Blogmatic

This post is a continuation in my series on the book “the power of kindness”. This is one of the best books I have read in the past five years and I highly recommend it. If you are interested in life long learning and a good read, please check it out. I bought my copy of the book at Indigo here in Barrhaven.

How does one define forgiveness? According to Piero Ferrucci, author of the power of kindness, forgiveness is defined as;

“Forgiveness means only that I do not want to continue feeding anger for an age-old wrong, hence ruin my life. I forgive, yes, but I keep well in mind the harm done to me, and I will be mindful that it does not happen again. Someone who has forgiven can still live in a world where injustice is not tolerated.”

My humble take is that letting go of that negative energy associated with a wrong done to us is part of the power of forgiveness. By letting go we move on, can start to heal and get on with our lives unburdened of previous injustices. Forgiveness is a key attribute of kindness and without it we may end up in a dark and brooding state. Forgiveness, however, does not mean forgetting; we will remember the injustices that have been perpetrated against us and be stronger and better people for it.

“So we will be able if we can place ourselves in another’s shoes; if we are less concerned with judgement, and more with understanding; if we are humble enough to give up being the patron of justice, and flexible enough to let go of past hurts and resentments. To learn to forgive leads us to a radical transformation of our personality.”

Empathy is an enabler of forgiveness, if you are capable of better understanding the motives of those that have wronged you, you will gain insight and the power to forgive. If you permit yourself to put get past the need to be judge and jury of the person that has harmed you, you gain in other ways. Forgiveness is a very powerful character builder and those that can master this characteristic remain open to everything and attached to nothing.

Forgiveness in a start-up context.

How does this apply in a start-up context?
Good question and I believe it applies in spades. Not so much in an external context, however, after all business is business and you need to earn the respect of your suppliers and partners. If someone has behaved in an adversarial or predatory manner they are probably not someone you want to deal with and I am not suggesting that you forgive them. While ethics and good conduct are the trademarks of well run businesses I am not sure that forgiveness is a characteristic you want to utilize too often.

Where forgiveness is important is internal to the start-up. Yes, that is right between and amongst the team forgiveness is an incredibly important attribute of your employees. When you are racing to market, creating new ideas and products the stress level within a start-up can increase considerably. Sometimes tempers flare and stuff happens. It is in that mending of fences and tolerance that forgiveness is important. If people harbour grudges or brood about past transgressions this can set the foundation for a waste culture. Forgiveness provides a way to get past and move on. Common sense (which is not so common) must also prevail. If a person continues to be problematic probably best to get “the right people on the bus and the wrong people off the bus” as Jim Collins of Good to Great fame would say. Forgiveness isn’t a ticket to ride but it is essential in a high pressure fast moving business.

Cheers and have a great weekend,
Ian Graham

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In any business plan you will need at least two years of financial information covered by; income statement, cash flow statement and balance sheet. Sometimes people will ask for 3 – 5 years worth of statements. Frankly in my opinion asking for detailed information for more than two years is a bit nebulous. The two year time frame you can predict with a reasonable degree of accuracy, the further you move out the fuzzier the numbers become. If you are asked for financials beyond that do monthly for year one and two and annually or quarterly for years 3 – 5.

An Income statement shows revenue and expenses. The most important part about this statement is the assumptions that you make for revenue, expenses and profitability. Develop your assumptions first then craft an income statement around that.

The cash flow statement is probably your most important item with respect to day to day operations. Cash flow is the life blood of your business and lack of cash flow is the number one killer of new businesses. This statement shows cash in flows and out flows over time. Understand when you’re receivables,  payments and their timing.

The Balance sheet is for assets (Stuff), you know computer equipment, capital costs, your liabilities and equity. This is captured at the point in time in which the accounting was done. This is probably the least exciting of the three statements and the most complicated.

The best advice I can offer with respect to preparing your financials is “FIND A GOOD ACCOUNTANT”.

Cheers,
Ian Graham

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I saw the first sign of spring yesterday. Roll up the rim is back at Tim Horton’s. You know when you see those orangy cups with the yellow arrow that spring is just around the corner. I won a coffee on my first try. woo hoo.

cheers,

Ian Graham

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This will be the last in my series of Posts on the LSIF. A relief to some perhaps.

Why am I writing about this topic so much? Number one is I think this is an incredibly important topic for innovation and more importantly commercialization in Ontario. The fact that the LSIF program was cancelled has done a huge disservice to early stage knowledge based businesses in Ontario. The programs introduced to replace the LSIF; Investment Accelerator Fund and Investment Demonstration Fund have some significant flaws. What are the flaws you may ask? Well let’s start with the fact both are significantly underfunded. Second they are administered by government organization that may not have the depth and breadth of expertise to properly identify fundable opportunities. Finally they are Toronto centric rather than regionally based.

