Growth Times

In my previous posts, I took a good look at MaRS Discovery District, to raise attention about the meager $400+K salary of the institution’s CEO, the restrictive $130M in subsidies, the crystal transparency of grant decisions, the real estate successes, the tireless dedication of a selfless network of underpaid advisors mostly stemming from the visible minorities of our beloved city, the fantastic public-private partnership and synergies of the hub with private incubators and providers, and the focus on supporting actual start-ups as opposed to associating with companies on a proven winning trajectory that could make for great political advertising.

Well, I am glad to report today that Waterloo’s Communitech, too, is on its way to becoming a success story itself. Not to be left behind in the “space” race with MaRS, it is adding an impressive tool to its arsenal, one that will without a doubt propel Canada from its position of innovation laggard to that of superstar: yes, it has secured the lease to a building!

And one to be filled up with advisors, too! Special thanks are extended to all taxpayers across Ontario for generously agreeing to sponsor those. A smart move, since the public hub model has proven to be so profitable for those advisors. It surely will add value to the Waterloo economy by creating a number of well-paid, stable bureaucrat jobs. As we know, those don’t go away when a sneaky financial crisis hits the nation, so they should be encouraged.

In the lease announcement, Communitech highlights all of the fantastic inputs that will go towards helping innovators. Like “square footage”. And “advisors”. And “square footage” too! They even commit black-on-white to actual results, this is not just a multimillion project with no teeth: they expect the initiative to attempt to try to possibly help create the next RIM! Wow! How? Don’t ask silly questions! Those folks know what they are doing! Remember, they’ve already managed to secure millions from the government and some white boards and markers from private sponsors.

Surely the CEO of Communitech in Waterloo, as well as that of OCRI in Ottawa, deserve their undisclosed salaries (and MaRS’s CEO could learn a thing or two from those undisclosures). If the rumors that their salaries are also in the neighbourhood of $400K are true, then I say: good for you CEOs, you deserve every penny for all the start-ups square footage and advisors’s positions you’ve helped add!

Crowdsourced exploration, and a call to entrepreneurs for media inputs

The other good news is that my previous posts got people talking and asking questions for themselves (if not publicly as much, at least privately as a number of emails I received have shown). As I was hoping for, they have helped “crowdsource” the exploration of this fascinating topic.

And now a mainstream medium has taken an interest too so, who knows, we might actually see some objective reporting, rather than this rant by a grumpy-utopian (yes, that’s a perfectly valid combination of adjectives) French immigrant evidently using this story to be seen in the positive light of a whistle-blower – an obviously effective way to attract new business to his fledgling start-up consulting business.

You can help: I have been asked to provide introductions and I would like to offer additional contacts beyond the ones I already know, so if you meet the following profiles or know someone who does, please contact me at gregboutin-AT-gmail.com.

• entrepreneurs who have tried to secure support from MaRS unsuccessfully
• entrepreneurs who were selected as MaRS clients but are unhappy with the support
• other entrepreneurs trying to start a business who never approached MaRS because they heard there was nothing in it for them
• folks previously or currently affiliated with MaRS who have issues they want to share

Anonymity is guaranteed. Why am I not asking for people who had a great experience? MaRS has resources devoted to lining those up, let’s make them work a little for the money we give them.

This is your chance to be a sh*t-disturber like me, and maybe even help redirect some money towards the real entrepreneurs. One last fact to motivate you: after real estate costs, over 80% of MaRS’s 2008 budget went into salaries.

In my next and possibly final post, I will tackle the topic I said I’d tackle in this post: recommendations for providing effective public support to entrepreneurs.

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• Troubling Facts about MaRS Discovery District (Part 1 of 4) (growthtimes.com)
• Troubling Facts about MaRS Discovery District (Part 3 of 4) (growthtimes.com)

Canadian entrepreneurs canada, communitech, Mars, mars discovery district, oce, OCRI, Ontario, Ontario Ministry of Research and Innovation

Since I started this series, I have received multiple emails of support from entrepreneurs – several of whom are “clients” of MaRS – and innovation practitioners. Here are some extracts:

I appreciate your courage to post your views (which I share) on the MaRS topic”  (from a university research commercialization specialist and entrepreneur)

“Being a client of MaRS, I share your sentiments, but wouldn’t do so in public (for the same reasons you mention)” (from a Toronto entrepreneur)

“I forwarded your site to some of my friends at MaRS. I’m finding it quite revealing to say the least!” (from a MaRS tenant)

