered via a highly diversified portfolio

PURPOSE

The entire team at Archangel Network of Funds, and the Adrenaline Fund, is driven by a core Purpose, developed over years of building and supporting early-stage companies. In a nutshell, we want to directly impact Canada’s economic prosperity into the future by:

  • Investing in Entrepreneurs who are building the future of the Canadian Economy through Innovation,
  • Lowering barriers for accredited investors to participate in, and gain more experience, in early stage investing, and
  • Accelerating, and directly supporting, the Canadian Angel ecosystem while enabling Canadian startups to scale up to global leadership.

In this post, I’ll further explore our unique model, an exceptional team, what we’ve done so far, and propose a future where this impact can grow many times larger than our results to date.

TEAM

The Adrenaline Fund team has unparallelled experience in building companies, mentoring startups and selecting and investing in the next generation of Canada’s tech leaders but at the early stages. In addition to myself, our team includes Benton Leong and Amber French, and is ably complemented by Venture Partners  Mike Janzen and Althea Wishloff.

Archangel Network of Funds TeamThe Archangel Network of Funds model involves a team with even greater breadth, many of whom are pictured above. Years of strategic business leadership, coupled with some of the most sophisticated selection and investment savvy, are a big part of what makes Adrenaline unique.

PORTFOLIO

The 2022 vintage portfolio, reflecting a broad diversity of sectors and stages, comprises 10 great companies:

  • Technology: 3
  • Medical Technology: 4
  • Industry 4.0: 2
  • Climate: 1

They join the 10 companies already in our 2021 Vintage, and listed in our post describing the results of our 2021 Adrenaline Vintage: Adrenaline Fund Pumps a High Energy First Year into Early Stage Investing.

We are excited to welcome the following companies to our Adrenaline Fund portfolio, reflecting the powerful value-adds of the Angel Ecosystem we support:

eleven-x
enables smart communities and organizations to leverage IoT with powerful sensor-based platform.
HTUO
develops advanced molecular simulation to enable drug design through fusing chemistry, physics and AI-based computer modelling
LabsCubed
smart manufacturing company that has developed automated lab equipment and smart software to perform material tensile and tear testing
COSM Medical
creating digital gynecology to allow clinicians by modernizing care for women suffering from an underserved and stigmatized women’s health issue
Catalyst Entertainment Technology
fuses virtual reality to real world entertainment experiences
Carbonhound
delivers an engaging carbon measurement platform to empower organizations to a more sustainable future
Nicoya
delivers microfluidics SPR diagnostic testing directly to the lab benchtop
Loop Financial
fintech delivering business banking for global companies
Kritik_Logo Kritik with TAJAWAL #4D4D4D font
a peer-grading platform enabling a new era of education
QidniLabs
delivering a breakthrough in kidney dialysis by making it ultra portable.

MODEL AND WHY IT WORKS

As mentioned, we believe that the Adrenaline Fund model and thesis is unique in Canada, by fusing the power of a passive approach (like an ETF in the public markets) to the early-stage Angel investment ecosystem.

First of all, the investment decision is designed to support the existing Angel ecosystem through a set of rules to govern the investment process. At a high level, the Rules, shared with LPs, stay largely the same but are tuned in response to changes in the ecosystem. Thus, rather than active decisions, the focus is on tuning the rules and working to ensure that the angel and startup ecosystem remain of high value.

A colleague questioned the wisdom of, such a “blind investment process”, suggesting it is a bit crazy and perhaps akin to wagering on slot machines. Nothing could be further from the truth. The secret sauce of Adrenaline is the collective value-add of the ‘qualified lead investors’ who mentor and provide ongoing strategic oversight (e.g. as a board member or board observer).

In fact, research by Brian Smith, Professor of Entrepreneurship and Finance at Wilfrid Laurier University along with global tech investment trends studied by BDC Ventures, shows an almost 25 times multiplier of success for such angel-backed companies. In summary, in generating larger ‘Scale Up’ companies (with valuations reaching US$250M), Canada has a dismal 0.3% track record (or 1 in 300) compared to the 2.5% that reach that scale in the US (or 1 in 40). Within the Angel ecosystem, specifically GTAN where the study was conducted, an amazing 8% of investee companies reached the $250M threshold. Unpacking the reasons for this incredible out-performance would include factors like: the GTAN selection process, the ongoing value-adds of experienced ‘deal leads’, the strength of the Toronto-Waterloo Tech Corridor ecosystem where GTAN focuses, and syndication with other capable seed/angel stage investment funds.

