ShaneMcLean.com

Information on legal and business topics from Canadian business lawyer Shane McLean

LaBarge Weinstein Summer 2009 Quarterly

Posted by Shane McLean on September 10, 2009

See below for LaBarge Weinstein’s quarterly newsletter published this week:

Summer 2009 Quarterly

With the school recess ending, and some evidence that our recession is history, our team looks back on a very busy summer of M&A and investment activity. Highlighting our M&A dealflow: Exar´s acquisition of Ottawa startup veteran Galazar Networks, and the acquisition of two Waterloo-based clients by industry leaders, EA´s acquisition of social media gaming company J2Play, and Intel´s recent acquisition of multicore development tool firm RapidMind. Of course, we love acting on the other side of the acquisition table, and we congratulate EION and its CEO, Dr. Kalai Kalaichelvan, on its footprint expanding acquisition of Calgary´s Layer 10 earlier this summer.

This trend of balance-sheet strong companies looking north for technology and strategic market development hasn´t been lost on the investment community. Our team has fielded more introductory Canadian outreach efforts from US-based funds (Boston-based Sigma Partners and Valley-based Altos Ventures among them) in the past quarter than in the previous several years. This will hopefully complement investors such as Panaroma Capital and Bridgescale Partners that have, and remain, committed to supporting our tech communities and serving as syndicate partners to the remaining homegrown active funds. Many new US-based institutions have structured their funds to include workarounds to some of our Canadian tax withholding and reporting challenges formerly cited as barriers to local investment. Others, like Bridgescale, have actually opened local offices, in its case in Toronto.

On the whole, very healthy opportunities, especially for experienced management teams emerging from acquisition activities during the previous five or so years. If you and your team are working on the next big thing, we would love to assist, and please reach out to any of our partners to make a connection and get a better sense of how we can support and build momentum behind your new venture.

Back to the VC Future…

The summer has witnessed a raft of VC nostalgia for the industry’s halcyon pre-bubble days (new VC investments in the US, for example, have dipped to pre-1997 levels). One would expect a flurry of hand-wringing laments, but this hasn’t been the case.

A recent New York Times article, for example, cites venture-icon Alan Patricof’s admonition that it is time for true venture investors to “think smaller”. Patricof, the founder of the APAX group of funds which formerly managed billions of dollars in private equity earmarked funds (some of which he invested in former Gatineau-based LaBarge client CML Emergency Services, acquired by Plant Equipment in 2007), now runs a modest $75M fund seeking to avoid the industry “force-feeding” that experts suggest have diminished industry returns. Angel-boosters such as Basil Peters have developed this perspective over the course of the decade, and his book “Early Exits” is a must-read for startup founders seeking to develop business plans that properly account for an exit landscape where the IPO is a less and less viable liquidity outcome.

So what does this mean for Canadian startups? Smaller might very well be better for us, and the industry’s “back to its roots” approach seems to align with the strategies to which our best performing local funds, including Celtic House Venture Partners and Tech Capital, have recommitted themselves over the last year.  Fund managers have refocused their efforts on cultivating long-term relationships with quality management teams, and getting involved early. And while the sales cycle remains a long one (and founders should get started as early as possible in building these relationships), our view is that this focus on more intimate partnering with opportunities can only help build bridges between funders and the amazing pockets of talent that our tech communities hold.

Cleantech Diamonds in Ottawa…

If you are a founder or investor taking a look at big picture trends in the cleantech space, our team has continually been impressed with the work of Bill St. Arnaud and his team at CANARIE on the development of clean data centres and the opportunities that they present for Canada. Canada’s leadership in changing its energy mix makes it a great candidate for satisfying what is estimated to be a $600B global market by 2013. In June, CANARIE announced a $3M call for proposals in its so-called “Green ICT” space, and in particular for major zero-carbon data center pilot projects. Bill is a terrific speaker and tireless advocate for Canada’s opportunities in the industry, and we encourage anyone interested to seek him out and get his valuable perspectives.  Looking for some locally based potential winners in the field? Two stand out: Kingston-based Axiopower and Ottawa-based Menova, each of whom have focused on small-project renewable energy as a source of future significant industry growth. If you would like to discuss our firm’s experience in the industry, and our perspectives on financing and other challenges, please feel free to contact any of our partners and we would be happy to do so.

Have Digital Content, Will Travel…

One of our partners, James Smith, was fortunate enough to attend the Stratford Institute’s inaugural conference in June focused on wedding digital media content creation and distribution innovations in a single, dynamic educational setting (James’ views on the conference). The initiative feeds a vibrant trend we’ve seen recently with Canadian-based startups focusing on web- and mobile-based distribution technologies. This includes industry heavy-hitter QuickPlay Media as well as emerging technologies and platforms being proposed by startups such as Spreed, Personal Web Systems, Metranome, DEQQ, LiveHive Systems, Overlay.tv, and Calgary’s MoboVivo. There certainly seems to be enough talent and interest to support a vibrant local digital media distribution community, and we’d be happy to share our thoughts and perspectives with you on this budding industry.

Blogs & Other

For expense-conscious startups, one of our clients Eseri, has generously made available a free trial and a 50% discount on software everyone needs, a complete IT company-in-a-box for small, medium, and growing businesses. Eseri offers a secure, virtual desktop incorporating a range of open-source tools for small businesses, and we would encourage you to take them up on their offer. And while we’re at it, we would encourage you all to check out some tools that our lawyers have been trying out lately, including Mercury Grove’s Network Hippo, Tungle’s scheduling solution, and Eighty Twenty’s desktop sharing applications.

It was disappointing to hear of Rick Segal’s departure from the Canadian VC scene this past July, and we’ll certainly miss his straight talk on the industry and its contributors. For some of his past blog highlights, click the following links, well worth the read.

The fall is venture fair season in Canada, and look for our partners and lawyers at the upcoming Ottawa Technology and Venture Showcase and the Banff Venture Forum , each being held during the week of September 28-October 2nd.

Finally, we enclose a great article passed on to us by Guelph-based startup founder and semantic web guru Greg Boutin describing how angel investors seek to de-risk investment opportunities. Finally, we remind our clients of our firm’s “Angel Connect” initiative, whereby we provide thumbnail descriptions of investment opportunities to our cross-Canada network of angels, and facilitate introductions where appropriate. If you would like to participate as an angel or you have a potential investment opportunity, please feel free to contact our partner Michael Dunleavy at md@lwlaw.com and he would be happy to assist.

Dealflow Report

Here is a sample of the publicly announced transactions that our team worked in the past few months:

Events and Calendars

Copyright © 2009 LaBarge Weinstein Professional Corporation,
A Business Law Firm. All Rights Reserved.

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