“I saw your post on MaRS. I had heard the numbers, but had not had the link to them. Thank you.” (from an angel group member)

“MaRS is like the planet. It’s cold and distant. Apart from some educational sessions, it doesn’t do much for actual start-ups, yet it wants to control our galaxy. They should call it the Death Star.” (a Toronto entrepreneur)

“Can’t disagree with anything you are saying” (a long-time MaRS client)

“The story sounds interesting, and clearly quite relevant.” (from a national paper business columnist)

“They’re all so pompous and useless at MaRS, as if they’re running a NASA lab (…) If they had given that money to real entrepreneurs instead, they would have created more jobs and wealth” (from a Toronto entrepreneur)

“MaRS lacks any sort of accountability. Their impact is unknown because they don’t publish any relevant metric” (executive at another innovation hub)

In case you wonder, I received only one negative comment (see the update to my first post – showing that according to MaRS’s own statistics, each advisor works a total of 5 days per year to help entrepreneurs). In a way, it is disappointing. And no news from MaRS, which I imagine is making sure not to give this any publicity.

Note I am looking to inform relevant people in the political sphere about this issue, and I would welcome any suggestion as to whom might be appropriate. You can email me at gregboutin -AT- gmail.com.

On whistleblowing

A recurring theme in most of the emails of support communications is fear. There are many, many people agreeing that something is wrong with the MaRS approach, but most of them admit fearing the consequences on their reputation and revenue if they were to publicly express their thoughts.

There is something very wrong with our system if one can’t put forward valid concerns without feeling threatened. Being a whistleblower is rarely a career-enhancing move – but I’d argue that, when confronted to such a waste of dollars, raising concerns and asking questions is an ethical requirement. How can one go home and look at their kids in the eyes otherwise?

In the past few years I have done that a few times, so I am used to the label. Plus, I was born in France, which doesn’t help given the reputation. I guess I should have been a journalist, but I don’t write that well and I prefer to be actively involved in companies.

In 2003, while working shortly as an intern for a financial analysis firm in Richmond Hill, I discovered that Shell was misreporting their oil reserves. Told that to my boss, who chose to ignore it. Bad move: 6 months later, we had this.

Last year, I pointed out that the web app Twine lost 80-90% of its traffic after being flagged by Google. A number of us had mentioned the usability problems of the application, meeting a hostile response from the founder. After wasting $25M, Twine’s CEO was recently let go and the company’s resources “merged” with another company in the same investor’s portfolio. The investors could have saved a few millions, or even the whole venture, simply by listening to the concerns.

Hey, I’ve been wrong sometimes too (my recent RRSP investments in cleantech prove I can’t predict the future!), but the point is: raising relevant questions shouldn’t be punished, it should be rewarded. See financial crisis.

Wasted lives

There is a direct connection between wasted money and wasted lives. Between poor policies, indecent executive compensation, and poverty.  I have a picture I can’t take out of my head: when I was living in Manila, I saw a woman sleeping on a bridge, a baby in her arms, above the busiest highway in the city. I could contrast that with the opulence of the diplomats I worked with (for the record, I was making just a little over $1,300 per month as a trainee.)

Anyone getting a salary they don’t deserve is responsible for supporting the wrong system, a system that put that woman and her baby on that bridge. They will look the other way, make donations to feel better and find excuses for themselves, on how $470K per year is justified given this and that, how others make more, how the system requires them to make that much – but the only valid question is: all things considered, am I destroying value and human lives by taking more than my fair share?

In the case of MaRS, is the CEO’s obscene salary forcing some entrepreneurs to take a full-time job while starting their company? I know a number of such entrepreneurs in Toronto. Two of them just had babies. So cut MaRS CEO’s salary and give them the money instead – I assure you they will create more value.

Now, I am not suggesting we cap salaries or downsize all well-paying jobs. I am suggesting that there should be clear performance management and accountability, especially for large public-sector rewards whose value to the public constituency they are supposed to serve can be fuzzy.

And if we ever want to live in a true meritocracy, raising questions and protecting the whistleblowers is a must, not an option.

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Canadian entrepreneurs canada, commercialization, entrepreneurship, executive compensation, mars discovery district, Ontario, public policy, toronto

A great post today by Suzanne Dingwall Williams of Venture Law Associates LLP in Toronto, regarding the recent considerations by the U.S. to increase the number of H1B visas for skilled foreign workers, apparently thanks to a push by venture capitalists.