Further, he model is structured to be open and accessible to the greatest number of Accredited Investors by having the aggregate investment staged over 5 equal annual cash instalments (say $250,000 at $50,000 per year). Since the fund is structured to segregate ‘Vintage Years’, and each Vintage aims to invest in 9-10 companies per year, this ensures a diversified portfolio of about 50 companies at an extremely affordable entry point. The Vintage structure allows new LPs to join once at the beginning of each year, thus growing the maximum amount of each Adrenaline investment and helping startups even more.

Most importantly, the fund attracts investments from individuals new to  angel investing since it provides a simple and time efficient path potentially learn more. Quite simply, we are unlocking new capital to support Canadian innovation.

JOIN US

The Adrenaline team are pleased with the continued validation of passive, rules-based model for building a top early stage fund, and excited as we work to add our next 10 great companies to the portfolio during 2023.

Feel free to reach out to any of us to learn more and get involved. We’d love to have you on board.

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Adrenaline_Fund_Colour_Logo-1024x447-1

3 Jan 2022

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Adrenaline Fund Pumps a High Energy First Year into Early Stage Investing

2021 marks the first full investment year for Adrenaline Fund which uniquely applies a passive model, fuelled by our startup and angel ecosystem, to early stage investing. Adrenaline Fund was founded in 2020 in cooperation with 2 other sub-funds in the Archangel Network of Funds. Through the vagaries of. the COVID-19 pandemic, 2021. was our first full year of investing fuelled by a remarkable group of Limited Partners who are accredited investors interested in our Purpose.

PURPOSE

The entire team at Archangel Network of Funds, and the Adrenaline Fund, is driven by a core Purpose, developed over years of building and supporting early-stage companies. In a nutshell, we want to directly impact Canada’s economic prosperity into the future by:

  • Investing in Entrepreneurs who are building the future of the Canadian Economy through Innovation,
  • Lowering barriers for accredited investors to participate in, and gain more experience, in early stage investing, and
  • Accelerating, and directly supporting, the Canadian Angel ecosystem while enabling Canadian startups to scale up to global leadership.

In this post, I’ll further explore our unique model, an exceptional team, what we’ve done so far, and propose a future where this impact can grow many times larger than our results to date.

TEAM

The Adrenaline Fund team has unparallelled experience in building companies, mentoring startups and selecting and investing in the next generation of Canada’s tech leaders but at the early stages. In addition to myself, our team includes Benton Leong and Amber French, and is ably complemented by Venture Partner Danielle Graham and the large Archangel Network of Funds team, many of whom are pictured above. Years of strategic business leadership, coupled with some of the most sophisticated selection and investment savvy, are a big part of what makes Adrenaline unique.

MODEL AND WHY IT WORKS

As mentioned, we believe that the Adrenaline Fund model and thesis is unique, at least in Canada, by fusing the power of a passive approach (like an ETF in the public markets) to the early-stage Angel investment ecosystem.

First of all, the investment decision is designed to support the existing Angel ecosystem through a set of rules to govern the investment process. At a high level, the Rules, shared with LPs, stay largely the same but are tuned in response to changes in. the ecosystem. Thus, rather than active decisions, the focus is on tuning the rules and working to ensure that the angel and startup ecosystem remain of high value.

In case some of you think, like a colleague initially did, that such a “blind investment process” is a bit crazy and perhaps akin to wagering on slot machines, nothing could be further from the truth. The secret sauce of Adrenaline is the collective value-add of the ‘qualified lead investors’ who mentor and provide ongoing strategic oversight (e.g. as a board member or board observer).

In fact, research by Brian Smith, Professor of Entrepreneurship and Finance at Wilfrid Laurier University along with global tech investment trends studied by BDC Ventures, shows an almost 25 times multiplier of success for such angel-backed companies. In summary, in generating larger ‘Scale Up’ companies (with valuations reaching US$250M), Canada has a dismal 0.3% track record (or 1 in 300) compared to the 2.5% number for the us (or 1 in 40). Within the Angel ecosystem, specifically GTAN where the study was conducted, an amazing 8% of investee companies reached the $250M threshold. Unpacking the reasons for this incredible out-performance would include factors like: the GTAN selection process, the ongoing value-adds of experienced ‘deal leads’, the strength of the ecosystem support in the Toronto-Waterloo Tech Corridor where GTAN focuses, and syndication with other capable seed/angel stage investment funds.

