LSIF funds see another win as Microsoft acquires Opalis
One of the funnier (irony alert) things I heard this year was that “there is too much venture capital” (see prior post “This is Roger Martin, reporting from Mars” Nov 25-08), which as a concept was neatly packaged together with the proposition that the Retail Venture Capital industry doesn’t know how to invest successfully.
Wrong, wrong, wrong.
If only the Ontario government looked at the successes of Retail Venture Capital, and ignored the chirping in their ears from jealous VCs, they would never have cancelled the Labour-sponsored Fund program. Microsoft’s recent acquisition of Opalis Software is just the latest example of a Canadian management team with VC backing building a company to the stage where the world’s largest software company just had to own it.
This isn’t just some accretive tuckunder. Microsoft can’t be bothered with those. This is, by all accounts, an important initiative for the folks in Redmond:
I believe this acquisition is a pivotal piece to deliver on our dynamic datacenter initiative, which I’ve spoken about before on this blog. This deal brings together the deep datacenter automation expertise of Opalis with the integrated physical and virtualized datacenter management capabilities of Microsoft System Center. I believe Opalis’ software together with the System Center suite will improve the efficiency of IT staff and operations, and customers will gain greater process consistency. Opalis’ software captures the IT processes, in a documented and repeatable way, which can be run over and over again. These capabilities will be added to Microsoft System Center to help customers automate complex IT processes, increase cost savings and shorten timeframes for IT service delivery across physical, virtual and cloud computing environments.
As VC investing in Canada goes, investors saw a return on capital of just under 3x, which is pretty great in today’s economic environment.
Congrats to VenGrowth (Peter Carrescia), Sierra Ventures (Mark Fernandes) and BDC Venture Capital (Roger Wilson). VG and BDC did the first two rounds of funding, while Sierra led rounds 2 and 3.
Congrats as well to Opalis management, without whom there’d be zip to celebrate. This transaction is the very impressive feat that you articulated was possible just a short year ago. Considering the M&A market largely shut down between October and April, this is all the more worthy of celebration! Kudos to CEO Todd DeLaughter and CFO Greg Twinney, For CTO Charles Crouchman, this is back-to-back successful outcomes after the acquisition of Cybermation a few years ago.
Hopefully you’ll all stick around the Canadian venture scene and do it again.
MRM
Mark:
One of the difficult parts of doing pro-bono public policy work is the jerks that one has to deal with as evidenced by this and your previous post.
You feel comfortable asserting that I have said there is a problem of too much venture capital in Ontario. In your previous post, you quoted liberally from our work on competitiveness. Never once in the quoted material does it say or suggest there is a problem with too much venture capital in Ontario. Given that you chose to quote liberally and the point you wished to make was that I held the opinion that there is too much venture capital in Ontario, don’t you think it would have actually said that in one of the reports from which you quoted?
The reason, Mark, that you couldn’t find a quote saying that I believe there is too much venture capital in Ontario is that such a quote doesn’t exist. You made it up completely because you are an intellectually dishonest jerk. Despite not having any data, you are comfortable asserting that as my opinion and then lampooning me for having such a stupid opinion.
Now to heighten your intellectual dishonesty, in this post you put in quotations "there is too much venture capital" and attibute the "quote" to me. That is libelous and I would ask you to cease libeling me.
I stand fully behind what I have actually said and that is the problem with venture capital in Ontario is more with quality than quantity. I would love to see higher quality venture capital in greater abundance in Ontario and would fully support policy which would encourage that.
Roger
LOL… did anyone call a referee?
Dr. Martin
Welcome to our site. We are honoured to have you stop by.
Many people I admire and respect think you are a fantastic asset to our nation, and just because you and I don’t agree on certain VC issues doesn’t take anything away from your many accomplishments.
I’ll quote again from page 61 of your report: “venture capital policy should be focused on efforts to raise its quality through higher returns, not its quantity.” What does that exactly mean? Raising quality not quanity in a nation that has seen a 50% drop in VC investing over a 2 year period? I don’t think it was intellectually dishonest to make the point I did.
The newspaper article of the day regarding the Report’s release made reference to you believing the problem was that too much venture capital got in the way of quality. You made the same point when we met earlier this year.