According to Doug Cummings author of ”Financing Entrepreneurs; Better Canadian Policy for Venture Capital” there are some flaws with the LSIF. I have called this the LSIF ugly.

LSIF are Ugly because:
- Limits geographical range of investment,
- Constraints on the size and nature of any given entrepreneurial company,
- Requirements to re-invest fixed amounts within a certain period of time
- Investors are forced to make investments in inferior companies,
- Only 3 LSVCC have earned a positive rate of return,
- Management expense ratios are more than 4%, (see yesterdays post)
- Fund managers must manage more companies per manager,
- Tax Subsidies are expensive to the province.

Limits geographical range of investment,
This is beautiful. What you want are funds that are targeted geographically to spur regional economic development. The probability is very high that the money raised by these funds will be regionally based so it makes good sense to invest in the region.

Constraints on the size and nature of any given entrepreneurial company
This is beautiful. You want to target where the funding goes in order to limit competition with private funds.

Requirements to re-invest fixed amounts within a certain period of time
This is beautiful. You want to continue to fund companies as they grow so they have a secure source of capital. This frees up the company to focus on their business rather than chasing the funding holy grail which is very time consuming.

Investors are forced to make investments in inferior companies
This is stupid. In every problem are the seeds of opportunity. This is a problem with the regulations governing the funds rather than the funds themselves. Modify the requirements to prevent forced investments; this should be a no brainer.

Only 3 LSVCC have earned a positive rate of return
The report was done in 2004, what is the rate of return today? More importantly is the rate of return to investors the only metric worth measuring? How many jobs were created, what was the gross salary for employees, how much personal income tax and wealth was generated?  LSIF are called “RISK CAPITAL” for a reason. Back to yesterdays post, what is the strategy and objectives for the program. This sounds pretty basic but set up metrics that measure what you are trying to achieve. The perspective from this entire report is that of the investor rather than building knowledge infrastructure and jobs.

Fund managers must manage more companies per manager
This is Beautiful. They should be managing more clients because these are earlier stage companies than traditional investors would want to fund. You want fund managers that are more familiar with earlier stage companies and know their specific needs. This isn’t ugly it is expected.

Tax Subsidies are expensive to the province
This is beautiful. Rather than have an input based metric have a results oriented set of metrics. It is less about what you spend and more about what you produce. ARGH!

SUMMARY
The LSIF program with a few tweaks has the potential to be an excellent program that compliments the existing ecosystem of knowledge based company development. The rationale for cancelling the program shows a myopic view of the importance of commercialization and demonstrates the obtuseness of the government with respect to building knowledge based infrastructure.

Cheers,

Ian Graham

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Last Week I wrote a number of posts related to the cancellation of the LSIF program in Ontario. The posts reference a report from CD Howe Institute that forms the rationale for cancelling the program. The report is entitled “Financing Entrepreneurs: Better Canadian Policy for Venture Capital”.

Let’s start with the obvious. If Ontario has better policy for venture capital after the cancellation of the LSIF program why is Ontario continually losing ground to Quebec and BC in this area?

One of the numbers quoted in the report is that at the time of the cancellation of the LSIF $3B had been spent nation wide on the program. Let’s assume that at the time Ontario accounted for about half of this money (67 of 125 active funds), therefore $1.5B. A significant portion of LSIF funding went to private enterprise which is where the majority of commercialization of innovation occurs. In its place the government of Ontario introduces a number of programs for a total of less than $100M that target Universities. Now, don’t get me wrong I like Universities, I actually attended one here in Ottawa, however, in my opinion Universities are great at innovation but need to partner with private enterprise for successful commercialization. So in essence the Ontario Government, with the cancellation of the LSIF, strengthened (questionable) our innovation capability and all but destroyed our commercialization capability.

Just to recap, here is what “Financing Entrepreneurs: Better Canadian Policy for Venture Capital” lists as BAD about the LSIF program.

LSIF are bad because;
- Inefficient investment vehicles
- Charging high fees,
- Yielding disappointing  results,
- LSVCC may crowd out private investment.

Inefficient Investment Vehicles
Are LSIF an investment vehicle for retail investors or a strategic imitative to facilitate commercialization of innovation, in my opinion very much the later. This perspective tweak will significantly change the entire discussion around the program. In my opinion the major flaw of “Financing Entrepreneurs: Better Canadian Policy for Venture Capital” is that it views the LSIF program as a tactical investment tool rather than a strategic initiative to create knowledge based infrastructure and successful commercialization. If the program was only about investment why the government would be involved at all in providing tax credits, this indicates of lack of vision on the part of the report and the Ontario government.

