By Michael
Volker
It's great to be doing an article on New Year's Eve. I can say almost
anything and blame it on the champagne! I wish all readers of my column a very
prosperous 2000 and may your investments, especially those in B.C. technology
companies, provide you with many-fold returns!
As the year draws to a close, it
presents us with an occasion to reflect on our accomplishments. It is a
time to celebrate our successes and learn from our failures. We tend, all
too often, to dwell on our losses and not enjoy our gains.
The High Technology industry in B.C.
has experienced exceptional growth in the past decade and there's no end
in sight!
Let's reflect on the climate for
innovation in B.C. and take a look at what's been going on in the local
high technology scene and what it's going to take to secure its future
growth.
This past year has seen the launch
of numerous new high technology ventures, especially in the "dot com" and
new media space. There were also many new initiatives in other areas.
Many
companies went public, for example
Anormed
(TSE:AOM),
Creo Products Inc (NASDAQ:CREO) Pivotal Corp (NASDAQ:PVTL), and Sierra Wireless Inc (TSE:SW).
These have already produced excellent short-term returns. Others were acquired,
e.g.
HotHaus Technologies
by Broadcom Corp (NASDAQ:BRCM) in a record-for-B.C. $400+ million
deal, SFG Technologies Inc by Cayenta Inc, a subsidiary of Titan
Corp (NYSE:TTN) and Soundlogic CTI Inc. by Lucent Technologies (NYSE:LU).
The market value of B.C.'s top 20 public
companies (excluding U.S. subsidiaries like Electronic Arts and MacDonald
Dettwiler (MDA) - which, by the way, looks like it may get repatriated and
become a BC-based public entity on its own) at year end exceeded $30 billion,
compared to only $6 billion two years ago. PMC-Sierra (NASDAQ:PMCS) was
the first to break $10 billion (and that's U.S. bucks)! Many people became
millionaires. In short, B.C.'s humming!
We've got excellent universities, colleges and
research institutes. New R&D organizations relating to fuel cell and new
media technologies are being initiated, e.g. Fuel
Cells Canada and NewMIC. Fuel Cells Canada is an industry-led
R&D project strongly supported by the National
Research Council (NRC) and companies such as Ballard Power
(TSE:BLD). NewMIC, the New Media Innovation Centre, is a joint initiative of
the University of BC and Simon Fraser University driven by local industry.
B.C. has finally matched other provinces,
notably Ontario, by offering a corporate R&D tax credit (the Provincial SRED).
B.C.'s Employment Standards Act was modernized to accommodate knowledge workers.
Local politicians recognize the growing economic importance of the high
technology industry.
A new stock national stock exchange, the Canadian Venture
Exchange (the CDNX), catering to emerging ventures started operating
in November. Its progenitor, the Vancouver Stock Exchange, introduced the
concept of Venture Capital Pools (now called Capital Pool Corporations on the
CDNX) and rallied for investment tax credits (e.g. to extend the Venture Capital
Corporation grant to individual investors).
I believe that the CDNX will give many junior
companies access to venture capital while at the same time get more
"retail" investors involved. We're off with a good beginning: the CDNX
index which started at 2000 on Nov.29th, the CDNX's birthday, closed the year at
2337 - up 16% in just one month.
Going forward, we need to make sure that the
CDNX doesn't get abused by hustlers. We need a strong national securities agency
such as the SEC (Securities and Exchange Commission) in the U.S. to prosecute
fraud artists in Canada. A recent Wall Street Journal story mentioned that some
students manipulated the price of NEI WebWorld Inc
of Dallas by posting hundreds of internet messages on various bulletin
boards. They made a $364K profit in one weekend by hyping this stock! This is
the sort of thing that gave the VSE its bad reputation.
Venture capital funds expanded and moved into
earlier stage investments (seed funds). Angel networks (e.g. Vantec)
and startup incubators (e.g. IdeaPark)
are now up and running. New technology parks are being planned. Simon Fraser
University's new downtown TIME
Centre (Technology, Innovation, Management and Entrepreneurship) was
completed and will be officially launched early in the new year.
And, although not often mentioned, securities
legislation in B.C. as compared to Ontario for example, is more favorable for
the financing of smaller, early stage, investments (e.g. the $25K exemption for
all companies and the $1M small financing exemption for public companies). The
legal rules pertaining to investment in companies - public or private - tend to
be very archaic. While they are intended to protect investors, they tend to make
life difficult (i.e. more expensive due to increased legal costs) for companies.
We must ensure that, in the context of the CDNX and national securities rules,
we don't forfeit the advantages that B.C. presently offers.
We have a wonderful spirit of collaboration
among industry, academia, the financial community and government. These groups
are forging new links and are strengthening their ties. You can see this when
you attend industry events offered by the Vancouver
Enterprise Forum and our many industry organizations (BCBA,
BC-TIA,
NewMediaBC,
etc). Interest is growing and a groundswell is forming. We've achieved a
critical mass.
