Belair / Ericsson deal a wake-up call for every Institutional Sales Desk

The story of BelAir Networks is instructive on so many levels. We take pride in the outcome given our 2007-era $5.5 million financing, of course, but as with every good exit in our world, CEO Bernard Herscovich and his management team, the BelAir staff and VCs deserve all of the credit.

But the BelAir story reminds us that i) demonstrable success can come to Canadian tech companies, ii) the Institutional Sales desks of many Canadian investment banks need a bit more backbone, iii) the loss of the Ontario Labour sponsored funds will be sorely missed, iv) Ottawa remains a key hub for networking companies, and v) the benefits of venture debt for growing, mid-stage tech firms is clear.

One of the things that many Canadian investors, both public and private, appear to lack is the necessary confidence required to invest in innovation / growth stories. The lack of institutional limited partners to back new, well-capitalized Canadian-based VC funds is a byproduct of this reality, but public investors seem to share this perception of unnecessary risk. And that means insufficient buyers for tech IPOs, which in turn makes the life of any VC or tech i-banker a lot tougher (unless they focus solely on M&A).

The BelAir story is a wonderful reminder that entrepreneurs and their VCs are worth backing, and that if it takes 10 years to build a story…so be it.

It must be acknowledged that for every Constellation Software, Creo, Descartes, Geac, MDA, MKS, Q9 or Open Text that works out, to name a few, there is the challenge of history to overcome. You’ve got the Roadkill category: Adherex, Arise Technologies, Cinram, Genesis Worldwide, Guest Tek, Mitec Telecom, Mythylgene, and NHC Communications. The Future Uncertain bucket, such as: BioExx, Catch The Wind, Sandvine and Sembiosys Genetics. And the Always Hope vertical, with: Cyberplex, Cymat, Redline and Versatile Systems….

What can’t be ignored is that BelAir could have been a public company today had someone truly put their shoulder to the wheel. I have no unique knowledge of the thinking of the CEO and VCs on the topic, but BelAir was definitely a candidate to go public during the past 18 months. All it took was the Head of an Institutional Sales desk at a local dealer to decide to make a go of it, just as the late Ross McMaster did so many times during his career, with awe-inspiring success. Of course its been a tough market for IPOs, but it is always thus in tech land.

You just need someone on the Sales Desk to stand up and be counted.

Whether the deal would have raised $40 million on a pre-money value of $100 million or $150 million at the time (these are just wild guesses with no #s from the company), the IPO investors would have made out very nicely. The Ericsson acquisition is proof of that.

Taleo could have sold when they were a private company, but the team there waited until it was public before taking Oracle’s call. Montreal’s OZ Communications (another of our Fund III portfolio co’s) decided to sell to Nokia in 2008, rather than go the IPO route, and that was the right choice for the folks involved at the time.

According to the OBJ, the Ericsson deal will give BelAir the capital and bandwidth to respond to a market that is growing “very fast right now…[with] major customers in the United States…and opportunities coming from many countries.” But isn’t that exactly what IPO buyers love to hear? Fast growing markets with clients and great prospects? Without a doubt.

Would an IPO have been better for BelAir’s shareholders and customers? We’ll never know. I’m not even sure that Bay Street really gave them a serious option, and the question is quite academic at this point.

But what is clear that had BelAir been a public company, it would have then had the financial resources to execute on the business plan it will pursue instead as a subsidiary of Ericsson. And for Bay Street investors and i-bankers, not to mention Joe and Jill Retail, it’s a missed opportunity.

For all of the Canadian-based high risk capital that gets invested in TSX-listed public companies with operations in Columbia, China, Argentina, Burkina Faso and Eastern Europe, perhaps the blinders should come off on the stories in our own backyard. Staffed by our neighbours. Backed by local money with board members who have actually been to the corporate HQ.

BelAir is proof that good things just might happen.

Congrats to all involved, including Bernard, Chris Albinson at Panorama, VG Partners, Glenn Egan of BDC’s VC division, Angel (in this case) Adam Chowaniec, McLean Watson, Ventures West Management, Trilogy Equity Partners, and the Equity team at Export Development Canada.

MRM