Silicon Valley North #12 Oct'99

The Way I See Itů by Michael Volker

Early stage deals are facing  brighter futures

Startups are in. New technology ventures are being formed at unprecedented rates. And it isn't just internet companies that are being started. I'm seeing new ventures being formed in many fields ranging from agriculture to zygosis.

Starting a company is easy but growing and building a company requires a great deal more than a superb idea. Getting startups financed has always been challenging. Although there is lots of capital available for expansion, early stage companies may find true risk capital harder to find.

Here in B.C., however, young companies are able to take advantage of many local initiatives in order to help them get off to a good start.

For example, the Vancouver Enterprise Forum (see www.vef.org), provides startup entrepreneurs with an excellent venue to network and make connections in the high technology arena. Of particular interest to startups is the Enterprise Forum's "angel network" which was created to introduce new entrepreneurs to seasoned ones who can provide not only some investment capital, but more importantly, some solid business mentorship and advice. These business angels can relate to the startup's needs - they've been there themselves. This network operates on a confidential and informal basis, modeled after similar networks which are the lifeblood for new venture creation in Silicon Valley. Angels are interested in meeting with companies seeking at little as $50K or as much as $1 million or more.

One of the Vancouver Enterprise Forum's sponsors, the Business Development Bank (BDC) hosts a recurring "Angel Forum", which is a more formally organized event which is held a few times throughout the year. The BDC's sixth forum is scheduled to take place in Vancouver this October 26 and 27 (details may be found on the VEF's website).

Venture capital firms are warming up to earlier stage deals and many have created special funds or mechanisms through which they can look at such opportunities. For example, the BDC, Bank of Montreal and Ventures West have created the Western Technology Seed Investment fund to specifically work with young technology ventures.

Various non-profit industry-driven organizations such as the BC Advanced Systems Institute offer creative programs for financial support for product development and prototyping. Government funded agencies like the National Research Council (and its highly successful IRAP program) and the B.C. Science Council have been financial supporting high risk technological development for many years.

Last year, the Vancouver Stock Exchange implemented its "Venture Capital Pool" policy to facilitate the formation of small capital pools for emerging companies. The salient feature of these pools is that they come with business and corporate experience, i.e. an instant board of directors committed to building profitable companies.

Early stage financing is so topical that the VEF plans to kick off its September 28th event with a special presentation on the subject.

Later this year AceTech, the Academy for Technology CEOs (see www.acetech.org), is offering its second annual "AceTech Early Stage" conference on November 25 and 26 specifically designed to assist startup CEOs in their quest to build viable businesses.

All this enthusiasm and focus on younger and smaller companies is bound to encourage even more entrepreneurship and startup activity. However, early stage also means high risk and a greater likelihood of failure. What's missing is the lack of incentives for the risk takers. If we really want to be more like Silicon Valley, we'll need to adopt tax practices like tax-free rollovers, capital gains exemptions for long-term investments and other incentives to encourage those that have cashed in on their own ventures to re-invest in new deals.

In B.C., there is a growing resource of wealthy entrepreneurs who have built successful companies. The way I see it, these individuals deserve to cash in, but we all lose if they cash out!



Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He is a former executive director of the BC Advanced Systems Institute and is chair of the Vancouver Enterprise Forum. He may be reached at mike@risktaker.com.

Copyright, 1999.