The bottom line is that, while adding the energy of investment to an existing process that works, Adrenaline Fund is set up for success.

Further, he model is structured to be open and accessible to the greatest number of Accredited Investors by having the aggregate investment staged over 5 equal annual cash instalments (say $250,000 at $50,000 per year). Since the fund is structured to segregate ‘Vintage Years’, and each Vintage aims to invest in 8-10 companies per year, this ensures a diversified portfolio of 40-50 companies at an extremely affordable entry point. The Vintage structure allows new LPs to join once at the beginning of each year, thus growing the maximum amount of each Adrenaline investment and helping startups even more.

Most importantly, the fund attracts investments from individuals who had never been angel investors since it provides deal flow and deal structure for new investors. In other words, we are unlocking new capital to support Canadian innovation.

PORTFOLIO

Our portfolio reflects the diversity of innovation in 2021, transcending the software and consumer focus of a decade ago, with more and more patentable intellectual property and deep tech. The 2021 vintage portfolio comprises:

  • Technology: 5 [Enterprise SaaS (2), Fintech (1) AI/ML (2)]
  • Medical Technology: 4, includes Advanced Materials
  • Industry 4.0: 1,includes Networking and IoT

We are excited to welcome the following companies as our first Adrenaline Fund vintage, reflecting the powerful value-adds of the Angel Ecosystem we support:

CheetahNetworks Logo
delivers visibility into the Quality of Experience (QoE) of machines and people at the edge of the network. Their PulseViewTM Solution provides operators of public and private networks with actionable, real-time IoT network analytics.
Collide Logo
decision facilitation software helps teams make better decisions together, particularly in remote-first and hybrid work environments.
DarwinAI Logo
artificial intelligence company that has developed Explainable AI (XAI), a technology that uniquely analyzes data and models to optimize automation and human- in-the-loop decision making in real-world enterprises.
EAIgle Logo
artificial intelligence company that has developed Explainable AI (XAI), a technology that uniquely analyzes data and models to optimize automation and human- in-the-loop decision making in real-world enterprises.
Forcen Logo
Developed Prelivia, an FDA approved technology that promotes healthy blood circulation and tissue oxygenation for those who are bed ridden or chair bound.
Kenota Health Logo
decentralizing allergy testing with a proprietary approach that employs rapid, point of care instrumentation.
Mesosil
produces responsive antimicrobial advanced material to prevent infection at the medical device-tissue interface for the dental industry
Rehabtronics Logo
developed a digital “sense of touch” for the most demanding surgical robotic, industrial robotic/automation, and defense/aerospace sectors
SparcPay Logo
intech firm delivering integrated, AI enabled payment solutions to small business
Wavy Logo
culture management platform for flexible teams. Wavy’s digital market place allows users to create, manage, and book experiences for groups of people
Amber, Benton and I are pleased with the successful validation of our passive, rules-based model for Adrenaline Fund and are excited for how this will grow in 2022 and beyond.

Feel free to reach out to any of us to learn more and get involved. We’d love to have you on board.

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CAMP-Group-Great-Wall-L1040087-1024x576-1

8 Mar 2016

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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.

Source: Wall Street Pit

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..

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MPfYCC-Website-Narrow-1

10 Sep 2015

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Middlebrook Prize on the Move

The Middlebrook Prize for Young Canadian Curators has named Adam Barbu as its third winner and is moving up to a whole new level. Founded in 2012 by John Kissick and me, with initial investments from Middlebrook Social Innovation Fund, to support and mobilize Canadian creative talent, the Prize aims to inspire positive social change through creativity and connectedness in a time of unprecedented economic, environmental, social, and cultural challenges.

In our 3rd year, some exciting changes are afoot as we see our vision for the Prize unfold.

First of all, the Prize has a new home in our partner gallery, the recently re-branded Art Gallery of Guelph. Led by Dawn Owen, the gallery provides a compelling new venue to host the Prize exhibition and to mentor the winner.

Secondly, the Prize now has a physical form and a visual identity as befits an increasingly important Canadian cultural icon. Designed by the immensely talented and award winning creative director, Chris Duchaine, our new visual identity reflects the knowledge integration inherent in modern curating interpreted with the most modern design principles. Paying homage to the “White Cube” abstraction of the  idealized art gallery, it also references the forces that are breaking down that cube and moving curation firmly into the future, perhaps embracing new ideas like the Ultra Contemporary Art Movement.

Hear Chris discuss his design:

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.