So how can we sustain and continue
to build our technology community? What's on our list of prerequisites
for the next decade?
Topping the list is the main impediment to
growth: personal taxation. This is a federal problem and we need to work with
national advocacy groups like the Canadian
Advanced Technology Alliance (CATA) to be heard in Ottawa. We can't
expect to solve this problem by pounding on the doors in Victoria. Even with
respect to federal spending, we're not getting our proportionate share in
B.C. Although taxes are slowly being reduced, we could score some points
in specific areas such as fixing the punitive tax treatment on employee stock
options.
And, we might even be able to convince Paul
Martin that investment fuels growth and that risk takers need to be encouraged
by rewarding them with favorable capital gains taxes. Why not allow investors to
take up-front write-offs? (tax revenue-wise, this would only transfer the tax
burden from the investor to the investee while at the same time increase
economic activity). Or, why not provide capital gains exemptions commensurate
with the duration of one's investment (to encourage "patient
capital")?
At the provincial level, here are a few things
we need to do: keep the small financing exemptions intact; ensure the integrity
of the CDNX by moving towards a national regulatory agency; increase the caps on
the provincial SRED and the VCC (Venture Capital Corp) tax credits; introduce
investment incentives for Angel investors (write-offs and/or gains exemptions or
roll-overs); increase funding for the highly successful early financing programs
offered through such organizations as the B.C. Science
Council and the B.C.
Advanced Systems Institute; support new initiatives in education and
training; and finally - an action item for all of us - continue to promote the
knowledge-based science and technology culture. Let's not be shy!
We may be on a bit of a roll but we're not in
high gear yet. The market value of our publicly traded companies (HQ'd in B.C.)
is now approximately $30 billion. (My guess is that the entire tech sector would
be worth more than $50 billion, including the local operations of foreign
entities such as Electronic Arts, MDA, plus all the private companies.)
In contrast, Silicon Valley has created
$1 trillion in market value in past 10 years! This will only accelerate!
More wealth - due to innovation - is being created than economists ever
thought possible!
For 2000 and beyond, we'll undoubtedly
see incredible advances in technology: cell phones will translate your
speech into other languages on the fly; a basic home PC will operate 100
times faster than current models (within the next decade); and a $1K PC
will match the computational ability of the brain - 20 million billion
calculations per second (within two decades)! Wireless communications will be
hot next year. I even believe that my cell phone may drop fewer calls in the
not-too-distant future. As for relief for my Windows-crashing PC, I'm less
hopeful unless something like Linux comes to the rescue. Hey, in this
business, you never know!
Biotech companies were hot in the 80's but then
investors realized that biotech companies took a little longer to come to
fruition. In the next decade, I expect that we'll see substantial new interest
in this area as Genomics and BioInformatics technologies and technology
companies gain prominence. After all, what's more important to us than our
health and our desire to conquer and control our bodies?
Happy New Year!
Investment Update
Our T-Net20 index of the biggest
(by market capitalization) B.C. tech companies hovered near the 4000 mark in December.
Wow! At the start of the year, the index stood at 1400 and I was wishfully,
obviously conservatively, prognosticating that the index would "hit 2000
by 2000". Well, it practically doubled that in the past year.
This means that if you invested $100,000
in B.C.'s best at the start of 1998, your investment would now be worth almost
$400,000 by following the simple rule of keeping your money invested
in the top 20 (re-adjusting every few months) public firms.
In July, I "invested" $25,220 in
a "starter" portfolio of 10 small, micro-cap companies selected from
the T-Net listing of all B.C. publicly traded technology firms.
At first, this "starter" portfolio
declined steadily showing a loss of some 20% in the first few months. But thanks
mainly to a few winners - Burntsand Inc (TSE:BRT), Sideware Systems
Inc,(VSE:SYD.u) and Sierra Wireless Inc. (TSE:SW) - the portfolio at
year end is up by 81% at $45,818!
In comparison, the S&P500 is
up about 20% on the year. The Canadian TSE300, also a broad index, is up almost
30% on the year. Interestingly, Warren Buffet's Berkshire Hathaway
is down about 20% this year. Buffet tends to keep away from so-called high
tech companies. I can't help but wonder, though, if many if his investments
wouldn't have been seen as "high-tech" some decades ago. High Tech today
is mainstay tomorrow.
If our
grandparents embraced new technology by buying entrepreneur Thomas Edison's General
Electric (NYSE:GE) stock at the turn of the last century, they'd be up
81,000% today. GE is the only stock from the late 1800's which is still in the
DOW index.