The stats she quotes are startling: 

“A recently released study by the NVCA notes that (a) immigrants have started more than 25% of U.S. public companies that were formerly venture backed, and (b) more than 50% of the employment generated by U.S. public venture-backed companies has come from immigrant-founded companies like Intel, eBay, Yahoo!, and Sun.

The New York Times has also taken note, citing Harvard Law professor Vivek Wadhwa’s claim that 52.4% of today’s Silicon Valley startups have at least one foreign founder. US VCs are figuring that, to expand domestic deal flow, they need to expand the immigrant entrepreneur base.”

Having lived in six countries including the U.S., I can tell for a fact that the amount of energy I deployed to learn about and obtain the visas and other administrative passes giving me the right to stay and to work is stupendous. In volume, it easily equals the time required to launch the operations of a start-up. This truly is wasted time. If the U.S. had made it easier for me to stay after my years at Stanford, I’d likely be there. I truly love Canada and Toronto is my favorite city in the world – but on a professional level, for tech entrepreneurs the environment is just not comparable to California. So the main advantage of Canada over the U.S., as Suzie points out, is that it is easier to immigrate as a skilled worker here.

But if that advantage diminishes, what’s left to retain immigrant tech entrepreneurs in Canada?

Better public support for start-ups? More grants? Sure, that’s one thing we have over the U.S. But it’s also a double-edged sword: in the previous years and months, the government and semi-public/nonprofit bodies have rapidly enriched their offering to better support the local tissue of tech entrepreneurs. That part is great. But a problem that’s not often raised -no one wants to publicly irk the hands that feed them, I guess- is the increasing institutionalization of venture commercialization actitivities that came with it: internal competition between agencies and “nonprofits” (whose employees clearly profited from this boom) are now leading some of them to expand into the private sector’s realm, for example by offering free market research and consulting services for start-ups. That move even goes against the public service mandate, as those services are generally only available to handpicked “clients”.

Even though it is motivated by a will to better support start-ups, it troubles me that the government and the bodies it supports increasingly choose to nationalize this activity as opposed to supporting the private providers already present. I didn’t leave the most successful communist country in the world – I’m talking of France – to land back in a growingly soviet-like environment, and have to make a living by begging for public grants! Hubs and catalysts are much needed. But it is to complement and promote, not replace, our private entrepreneurial ecosystem.

Sure, there is a lot of good work done hand-in-hand by private, public and publicly subsidized nonprofit organizations here, but when it comes to actual commercialization projects, it’s been my experience again and again that someone with a guaranteed salary and an institutional job simply doesn’t deliver as much value as a private sector provider whose next job depends on the quality of the one at hand. But unfortunately for us, it’s hard to compete with free. ”Free” also creates the wrong culture up north, with start-ups getting used to focusing on the technology and not investing much in commercialization and marketing, which obviously comes back to bite them. The higher valuation Americans place on commercialization activities, in my opinion, is another characteristic of the U.S. entrepreneurial ecosystem that still makes it more compelling than the Canadian one. With higher quotas for H1B visas, it won’t just attract better entrepreneurs , it will also attract better professionals to support those entrepreneurs.

As for VCs in Canada, there are few left, and so companies here are forced to look south or reduce their fundraising expectations and go after angels (who have done a tremendous job filling the gap left by VCs in early stages, but simply don’t have the same financial firepower). Interestingly, the VCs that are left also tend to only provide small amounts and thus really start looking more like angels with extra overheads. Among the Canadian clients I helped this year, and other start-ups I know here that received term sheets from Canadian VCs, not one accepted them. They went for local angels or U.S. VCs. Canadian VCs are stuck in the middle.

Luckily for Canada, U.S. H1Bs are not as compelling as the permanent residence our country is handing over to skilled workers, since they are tied to employment – it’s E visas and green cards the U.S. should make easier for entrepreneurs to obtain (and perhaps they are working on that too, I haven’t checked). But if the great Canadian advantage in facilitating entry and residence of skilled workers goes away, there will be little left here for immigrant entrepreneurs. A Canadian spouse and public healthcare (also something the U.S. may address) as the main reasons for most of them to stay here doesn’t make for great headlines about the state of our entrepreneurial system.