2015 National Angel Capital Summit

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acquisitions

8 Feb 2015

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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.

Rank Company Acquiror Acquisition Price
(UIS$ millions)		 Date Acquired Date Founded Company Age
(years)		 Employees LTM Sales
($US Million)		 NOTES Price/Sales Revenue/Emp CAGR $/Employee
1 Pixstream Cisco 369 December 21, 2000 1996 4 196 5.4 2 68.3 27 551 47.2 1.88
2 Dalsa Teledyne Technologies 341 February 14, 2011 1980 31 1000 200 3 1.7 200 000 0.85 0.34
3 MKS PTC – Parametric 304 May 31, 2011 May 1, 1984 27 360 75 4.1 208 333 0.96 0.84
4 Mitra Imaging AGFA Healthcare 252 January 3, 2002 1990 12 400 50 4 5 125 000 3.38 0.63
5 Bluegill Checkfree 250 April 28, 2000 1996 4 150 20 5 12.5 133 333 68.57 1.67
6 Unitron Phonak 91 November 22, 2000 1965 35 300 62.6 6 1.5 208 667 0.67 0.30
7 SlipStream RIM 91 June 1, 2006 2000 6 120 13 7 7 108 333 14.33 0.76
8 Tsavo Media Cyberplex 75 June 10, 2010 2001? 9 120 110 8 0.7 916 667 6.83 0.63
9 WATCOM Powersoft 74 February 11, 1994 1981 13 100 8 9 9.3 80 000 2.4 0.74
10 LivePage Janna Systems 68 September 20, 1999 1990? 9 12 1 10 68 83 333 3.64 5.67
11 EMJ Synnex Canada 64 July 14, 2004 1979 25 350 303 12 0.2 865 714 1.18 0.18
12 Dspfactory AMI Semiconductor 51 September 9, 2004 1998 6 75 16 3.2 213 333 14.87 0.68
13 MapleSoft Cybernet Systems 49.8 September 1, 2009 April 30, 1988 21 50 12 13 4.1 240 000 1.17 1.00
14 PrinterOn Samsung 40 September 2, 2014 2000 14 50 10 4 200 000 2.15 0.80
15 SS Technologies Woodhead Industries 35 July 31, 1998 1991 7 75 50 14 0.7 666 667 11.6 0.47
16 Reqwireless Google 32 2001 June 23, 1905 4 15 1 32 66 667 30 2.13
17 TribeHR NetSuite 30 October 22, 2013 2009 4 24 4.5 18 6.7 187 500 45 1.25
18 GBG HighJump Software 26 November 1, 2006 1991 15 200 22 11 1.2 110 000 2.09 0.13
19 PostRank Google 25 June 3, 2011 March 1, 2007 4 20 0 n/m n/m n/m 1.25
20 Kaparel (Pixstream) Rittal 21 December 10, 2000 1996 4 30 7.1 17 3 236 667 50.62 0.7
21 VideoLocus LSI Logic 20 November 14, 2002 May 1, 2001 2 17 0 n/m n/m n/m 1.18
22 RapidMind Intel 19 August 19, 2009 2004 5 25 3 6.3 120 000 18 0.76
23 BufferBox Google 17.5 December 30, 2012 2011 2 10 0 n/m n/m n/m 1.75
24 Software Metrics Equitrac 8 February 1, 2000 September 1, 1992 8 35 3 16 n/m n/m n/m 0.23
25 Volker Craig NABU 5.9 1981 1973 8 45 5.9 1 131 827 6 0.47
TOTAL 2364 11.16 3779 982.5 11.5 259 998 15.8 0.62

NOTES:

  1. Sources: public records, internet, personal recollections and interviews with 25 key ecosystem participants. In the interests of data utility, I welcome any revisions or comments regarding accuracy or completeness.
  2. All data are “normalized” into US Dollars, using an exchange rate current on the date of the acquisition. The use of US$ reflects the fact that most technology companies are really valued in US$ and hence that makes comparisons, both across the data and to other jurisdictions, more meaningful.
  3. The sample set is limited to my sense of what a technology company is – your mileage may vary.
  4. Acquisition PRICE includes cash, stock and post deal incentives, including earn outs.
  5. Several companies were re-acquired after the first acquisition (e.g. WatCom and LivePage). These follow on transactions are not reflected in this data.
  6. Some companies spun out several acquisitions, such as Kaparel which was sold out of Pixstream or SS Technologies, originally spun out of Sutherland Shultz.
  7. AGE represents the time in years from founding to the (first) acquisition.
  8. EMPLOYEES is the world wide count.
  9. SALES, given the high growth nature of many of these businesses, levels generally reflect the run rate at acquisition, rather than purely using an LTM (“Last Twelve Months”) measure.