The Nasdaq Composite Index,
(most Silicon Valley firms trade on Nasdaq), closed the year up 85% at 4069. The
popular Nasdaq-100 (comprising Nasdaq's largest, mainly high tech, companies)
closed at 3707 (up 200% on the year). The Nasdaq-100 Index Tracking Stock Fund,
i.e. the "QQQ", was launched on March 10, 1999, to provide investors
with an instrument that seeks to track the performance of the Nasdaq-100 Index.
The CIBC has even concocted a way (using derivatives) to invest in the QQQ using
your RRSP without getting offside on the foreign content rule. It's a great way
to bet on Silicon Valley! On December 16, 1999, the fund's total assets exceeded
$5 billion. By the way, PMC-Sierra is the only Canadian company which is
included in the esteemed Nasdaq-100.
In this column one year ago, my favorite
"buy-and-hold" stock picks for 1999 were companies like Burntsand
Inc
(TSE:BRT) in the info-tech sector and Marine BioProducts International Inc (VSE:MBP)
and Nortran Pharmaceuticals Inc (VSE:NRT) in biotech. How did these
companies fare this year? Burntsand showed impressive gains rising from $0.90 to
$4.35 while Marine BioProducts rose marginally from $0.80 to $0.91 while Nortran
underperformed closing the year at $0.50, off from $1.25 twelve months ago.
What
are the picks for 2000? I'd stick with companies in the top 20 list. In this
group, my favorites for speculative growth are Anormed Inc. (TSE:AOM,
$9), Inex Pharmaceuticals (TSE:IEX,$6.50) and Angiotech
Pharmaceuticals Inc (TSE:ANP,$20) in the Biotech sector and companies like Creo
Products (NASDAQ:CREO, $38.43), Sierra
Wireless (TSE:SW, $65), Infowave Wireless Messaging Inc (TSE:IW,
$16.15), and Burntsand Inc (TSE:BRT, $4.35) in the Infotech sector. Even
though stocks like PMC Sierra (NASDAQ:PMCS, $160) appear pricey, they're
still young and have a long way to go.
In
this past year, the rush on internet stocks showed us that we can no longer
apply old rules to determining company valuations - new industry, new economy,
new rules!
In my next column, I'll post the
year's performance results for all B.C. companies.
Venture Capital Pool Corporation(VCP) Update
I've been keeping track of Venture Capital Pool
("VCP") companies in this column as defined by the former Vancouver
Stock Exchange because they may provide funding to, and in the process acquire,
technology companies.
Under the new Canadian Venture Exchange, the
"CDNX", VCP's are going to be modified slightly as a result of being
combined with Alberta's popular Junior Capital Pool ("JCP") program.
The new product is called a Capital Pool Corporation ("CPC").
JCPs and VCPs will exist until March 1, 2000. If
they have not done their major transactions by then, existing JCPs and VCPs will
be re-classified as CPCs.
In this week's update, new entries were added
for
A.C. Global Capital Corp., EVEolution Ventures Inc., and Technology Growth Partners Corp.
The latter VCP features Sharka Stuyt of Pivotal Corp. as chief executive
officer and as a director.
Since the previous update, the following VCPs
have come to trade:
* Capital Endeavors Corporation;
* Modus Energy Industries Ltd.;
* Vast Capital Pool Ltd.;
* Venturecorp Capital Inc.; and
* West Park Resources Inc.
We have also deleted 8 Crown Capital
Corp. from the VCP list since it completed its Qualifying Transaction
earlier in December 1999 (by acquiring Ontario-based Starfire Technologies
Inc.).
Astron Resources Corporation
was issued its final prospectus receipt on Dec.2/99 but was not
conditionally-listed on CDNX. The reason is that, under the new CDNX procedures,
JCP/VCP/CPC companies will not be conditionally-listed nor will there be an
offering day as we have practiced it in Vancouver in the past. The agent will
cross the shares through TradeCDNX (the old VCT) just prior
to the trade date. The only notice that will be issued will be the notice
advising of the date the shares will be posted and called for trading on CDNX.
Check our Venture
Capital Pool chart for a complete updated list of the CDNX's VCP companies.
We'll be adding all B.C. headquartered CPCs to this list as well.
Michael Volker is the
Director of the University/Industry Liaison Office at Simon Fraser University,
Chairman of the Vancouver Enterprise Forum, and a technology entrepreneur. He
owns shares in many of the companies he writes about. Contact: mike@risktaker.com.
Copyright,
1999.
What
Do You Think? Talk Back To Mike Volker
Tech Futures is a bi-weekly column that focuses
attention on new and emerging BC publicly listed technology companies. Mike
Volker is the Director of the University/Industry Liaison Office at Simon Fraser
University, Chairman of the Vancouver Enterprise Forum, and a technology
entrepreneur. He owns shares in many of the companies he writes about. Contact: mike@risktaker.com
Tech
Futures Archive
T-Net
20 High Tech Stock Index
© 2012 T-Net. All Rights Reserved. |