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I will soon have another opportunity to test my beta talk on the Divide between Technologists and Business folks, and why that is the number one root cause of tech venture failures (see my slides – torn apart by Slideshare, here!). Communitech has kindly invited me again to speak, this time at their entrepreneur group in Guelph, where I currently reside. It will take place from 6-8pm at SYNNEX Canada Ltd, 107 Woodlawn Rd W.

As a preamble to this talk, I just came across a very interesting blog post, recommended by Guelph’s very own Brydon of start-up Brainpark, arguing for the need to shift from a product development mindset to a customer development approach. I added some comments there too.

I look forward to seeing many Guelphites and having a good chat about this topic. Bring your war stories!

Canadian entrepreneurs canada, divide, entrepreneurship, Guelph, innovation, market development, marketers, product management, start-ups, tech divide, techies, venture

It’s official, the Ontario’s Emerging Technologies Fund (ETF)  is now open for business. This $250-million fund will co-invest into companies in high-growth sectors such as clean technology, life sciences and advanced health technology and digital media and information and communications technology. Co-investments are made along with qualified venture capital funds and other private investors. For more information see http://www.ocgc.gov.on.ca/

I am generally not a fan of public sector intervention in the private sector, but this comes as a positive move in contrast, since the government has wisely decided to let VCs and angels screen investments for the fund money instead of trying to do it itself. And frankly, after distorting the economy through massive subsidies to under-performing foreign car manufacturers, any public money directed towards innovative ventures is welcome. It also comes as somewhat of a relief to the Venture Capital industry in Canada, which is doing much worse than in the U.S. (yes that’s possible, apparently!), and is down to almost nothing according to this report by their association. Not that there was much in the first place!

The main question is whether there will be dollars to match. In other words, this program unlike, say, SR&ED, doesn’t make investments more attractive. It just makes it possible to invest in more companies. Since the VC model is under attack for its supposedly poor returns (with arguments I am still quite skeptical about, but that’s another story), all eyes are turned towards them to see whether they make use of that fund, or it goes primarily to Angel investments. After all, as the book Fool’s Gold asserts (thanks to the National Angel Capital Organization for the link), Angels Finance 27 Times More Start-ups Than VCs, at least in the US.

To ventures who wish to apply for a slice of this pie, my recommendation is to work both on your frontend, i.e. ultra-targeted pitches, b-plans, networking with VCs and Angels, influential advisory board, and your backend: management team, sales process, go-to-market and scaling strategy, monetization, exit. Those are both sides of the same coin, and unfortunately one of them often get neglected. Needless to say, we can help.

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Canadian entrepreneurs, Fund Angel investor, canada, Canadian innovation, emerging technologies fund, Ontario, venture capital

I was invited by Communitech in Waterloo to give a talk to their Product Management peer-to-peer group. It will take place next week, on June 26th at 10am. I will test a few themes I have been playing around with, on the topic of launching successful market hits. Here is the blurb, feel free to communicate this widely:

Vampires vs. Werewolves, Pirates vs. Ninjas, Techies vs. Marketers (BETA)

A beta discussion on creating market hits, with Greg Boutin, founder of Growthroute Ventures www.growthroute.com

On my left, mad-science Techies: “One really doesn’t need marketing if the product sells itself. Look at Apple etc.”. On my right: snake-oil Marketers. “It’s all about PR and advertising, not building things in the lab”. A rivalry as ancient as Vampires vs. Werewolves or Pirates vs. Ninjas. Let the fight begin (with Product Managers in the middle?)

Canadian entrepreneurs, Scale angels, blockbusters, canada, communitech, market hits, marketers, product developers, product development, product launch, techies, University of Waterloo, ventures, Waterloo

Canadian Business totally misses the mark in its poorly researched editorial on Ontario’s Green Energy Act and the Emerging Technologies Fund in the June 15 issue.

I support innovative ventures in the cleantech space on a daily basis through my consulting practice at Growthroute Ventures, and I recently co-authored an article entitled “Could Ontario be the Next Germany?” with regard to both the Act and the Fund, published in Renewable Energy World Magazine, the most widely-read magazine on clean energy.