As for the misfortune that “pro bono” research work forces you to cross paths with “jerks”, isn’t debate the essence of a University setting? Why the thin skin? Some people at the 2009 TPA AGM shouted that I was “killing them” because we ran an airport; I didn’t call them jerks. It just comes with the public forum.
In any event, I’d always understood that a central core of academic life was primary research and the publication of that research. Isn’t that, in part, what the tapayers of Ontario pay University Professors to do? Teach and publish? Isn’t work of this nature what the taxes from VCs, entrepreneurs and the rest of our working society are funding at your/our school? The Province might not have paid you a stipend for this specific project, and only provided a grant for research assistance on the report, but unless you only worked on the weekends, publishing a research report for your employer during business hours isn’t what most in the private sector would call “pro bono” work.
But that’s a sideshow to the main point. What does “venture capital policy should be focused on efforts to raise its quality through higher returns, not its quantity” mean if not my analysis? Sounds to me that it means that the 14 year drop in the supply of Canadian venture capital shouldn’t be a focus for governments. The problem in your mind is solely the quality of Canadian venture capital investments.
That’s where we disagree.
MRM
Thanks Mark for the kind words on our Opalis exit. It was a great team effort. A great management team executed on a sound business plan resulting in a great outcome.
I would like to add my thoughts though to a comment made by Mr. Martin. Mr. Martin is simply wrong in asserting the problem with venture in Ontario is quality. To whom is the Ontario industry being compared when this statement is being made? The vast majority of the US venture industry that has similar returns to Canadian VCs? Or perhaps the very small group of outliers – the small number of blockbuster deals that are consistently done by only a handful of US VCs? If it’s the former, please stop – the statistics simply don’t support that conclusion.
And if it’s the latter, then what you’ll find is that they have many more important advantages that go beyond the scope of what I believe Mr. Martin refers to when he mentions "venture capital policy"
I suggest government time would be better spent identifying those other "important advantages" and creating policy that would replicate those advantages for Canadian entrepreneurs, businesses and venture capitalists.
I am more than happy to provide whatever insight I may have to assist in this exercise.
Peter.
Mark:
The problem, Mark, is that you think that the statement “venture capital policy should be focused on efforts to raise its quality through higher returns, not its quantity” equates to the attributed quote “there is too much venture capital”. You think that if a person says the former, you have the right to ‘quote’ them as saying the latter just because you want to be able to say they said the latter. I can’t have a useful conversation with someone who criticizes and lampoons me for saying or believing something that I have never said or believed.
I have asked you to stop libeling me and your response is to justify that because you think that I meant something different than I said that you can attribute a quote to me that I never made. And then you have to temerity to call that thin-skinned. In your view, it is fine for a person to decide in their infinite wisdom that they understand what someone else ‘really meant’ and based on that ‘understanding’ create out of thin air a ‘quote’ that had nothing to do with the actual statement, then publish it and denounce the person because of how silly the quote is.
I gave you a chance to retract your libelous quote and you persist in attempting to legitimize your behavior. You are not worth another second of consideration in my life.
I don’t mind having intelligent conversations. Peter Carrescia raises an interesting and intelligent point, in an interesting and intellectually honest way. He points out that the US venture capital returns are skewed by a small number of blockbuster deals whose returns are so high that they obscure the returns to the rest of the distribution.
So let’s take that point and think about it. The interesting question to me is: what would happen to the venture capital industry overall if those blockbuster deals actually never happened. Let’s imagine that US venture capital had returns over a long period of time that mirrored Canadian venture capital returns. What would happen in this hypothetical situation? My bet would be that if that were the case, the venture capital industry as we know it wouldn’t exist – in Canada or the US. Without those blockbuster deals, the returns in the industry aren’t high enough to justify investment given the level of investment risk involved.
An important reason that money flows into the US venture capital industry is that investors have some hope that their investment will fund the next eBay or Google or Facebook. Of course the probability is very low. But the potential payoff is hugely high. It is not unlike the lottery; the possibility (however long the odds) of a home run win keeps the money flowing in. An argument can be made that this is great for the economy – that the potential to be part of the next blockbuster is what keeps the money flowing in.
