Q-News

November 2010

The Times They Are A-Changing*

Posted in Mike's Commentary

As we approach the end of the year it is always interesting to reflect on what one has accomplished during the past 12 months and to put serious thought into plans for the next twelve months and beyond. In early 2006, as we kicked off Q1 Capital (and put Fusion to bed), it was apparent that a business model based solely on raising capital for private Canadian technology companies from Canadian and U.S. VCs was doomed to fail. With the writing on the wall, we actively began to move away from financings and refocused our business on providing merger and acquisition advisory services. Looking back, when I cofounded Fusion Capital there were over 55 venture capital firms in Canada looking to finance technology companies and there was certainly no shortage of good companies looking to access that capital.


Today, you can count the active VC firms in Ontario on one hand and finding companies who both need and qualify for growth capital is a challenge. The fortuitous timing of our refocusing really struck home last month when I read Mark McQueen’s sobering blog entitled “Mass Confusion in Ventureland” listing a number of the venture firms that have ceased to be sources of capital for new investments or active members of the VC community. These included:

Blackboard, Brightspark, BMO Technology Investment Program, CastleHill Ventures Inc., CDP Capital Technology Ventures, CMDF, Crocus Investment Fund , Edgestone, eLab, First Ontario, Garage Canada, Greenstone, GTI Capital, Hydro-Québec CapiTech Inc., Jefferson Partners, Lattitude, Launchworks, McLean Watson, Mosaic Venture Partners, MWI Partners, New Generation Biotech Fund, NRG Group, Primaxis, Propulsion, RBC Advanced Technology Fund , RBC Technology Ventures, RBC Capital Partners, RBC Life Sciences Fund, RBC Telecommunications Fund, Rising Tide Canada, RoyNat, Skypoint, Springbank, TechnoCap, Tera Capital, VC Advantage Fund, Ventures West, VentureCoaches, XDL, etc., etc.

As Mark alluded to, there will be more firms to add to that list over the next year or two.

Results for October read like virtually every other month for the past two years – a limited number of financings for a small amount of money and an ever increasing amount of participation by government backed or sponsored agencies and funds. When one reads about the declining competitiveness of Canada in the global marketplace, you don’t have to look any further than the decline of sources of capital for the current and next generation of technology companies.

Last month I had the privilege of being one of the judges for ICT companies applying to be showcased at the upcoming Canadian Innovation Exchange on December 7. It was a great opportunity to see many of the companies that comprise the next wave of Canadian companies readying themselves to be major players in global markets but for many, the dark cloud of where the next round of growth capital will come from continues to be a challenge. And on that cheerful note, please pass the word along that this year’s CIX should be an exceptional event for networking, learning and seeing some of our top ICT, Digital Media and CleanTech companies that will be in attendance.

On the M&A front, business continues to chug along nicely, particularly with our expansion outside of a strict technology focus. In addition to three technology companies that we are working for we are also doing a fair amount of work in the food processing and basic product manufacturing space. Different from our usual sell-side mandates, these traditional industry buy-side mandates are opening up a whole new side of the business for us. We’ll never be moving out of the technology sector; it’s simply a case of being a little less myopic and adapting to the times.

Why the expansion of our business beyond technology? It’s simple - since the September 2008 market meltdown many technology companies found themselves orphaned as their sources of capital dried up or they were identified as one of the companies that would not qualify for follow-on financing from their current investors. The IPO market has been virtually non-existent for Canadian technology companies, VC’s are challenged to raise new capital, angels no longer have exits by attracting VC investment and it goes on and on. Too often these companies have simply been left to wither on the vine as opposed to being judiciously put out of their misery. Come on, we all know of one or two companies that exist as a shell of their former selves. You know the ones…top management have left, customers have cancelled or are not looking to renew contracts, cash is non-existent and the remaining management claims that the value of patents becomes the real value of the business.

Unfortunately, despite current market realities many investors continue to have inflated views on the value of their investee companies or maybe they are just afraid to accept reality and take a write-down in their portfolios. Either way, those dogs won’t hunt! And, Google’s acquisition of BumpTop along with Marketwire’s acquisition of Sysomos only leads to dreams of the ultimate exit being just around the corner. I really hate to have to tell some investors but finding a greater fool to buy the business generally went out the window in 2001.

Anyway, as we move into December let’s get in the optimistic mood and enjoy the season.

*No royalties were paid for use of this title.. Thanks to Bob Dylan

Send to a Friend

Like this article? Send it to a friend using the form below.
Your Name:
Your email address:
Friend's Name:
Friend's email address:
Message: