LaBarge Weinstein Quarterly, Spring 2010
Summertime, and the living’s easy…well, if not easy, at least very busy. As we gather around the Canadian tech corporate finance poolside for the coming season, there is an equally sunny disposition from every sector. Reclining in one corner, investment bankers and management teams take a well-earned breather from a frenetic spring, sipping from umbrella-adorned cocktails and dreaming hazily of pricing their fall IPOs. In another, shirtless local tech venture capital funds flex their muscles to an adoring throng, both at home and abroad, in their efforts to rekindle the flames of mid-2000s dealflow. Last but certainly not least, the early stage pool is filled to the brim, as founders, angels, and a whole new gaggle of seed funders and accelerators splash about looking for enough momentum to spill them up onto the deck into a waiting investor- or acquirer-held towel, to be dried off and thrown back in to do it all over again.
Where do we fit in? Like any good party guest, pretty much everywhere. We remain hopeful for the public market bust out in the coming two quarters, and we’ve otherwise busied ourselves with a wide range of transaction work: from issuer engagements in financings completed by Ottawa-based Energate and Mississauga-based Sidense, to institutional advisory work for Panorama Capital, in its investment in Calgary-based Tynt, and the Blackberry Fund, in its investment in Ireland’s Aepona, to setting up our very own capital pool company to service our clients looking to access the public venture markets over the coming few months.
We’d certainly love to assist as your venture heats up this summer. Please feel free to contact any of our partners as you dip your toe in the deep end, tap the keg or strike up the BBQ to kick it off.
Bouncing off the (Networking) Walls…
Thinking that the Ottawa tech community’s telecom infrastructure bias is the technology equivalent of the beer-bellied old man combing the beach with a metal detector? Think again. Over the past several months, there has been increasing clamour about the limits of our networks, and the pressure we’ll continue to put on them over the coming decades. The noisiest example has been the cellular firestorm caused by iPhone (the “Hummer of cellphones” according to the New York Times) users in large urban areas like New York City. But data-guzzling over cell phone networks is just the beginning. In January this past year, the National Science Foundation released its summary of the “Future Internet Summit” held the previous October. Among its fivefold objectives for a future Internet, the most notable is the need to build an Internet for the other 3 billion people on earth. As of the end of 2006, US registrants held 74% of the world’s domains, but those in emerging economies such as China will be quickly catching up. Complicating these developments even further will be the proliferation of “things” on the network, as Wired.com’s editor (and Canadian expatriate) Evan Hansen highlighted in a recent presentation to Ottawa’s OCRI organization. Finally, it’s been universally recognized (at least by Cisco) that one of the most important “things” to communicate through the Internet will be energy production and distribution, and there are broad-based efforts afoot to lay the standards foundations necessary to smarten up our grids. The moral: don’t bury that electrical engineering degree in the sand just yet, you might just need it again over the next few years.
However Long the Digital Media Night…
As the African proverb continues, “the dawn will break”, but it would be easy to see two recent developments as evidence that Canada’s embrace of digital content distribution continues its committed slumber. The first is a recent study commissioned by the Canadian Film and Television Production Association regarding the allocation and exploitation of digital distribution rights by Canadian content producers. Broadcasters and distributors are undervaluing and grossly overreaching its requests for such rights, the survey concludes, and the majority of producers received no incremental value whatsoever for sweeping assignments of future distribution of web- and mobile-based content. The second is the recent CRTC decision empowering carriers like Bell to charge its customers based on how much they download each month. While it makes sense at one level, analysts suggest, the decision will certainly stall the widespread adoption of Internet-delivered television in Canada, and (cynics would suggest) the exodus of consumers from their more costly cable and satellite monthly plans. What does it mean for us and the digital media companies and investors we work with? Continued strict cash management for sure, as the market continues to emerge and develop, and maybe some continued lean times as content buyers and intermediaries sort out their respective business plans. The dawn will come, however, as will the pent-up demand for the technology solutions offered up by terrific Canadian companies like Metranome, Mobovivo, Adenyo, and LiveHive.
The CNSX: Has Public Venture Capital Found a New Home?
Many of you will have noticed the marketing push over the past year from Canada’s newest stock exchange, the CNSX, to attract issuers to its board. While it isn’t entirely novel (the exchange has been around since May 2004), the CNSX definitely has a different look and feel for small cap companies seeking a public venture capital alterative. The upside: moderate listing fees, relaxed public disclosure obligations, and continued eligibility for refundable SR&EDs. The downside: as with any emerging exchange, short- and long-term liquidity. What do we think? The jury is likely out as to whether the exchange can build (and, more importantly, retain) a confident and active investor base, given the nature of the companies and its market-makers. With LSE’s AIM exchange, for example, increased liquidity ultimately depended on increased reporting standards, which diluted one of the AIM’s chief benefits to cash-strapped issuers. As with other junior exchanges, the principal value of the CNSX will likely be in developing a dependable graduation track to North America’s other exchanges, and companies with a clear and achievable plan of action to engage that path will benefit most from their CNSX experience. For our part, we continue to have an open mind, and remain committed to serving the compliance and transaction needs of CNSX targets. We’d be happy to discuss your needs, and your public venture alternatives, with you. Please feel free to contact Paul Amirault at email@example.com or Shane McLean at firstname.lastname@example.org if you’d like to do so.
Blogs & Other
We are launching the LaBarge Weinstein corporate blog and Twitter feed (yes, Twitter feed) this coming July, so please look for that and provide us with your feedback. In the meantime, check out a terrific podcast from Canadian expatriate and New Venture Partner Dr. David Tennenhouse regarding “inside-outside” innovation in large companies like Intel, and how startups can harness this process for their benefit. Hooked on your iPad? Check out this recent New York Times article that warns of device “addiction”, and laments a simpler time of hand-held phones roughly the size and weight of your average Bible. Finally, if you need a daily dose of superiority over the microprocessor sitting before you, see this very cool study from Yale researchers that explain why computers are far more likely to “crash” than humans (apparently, the Yale professors did not include the French national soccer team among its sample for purposes of the work).
Here is a sample of the publicly announced transactions that our lawyers have worked on over the past several months:
- $5M Series B Financing of Sidense
- $7.2M Series B Financing of Energate
- Investment by Panorama Capital in Tynt
- Investment by Blackberry Fund in Aepona
- Series C Investment in Vantrix
- Acquisition of Stem Cell Therapy Rights by Chemaphor
Events & Calander
Our partners Paul Amirault and James Smith led a terrific session in Mississauga this past spring hosted by PWC’s Toronto tech group, focusing on early stage and venture financing alternatives, and we thank Eugene Bomba for that opportunity. In late May, we hosted two Montreal-based seed funders, Mark Macleod and Ray Luk, in Ottawa at an event co-hosted with The Ottawa Network. Mark and Ray earned rave reviews for their purposefully casual attire (in the Montreal style) and their discussion of the best and most efficient ways to create investor stickiness, and we thank them again for making the trip up to attend.
Please look for our lawyers and seek us out at the upcoming Communitech Tech conference in Waterloo on July 14th, Vancouver’s “Grow” startup conference in late August, and if you’re looking to fill your summer days and evenings, check out the lists below for other events: