June 4, 2009

The role of universities in entrepreneurship

Posted by Kevin Talbot under Entrepreneurship, education, venture capital
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There is something very unique about the area around Stanford University.  The area is home to start-ups of all types from iPhone game developer Tapulous (Tap Tap Revenge) to Facebook.  I know a Computer Science professor who holds his office hours at the University Cafe in Palo Alto.  Stanford offers an iPhone software development course to equip grads with relevant and timely capabilities.  Larry Page and Sergey Brin (founders of Google) were both computer science grad students at Stanford.  They even have a 5,000 member Business Association of Stanford Entrepreneurial Students (BASES) that supports the goal of building “the next generation of entrepreneurs by facilitating networking, discussion, education, and hands-on experience with real world people and problems” that is supported by the local VC industry.  It’s not just about entrepreneurial programs but the way they are integrated with the computer science and engineering programs that makes Stanford a major supplier of talent to the entrepreneurial eco-system in Silicon Valley. These are the people that take the high risk, high reward jobs at the endless number of start-ups in the Valley.  They are also the people who go on to start their own companies.  They are the technology-savvy entrepreneurial life-blood of start-ups. 

How are we doing at fostering a generation of entrepreneurs from Canadian computer science and engineering programs?  Nowhere near what I see in Silicon Valley on my monthly visits. 

A critical factor in building a sustainable venture capital industry in Canada is a having a large volume of transactions and a deep entrepreneurial talent pool to both work at and launch start-ups.  Venture Capital is a numbers game and we need many more start-ups than Canada is currently producing from which to choose a select few to fund that will be globally competitive.

To help achieve this, Canadian universities need to graduate more students from technical sciences programs that want to work in start-ups and become entrepreneurs as opposed to just “employees.” Many of our universities and colleges fail to inspire technical sciences students to create start-ups. The best of our best computer science, engineering and other technical students should be equipped to create companies. It is critical that Canadian educators re-tool the relevance of their programs.  And, as an industry, we must collaborate with universities on initiatives like Stanford’s BASES.  All of this is necessary  if Canadians are to compete and create globally.

 

May 31, 2009

Best in the world, not just best in Canada

Posted by Kevin Talbot under venture capital
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Simply increasing the volume of sub-par deals won’t solve the venture capital problem in Canada. The technology industry is a global business and has no borders. Put directly, Canadians need to build world-class companies, not just “Canada-class” businesses if they are to be competitive. To do this, Canadian entrepreneurs need to make a wholesale shift in their attitude about markets, competition, ownership and opportunity.

I continue to hear from entrepreneurs that they want to expand throughout Canada before exploring opportunities in the United States. This is a fatal mistake. Canadian technology entrepreneurs need to adopt the view that Israeli entrepreneurs accepted long ago. There is no domestic market for their product or service. The sooner they recognize there is only a global market, the better off they will be.

As for competition in this global market, Canadian entrepreneurs need to operate under the assumption their competitors are better capitalized, networked and staffed than they are. As former Intel CEO Andy Grove said, only the paranoid survive. Our high standard of living in Canada sometimes shields us from the reality that somewhere out there is an entrepreneur who has nothing to lose by taking chances, making bold moves and just plain working harder than everyone else. We need more of that attitude in Canada.

Since I probably spend more time with American entrepreneurs than most other Canadian VCs, I can tell you Canadian entrepreneurs seem overly focused on owning the largest slice of what will turn out to be a very small pie. At the risk of generalizing, most American entrepreneurs would rather have a small slice of a really big pie. When it comes to financing a company with venture capital, entrepreneurs need to keep this concept in mind. It is a self-fulfilling prophecy that comes true more often than not.

Finally, too many entrepreneurs in Canada are creating “lifestyle businesses” that only aim to achieve a certain level of income or give them a “job” on their own terms. While there is nothing wrong with this, VCs are not in the business of funding these opportunities. To create the next RIM, VCs need to focus on entrepreneurs with game changing ideas who are building “companies” with large markets and high-growth potential.

 

May 27, 2009

Is Canada Too Small for VC?

Posted by Kevin Talbot under venture capital | Tags: , |
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The question is whether or not Canada is simply too small a region to support a domestic venture capital industry.  The issue came up again in conversation with a good friend here in the Valley yesterday over the attractiveness of starting a 5-state regional venture fund in a relatively under-served market.  I thought the idea would only work if there was a critical mass of entrepreneurs and investment opportunities.  I argued that Canada is like a small region in the US that, while under-served, does not have  a critical mass of entrepreneurs or investment opportunities.  The Canadian VC industry is collapsing because the domestic VC funds have tried (been compelled by their institutional investors) to build portfolios by solely investing in the “best” Canadian companies.  How can you succeed when you can only choose to invest in the best company in a relatively small region when American VCs have a broader selection of talent and opportunity?  You can’t and that is why the returns have been dismal.

This has nothing to do with the quality of the entrepreneurs and opportunities in Canada.  There are opportunities (we have four great companies in our portfolio) and there are some talented entrepreneurs.  Just not enough to support a VC industry that is restricted to such a small geography.  Foreign investors are already active and pursuing high-quality deals in Canada. It was recently reported that foreign investments in Canadian VC-backed companies are averaging $3.8 million, while domestic investments in similar companies average just $1.1 million.  There is nothing wrong with this, even though some will argue it may lead to our best companies leaving Canada. Yes, that may happen. Companies relocate primarily because of talent, networks and access to capital. Silicon Valley is a compelling place to operate because, in the IT industry, it is the centre of the universe. So, Canada needs to build a competitive eco-system underpinned by a talented entrepreneurial and technical workforce that makes Canada a compelling place to do business. 

Canadian-based VC funds can be successful if they are not bound solely to the Canadian geography.  At the same time, we need to do more to attract US-based VCs to invest in Canadian opportunities.  If Canadian entrepreneurs can be globally competitive then they will have no problem attracting VC funding.

 

May 15, 2009

Small Piece of a Large Pie

Posted by Kevin Talbot under venture capital | Tags: , , |
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Successful entrepreneurs realize that it’s not about getting the biggest slice of the pie possible because a smaller piece of an ultimately larger pie is what matters.  Good companies with large markets in fast growing sectors, solving a problem that hasn’t been solved before, with smart passionate people and orders of magnitude better technology can raise money from just about anyone.  The whole point of venture capital though, is it’s not just about the money.  It is about maximizing the company’s chances of success.  VCs bring a lot of value to the table beyond cash.  They bring their networks, they use their expertise, and their involvement in a company has a certification effect (certifying the quality of the company).  VCs are also key to attracting other investors who bring more value. VC value add is especially critical to first time entrepreneurs as well, as these are the people who can benefit most from the venture capitalist’s experience, judgement and guidance.