As we all know, Ontario has been pouring money by the billion into the car manufacturing industry and other dinosaurs. It is about time some public support be devoted to innovation in cleantech. The Green Energy Act is modeled after the German incentives, which are recognized in the industry as widely successful. California, which Canadian Business refers to as a great model, has in fact been seriously discussing moving towards the German system. But more importantly, Canadian Business’s assertion that California’s model is significantly different in its support of clean energy — claiming it does so less selectively– is downright incorrect. Among many other examples, the western State pays a premium for 5 years on all solar photovoltaic projects, and offers select incentives to wind and biomass projects. This “winner-picking” approach Canadian Business criticizes is a constant in the energy industry, as a quick look into the huge tax incentives our government is offering for oil sand exploration, or all the public money that has gone into nuclear power R&D, would have told the editor. The support now offered to cleantech is a minuscule fraction of those amounts. If Canadian Business advocates for a leveled field, it should make sure it is looking at the entire field first.

As for the Emerging Technologies Fund, it is again just a drop going to innovation against the ocean of dollars poured into the US car manufacturing black hole. Canadian Business forgets to note that Quebec recently announced the launch of a fund offering over 3 times the amount of Ontario’s fund, and that la Belle Province is increasingly being seen as much more supportive to innovation than Ontario. Dismissing the Ontario’s ETF initiative on the basis that there is little venture capital money to match, and that “most VC-backed investments fail”, demonstrates a serious misunderstanding of how venture capital works. VCs bet that out of 10 investments, nine are going to fail or just get by, and one or two are going to make up in a big way for all the others. The metric that matters here is the investment ROI on the entire fund, not on individual investments. The VC industry raises its money from larger funds, who allocate their investments based on ROI and risk. Until now they had found it quite lucrative to place bets on VC funds.

But Canadian Business argues that VC investments are inherently too risky. Taking the magazine’s logic to its conclusion, it is not advocating against the Ontario fund as such, but against the VC model as a whole, in essence saying that VC investments are bad investments, and that no money should be put into that model. The truth is, the VC model may be under fire, but again, one needs just to take a look at the broader picture to see that is but a flawed assumption: how about the recent financial returns from the securities industry, the car manufacturing industry, or real estate? If we are to invest anywhere, I say putting more money in the hands of VCs (and angels too, by the way) is as good a bet as any. Actually, it is a much better bet.

The VC industry in the US is widely seen as a critical catalyst for the rise of the Silicon Valley. Companies like Google, eBay, Facebook, Cisco Systems and a number of other innovation heavyweights act as vivid proof that the model works. In my daily job, I constantly witness how the quasi-permanent lack of funding for early-stage innovation in Canada stifles growth and highly-qualified employment. I am not arguing against Canadian Business on the importance of letting markets do their magic, and getting out of the way, but at a time when the government is distorting those by throwing money at any moribund dinosaur that can still shout, I say any effort to direct funds to the innovative sector through the existing channels should be encouraged and supported. Certainly, reducing taxes and removing regulatory barriers to all forms of investment is needed (making it easier for US VCs to invest here is a definite need!), but it does not prevent other initiatives that leverage the power of targeted incentive towards sectors of strategic importance for our collective future.

Shame on you, Canadian Business, for popularizing half-baked arguments on the Green Energy and Green Economy Act and Ontario’s Emerging Technologies Fund. You couldn’t serve the purpose of traditional corporate money-grabbers any better, at a time when the job-creating innovative economy is in dire need of your support.

PS. And while I’m on Canadian Business, what is it with its choice for the “25 most influential people in business“? All white male except for one woman! The magazine might want to drink a bit of its own medicine, see their last-page article “Women wanted“, as I doubt there aren’t more females or visible minorities in the top 25…

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Canadian entrepreneurs canada, cleantech, emerging technologies fund, Fundraising links, green energy act, innovation, innovation policy, Ontario, venture capital, ventures

My friend Fred Sweeney of VG Partners pointed me to this interesting call for help by the biotech industry in Canada, whose start-ups are finding it difficult to raise money to survive, let alone thrive. In these times of hardships, the ventures with the least obvious path to commercialization and revenue are the ones who suffer first and most. Given the lengthy development cycles and uncertain payout, biotech ventures evidently stand at the frontline of the crisis.

What all that shows is that a start-up should at all times be able to articulate the revenue model it is proposing to pursue. It should tie all its current efforts to this model, or “reverse-engineer revenue” as per the expression I coined at GrowthRoute. Doing just that provide three benefits: one, you stand in first row against competing start-ups when comes the time for VCs to hand out cash; two, keeping your eyes on the prize helps you identify where to focus your efforts today, and better allocate your current resources; three, spending some time thinking about how you will make money could point to nearer-term sources of revenue you may not have thought of.

Without a destination and a map to get there, you can have a tight ship and yet run it in circles. Better to never count on the government to get you back on track.

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