So in the end, Peter raises a really interesting question. Is it legitimate to argue that the Canadian venture capital industry should be compared to the US venture capital industry sans the big deals? I can certainly understand why the Canadian venture capital industry would want that: Compare us to a very sexy, world-leading industry but don’t make us perform like it to justify the comparison. But I am not as sure from an investor or public policy standpoint that makes compelling sense.
I guess I would rather be asking the question: what would be necessary to have a Canadian venture capital industry that did have a chance of backing a proportionate number of real blockbusters rather than how can we agree to strip out the blockbusters before making any comparison?
Roger
Dr. Martin
There is a venture capital crisis in Canada. Invested capital is down by two thirds in a few short years. This is starving promising new companies. By ignoring what is going on in the capital deployment universe, your advice to governments appears to be – defacto – that they shouldn’t concern themselves with the drop in the amount of VC $ being invested. That the real crisis is in the “quality” of venture capital; and that governments should focus on improving the quality of same. I’ve got that right so far, don’t I?
Have a look at the print interviews you gave in the Fall of 2008 about the problems of Canadian VC investing before you talk about “libel”.
Having reviewed some of your 2007 writings about “Canada’s technology lobby” in an op-ed piece titled “Technology’s Overrated”, I’m sure that you agree that you hold pointed views on the matters of technology and tech investing in Canada.
And then there’s the doozy “Don’t ask voodoo to solve our productivity problem“.
Although I don’t want to scare you, we do agree on more than we disagree. Canada’s not getting value for the billions spent by governments on R&D and science and technology each year. I’ve been saying the same thing to our elected officals and public servants, and writing about it in this very blog. There is little to commercialize, and what is of interest has fewer VC dollars to draw upon than in recent history.
Sending entrepreneurs or their VCs to business school to “improve the quality” of venture capital isn’t going to solve the crisis in Canada’s innovation economy; lots of unsuccessful CEOs and VCs had MBAs already. And many successful ones have graduated from your program.
I’d love to know what specific prescriptions you have to “improve the quality of venture capital”. Backing Google out of U.S. return stats is a Red Herring.
The CVCA has recommeded that the Canadian gov’t launch a Blue Ribbon Panel to get to the bottom of some of these issues — it sounds as though you’d support that initiative.
If I’m right on that front, let’s set aside whether or not I’ve correctly interpreted what your views are on a topic (or whether or not I read your 2008 press interview correctly), and let’s fix the problem!
A far better way for all of us to expend our energies.
MRM
Thought I would weigh in on this as ‘the American from California’ who came to Canada and fell in love with the country. I ran Opalis for a bit over three years before reluctantly agreeing to let Microsoft pry her from our fingers.
You have a fantastic government program to attract entrepreneurs. Canadian software developers are among the best in the industry. When I say Canadian I mean those natives who came through Waterloo and those from countries around the world where you have opened your doors and embraced the diversity. Every time I got a call to see if I was interested in outsourcing development I could say with a clear conscience that I had everything I needed and more right in Canada at a price point that made me never stray. Don’t stop this – SREDS makes a difference and it keeps jobs in Canada.
I would say the thing that disappointed me most was trying to raise additional capital in Canada during the toughest time in ’09 and having a Canadian VC try to crush us in the process. As a CEO do you know what my reaction is to this? Come on guys. With a little foresight from that VC, we would be going after cloud computing and a very big exit prize 2-3 yrs from now as this market develops. Cloud computing = virtualization automation.
Watch where Microsoft takes this – they are smart dudes and they get it. Quit being bankers and start being investors. To their credit two of our investors, Vengrowth and BDC, stood firm at every point, stepped in and helped us when cash was needed, took care of the employees and management team and acted as the smart advisors they are. I can’t say enough good things about these investors and their unwavering support – thank you Peter and Roger.
My final advice on this is to stand tall as a Canadian VC community. You have so much to offer the global tech community and the CEOs who want to grow companies in the right environment. We don’t care about borders. Count me as a reference for Canada if you ever want it. Go Leafs! I’ll miss my Tim’s card.