CONCLUSIONS

The above data suggests a lot of trends and insights. It contains a wealth of insights, and also the individual narratives of each of these companies is, in itself, worthy of more discussion and analysis. In aggregate, however, the data suggest some key ideas to me:

  1. Acquisition prices are a great proxy for long term shareholder value, precisely because leading global technology companies provide an informed, third party valuation that likely has way more science than most earlier stage technology company valuation.
  2. Building larger companies takes time. The myth of the “quick flip” startup is (mostly) just that.
  3. As I discuss in my next post, building major technology companies is hard. We don’t (yet) seem to have “cracked the code” on this and need to learn how to build more over time.
  4. The aggregate scale of these companies, at the time of their acquisition, is materially significant to our region – almost 4 000 employees and almost $1 billion in revenue.
  5. Companies take much longer to build than most would expect. While the range in ages from 2 to 35 years is quite diverse, the average age of 11.2 years shows the time, resources and hard work to build real businesses.
  6. Acquisitions are good for our economy. Many people consider acquisitions to be a bad thing, but for those companies that were already at reasonable scale, most have continued to grow post acquisition. In addition to the wealth generated and its spinoffs, the acquirors bring new ideas and often jobs to our region. This is yet another reason why building larger technology companies is so important.

I am hoping that this data collection regarding acquisitions, and my initial take on conclusions, might stimulate further discussion around the notion of building significant value in businesses.

Please feel free to comment, or even contact me, with insights, questions and corrections.

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3 Oct 2014

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Canadian Angel of the Year Award

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

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 21st 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 …

 

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29 Oct 2012

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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.

Pitching in Istanbul

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.

 

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2 Sep 2012

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[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.

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4 Aug 2012

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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.

The importance of building new, innovative, and large, companies can’t be underestimated regionally, provincially and nationally. Here in Waterloo, with perhaps 10 000 jobs at a single behemoth, Research in Motion, the notion of job creation is particularly topical simply to lessen our dependency on such a large company.

My sense is that, of late, most of the focus centres around making startups: small, energetic and entrepreneurial software, web and mobile companies, some simply building a mobile application. And, even with the current notion of Lean Startups or our Venture 2.0 approach, there is no question that building such early stage companies is probably an order of magnitude cheaper than it was back in the 1990’s While undoubtedly a good thing for all concerned – founders, investors and consumers all have so much more choice – has this led to a corresponding increase in new major businesses in the technology sector?

I see this as more of a discussion than a simple answer, and thus to start, I include the following table of my sense of how the numbers have changed over time. The following table provides some idea of how company formation has trended over the last 25 years, through the lens of scale rather than acquisitions:

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NOTES ON DATA:

  1. Sources: public records, internet, personal recollections and interviews with 20 key ecosystem participants.
  2. The definition of “big” is purposely somewhat arbitrary (and perhaps vague). I am using a threshold of 50 employees or $10 million in revenues, which is probably more indicative of these startups becoming mid-sized businesses.

INITIAL INSIGHTS:

This data, while helpful, can never provide a complete answer. However, it can guide the conversation around what I see to be an important economic mission for our region and country – that is, building more significant technology businesses. I’m sure there are no easy answers, but in shaping policy, it is important to base decisions on informed debate and research.

To that end, I would offer the following thoughts:

  1. The current plethora of “lean startups” does not (necessarily) represent a clear path to growing those startups into larger businesses.
  2. I suspect that, in some ways, multiplying small startups can retard the growth of larger companies. That said, the data are insufficient to prove cause and effect.
  3. At the ecosystem level, we need to focus resource allocation beyond simple startup creation to include building more long term, and larger, technology businesses. Instead of spreading talent and other resources thinly, key gaps in senior management talent (especially marketing) and access to capital (B rounds and beyond) need to be resolved.
  4. Even in day to day discussion, the narrative must shift so that entrepreneurism isn’t just about startups, to make company building cool again.

Canada holds many smart, creative and hardworking entrepreneurs who will undoubtedly rise to the challenge of building our next generation economy. Meanwhile, I’d welcome comments, suggestions and feedback on how we can build dozens or more, instead of a handful, of larger technology companies in our region.

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