Want to Pitch Your Company?

Here’s a great opportunity for early stage companies to raise awareness within the Angel and financial community. The Business News Network has a weekly show called “The Pitch”, hosted by the much-loved Andrew Bell.
I was on today at 11:30am, along with Rick Nathan from Kensington Capital. Rick is a great supporter of innovation and ran CVCA.
Quick question: what's the best way to win over BNN's esteemed panel of established venture capitalists and investors? Patriotic messages in Canadian themed greeting cards or the sweet taste of a warm, made to order cookie. Find out on The Pitch.
See Jacoline Loewen on BNN, The Pitch - click here to see the show: 


BNN The Pitch

Cloud Compliance is not that Obvious

We have a guest blogger, Vipool Desai, who is talking about Cloud Compliance. Loewen & Partners has to be compliant to the Ontario Securities Commission and this is a whole new take on the topic:

In the mid 80’s at a time when many small mom and pop businesses were just starting to apply computers in their operations, Apple came out with an endearing commercial:
Two older gentlemen who owned a fish and tackle shop were struggling over set up instructions for a new PC they had just purchased. They had difficulty understanding words like “port” and understanding instructions for installing the software. Finally, in the last scene, their administrative assistant popped her head in the office while the two fellows were still struggling. It was obviously night time by then, as seen through the window of the office. She told them she needed to go home and then pointed out, “at this stage, your computer is going to put us all out of business”. The men look up, dumbfounded.
Thirty years, later technology has advanced to such a stage that most businesses no longer require expensive in-house hardware or software. They just need a fast internet connection to plug into computing power available on the web. Physical servers with installed software are now kept in giant football size mega data centres throughout the world and operated by companies such as Amazon, Google and Microsoft.
Their computing power is available for rent by the month, week, day or even the minute depending on need. This trend, referred to as cloud computing, is now being applied by many global companies. Cloud computing allows operating companies to avoid the three greatest technology costs and challenges;

1. costs of regularly administering internal hardware and software
2. costs of running a business with obsolete internal hardware and software; and
3. cost of regularly updating obsolete internal hardware and software.

If one replaces the words “internal hardware and software” in the above, sentence with “Compliance Policies, Procedures, Forms, Logs and Operating Protocol”, it perfectly encapsulates the cost of compliance for independent firms. The biggest compliance costs are:

1. costs of regularly administering Compliance Policies, Procedures, Forms, Logs and
2. Operating Protocol
3. costs of running a business with obsolete Compliance Policies, Procedures, Forms,
4. Logs and Operating Protocol; and
5. cost of regularly updating obsolete Compliance Policies, Procedures, Forms, Logs
6. Operating Protocol.

Registered firms often mistakenly assume there is a point in time when “compliance is under control”. This could be when their registration is complete, compliance manual updated or when they pass their most recent regulatory review. However, this assumption is as true as expecting that windows 97 is the last application program you will ever need. The effectiveness of a firm’s Compliance Structure will naturally drift due to changes in, regulation, the business, staffing, regulator focus, and industry changes.
For more information, please contact:
Vipol Desai, Ara Compliance info@aracompliance.com.

The challenge for owners to choose between power or money

An owner of a business who gives up more equity to attract co-partners, professional management, new hires, and investors builds a more valuable company than one who parts with little equity. More often than not, however, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company. This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company.

Owners seeking to remain in control would do well to restrict themselves to businesses where large amounts of capital aren’t required and where they already have the skills and contacts they need. They may also want to wait until late in their careers, after they have developed broader management skills, before setting up shop. Entrepreneurs who focus on wealth can make the leap sooner because they won’t mind taking money from investors or depending on executives to manage their ventures. Such founders will often bring in new CEOs themselves and be more likely to work with their boards to develop new, post-succession roles for themselves. They understand that they can be owners of the business, not managers.

Choosing between money and power allows entrepreneurs to come to grips with what success means to them. Owners who want to manage empires will not believe they are successes if they lose control, even if they end up rich. Conversely, owners who understand that their goal is to amass wealth will not view themselves as failures when they step down from the top job.

This is a profound shift for many family businesses that become trapped believing that only full ownership is acceptable.  These family owners are convinced that having financial partners is a sign of failure. In comparison, the family businesses who do decide to maximize wealth often end up preserving more money for their next generations. Smuckers Jam, Wrigleys, Coke, Thomson all morphed and brought in external partners with great success and longevity for the company but also for family wealth.

Can Goliath Work Like David?

In describing their biggest hiring frustrations, Owners/CEOs often mention hiring someone out of a big company who was not able to adapt to the challenges of a mid-sized company. One Owner recently told me about one of his hiring mistakes – a VP-level hire who had worked at IBM – as follows: “He didn’t know how to create something from nothing. It’s like if you already have a crank, he can crank, but he can’t actually build the crank.”
A big challenge with hiring someone out of a big company is what one Owner called “the resource issue” – i.e., that the person is used to operating with a lot of resources. (“Big company” Goliath was used to having a full complement of armor and weapons, while little David had only a slingshot and the ability to improvise.) Another Owner said, “They have to realize that in a company with $30M revenues, they are the resource. They have to make everything happen themselves.”

QUESTION SUMMARY: In your experience, is it hard for people to transition from big companies to new ventures, or is this issue overblown? If it is hard, what are the biggest challenges, and what are the best ways to address those challenges?

Some big-company people can work well in mid-sized firms. What indicates which big-company hires will work out? The following characteristics were proposed:

• Within the big company, the person has succeeded at a variety of very different jobs across many positions and units, which suggests an ability to adapt.
• The person has had some international assignments, which often demand more entrepreneurial skills than do domestic ones.
• The person has enough self-knowledge to know if she fits better in big companies or in new ventures, and what stage of a new venture’s life cycle would be the best fit. Relatedly, the person is aware that the situation is "radically different" in a new venture, regarding resources, financing, and the need to wear many hats.
• The person is comfortable with the fact that the probability of success is a lot lower in the smaller company.

It may be an overlysimplistic opinion about private equity...

When you give, it comes back - or so the saying goes. I had one of those magical moments when an Ivey MBA student contacted me in regards to the book I wrote to make the Private Equity industry understandable to the layman. Yan Truong took the time to let me know what he got from Money Magnet and I was dazzled:

I have read your book, Money Magnet, and have to say that it was a great read. The book really opened my eyes to another side of PE that I never really understood. I always thought that PE was simply another form of financing for specific start-up companies with the occasional leveraged buyout of non "start-up" firms. However, after reading this book, I realize that financing is really just the tip of the iceberg. I now see PE more as a means to infuse life into a company at every crossroad, whether it is through financing, management expertise or simply giving the firm a new direction or vision. It may be an overlysimplistic opinion, but I see PE as capital markets meets management consulting with a touch of entrepreneurial vigor.

 Yan Truong, B.Eng.
MBA Candidate 2011
Richard Ivey School of Business 

Seems that the EMD has a great deal of value

What is the use of the registration Exempt Market Dealer EMD? After a lengthy discussion, I learnt that there is a long list of reasons the EMD brings value to both business owners and investors, such as reporting in to a regulatory body bringing protection to business owners. Then there are a slew of the hidden benefits for the Canadian economy.

In Halifax, the EMDA held a meeting at Cox and Palmer's beautiful law offices, situated right on the shoreline where military ships sat in the harbor and massive cargo ships slowly pulled into sight, arriving from distant lands. Patrick Fitzgerald, the expert in financially oriented law, was gracious enough to show me around the offices and to view their fine art collection. 
The EMDA event was well worth the trip to Halifax.  It reminded me how fortunate we are to live in this peaceful, safe and secure land. It seems fitting that our business opportunities and transactions offer the same protections to our business stakeholders. 
Canada is attractive as a place to do business because of its high ethics and legal protection. We are moving up in the globe because of registrations such as the EMD.

 The Securities Commission people also presented an interesting presentation, posing questions for the industry. It turned into a fantastically useful debate - still  being resolved over the next few years, mind you. 

I was particularly taken with the thoughtfulness and respect for business owners by the regulators - not the image one often gets from the media. Thank you for that, Nova Scotia!

3 Websites to Ruin Your Day

With American companies and consumers as Canada's prime market base, here are three websites to ruin your day completely: 

http://www.usdebtclock.org/ 

http://www.usgovernmentspending.com/  

http://www.mygovcost.org/ 

Now go and do something you enjoy - you deserve it!

Do Not Confuse Cyclical with Structural

The creator of the Buttonwood column in The Economist flew into Toronto from London to give a wide-ranging speech on the state of the world and how the economics, and investing, would play out over the next few years. Richard Cookson, now with the impressive Citi bank, treated us and scared us by explaining that in the developed world, we have too few assets for all the investment dollars to get the returns that they want. Citi is investing very carefully into the emerging markets but with the Middle East unrest, the risk costs are rising rapidly. 
As Richard says, "Egypt matters as now investors have to add higher risk to emerging markets."
My favourite nugget was Richard's elegant statement, 
"It is a cardinal error to confuse cyclical change with structural change." 
Citi's breakfast speaker series run by  Peter Charrington, CEO, North America, certainly highlighted the details of why we are in a time of great structural shifts. I'm sure Peter would welcome a call for more information. 
Contact: Leslie Bains +1 (212) 559-2216

Now Here's How to Push up Innovation

I am blown away every time I appear on BNN The Pitch by the business owners looking to raise capital. I am impressed with the sheer guts of these entrepreneurs to go on TV, pitch their business and then take a hammering from the private equity people. Their willingness to give it a go is the ability that truly sets apart the wheat from the chaff.
In this show, Matthew Thompson of Protranscript, absolutely nails his presentation and should be able to raise more money than he is seeking with his entrepreneurial drive.
 Andrew Bell introduces the panel: Rick Nathan, Managing Director, Kensington Capital Partners, Stewart Thornhill, Executive Director, Pierre L. Morrissette Institute for Entrepreneurship, Richard Ivey School of Business, Jacoline Loewen, Director of Loewen & Partners.
I apologize for the link below. I wish I could embed the video but I guess BNN wants you to go to their website. So here it is:
http://watch.bnn.ca/the-pitch/february-2011/the-pitch-february-16-2011/

Universities slow to understand private equity's importance

Slowly the universities are beginning to see that private equity is here to stay and is morphing into ever more useful formations. Useful to developing an economy chock block full of entrepreneurial businesses flourishing because they are being fed enough capital by high risk takers, not bankers.
I thought that you may be interested in a source of private equity materials. Wharton's has a new section on its website with PE articles:  Read Here.
The link was sent to me by Leah Noble, CA, JD/MBA and UWO Faculty of Law/Richard Ivey School of Business. Yes, Leah has a a CA and nearly and MBA/law degree combined and a great personality too.