Charging High Fees
This seems like a no brainer, legislate a ceiling on management fees. The fact it is even mentioned, again in my opinion, demonstrates the myopic view of the report. This is easily fixable.

Yielding Disappointing Results
The report is initially written in 2004 so at the time this may have been true, however, there are also successes (Universities make hay from LSIF VC win) and when investing in early stage businesses you need to take a long term view to returns and results. Hence the 8 year lock in period and the need for understanding the strategy and objectives or the program. In my opinion, the problem is less with the funds and more with the government’s perspective.

LSVCC may crowd out private investment.
My knowledge in this area is somewhat limited, however, I have read about this being a concern. Secondly I thought these were private funds from retail investors. If they currently compete with private investment, make it so they don’t. Have the funds target the earliest stages of investment (pre-seed and seed) where the need is greatest and they won’t compete with other investments. Again, this seems easily fixable with a bit of thought.

Tomorrow post is a response to the CD Howe Institute “the ugly” entitled “LSIF is beautiful”.

Cheers,

Ian Graham

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This is a continuation of the series of post I had started a couple of weeks ago entitled “Rounding the bases with your business plan”. Just to recap:

1st Base – Introduction (Homework, Making Contact, Meeting Preparation)
2nd Base – The Executive Summary
3rd Base – The Business Plan (Introduction, Protecting yourself, Types of Business Plans)
Home Base – The Financials

If you thought it was a challenge to get on base and then from 2nd base to 3rd base getting to home base and wining the deal is much tougher. I have probably presented my business plan for TheCodeFactory about 40 times. I am on base with a number of potential partners and have made it home 4 times. Bottom line it is a lot of work and requires some real persistence to make it to home base. Once you have made it to home base the amount of work increases exponentially. Don’t be discouraged though, if it was too easy it wouldn’t be nearly as rewarding.

Let’s just take a minute to think about what has been accomplished thus far. You have introduced yourself to a potential partner had two or three meetings with them and feel there is the possibility of working together. You are now ready to open the kimono and delve into the details of your revenue model, market and financials. Home base is really all about your financials and the assumptions you have made to justify them. The questions about the financials will probably be a lot less about the technology and a lot more about the business.

Next post in this series will be a financial statements 101 post, later this week. In order to present your financials you will need to have at least a very basic understanding of the financial statements and very detailed knowledge about the rationale for all of the revenue, expense and capital items.

Cheers,
Ian Graham

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There is a new ad for shreddies that I really like. Another one of those perspective things.

A team of senior management are huddled around the shreddies production line because of an apparent problem. Shreddies the traditional square (literally) shaped cereal are coming off the production line in a diamond shape. The line is halted and the managers querry the production workers, “how many of these diamond shape shreddies have been shipped to market.”

Cool ad, humour with a twist so to speak.

cheers and have a great weekend,

Ian Graham

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Here are some quotes I like from the report “Financing Entrepreneurs: Better Policy for Canadian Venture Funding”:

“Innovation and growth depend in large part on entrepreneurship, which in turn may require financing in the form of venture capital investment.” From World Bank Policy Discussion in foot note.

“Much evidence, albeit not all, indicates that small, growth-oriented, high-technology start-up companies contribute disproportionately to innovation and economic growth.”

“while venture firms averaged less than 3 percent of corporate research and development, they were nevertheless responsible for more than 8 percent of industrial innovation in the United States (Kortum and Lerner 2000).”

I like the first quote very much and agree whole heartedly with it. The next two quotes tend to reinforce the importance of the start-up to economic development. Dumb questions but, if innovation and more specifically commercialization depend on financing, why would you cancel 50% of the financing available to entrepreneurs and not have an alternative? That is essentially what was done when the LSIF were cancelled in Ontario.

The Good.
This is a short section I couldn’t find any positive remarks about the LSVCC (LSIF) in “Financing Entrepreneurs: Better Canadian Policy for Venture Capital”.  The author did mention two programs hailed as good:

Small Business Innovation Research Program, United States
Innovation Investment Funds, Australia

These two programs look similar to the MRIO programs I discussed a week or so ago. In my opinion funding for innovation and entrepreneurship should be geared toward commercialization in the private enterprise with open and transparent processes.

The Bad
LSIF are bad because;
- Inefficient investment vehicles (hey, there is the word vehicle again)
- Charging high fees,
- Yielding disappointing  results,
- LSVCC may crowd out private investment.

The Ugly
LSIF are Ugly because:
- Limits geographical range of investment,
- Constraints on the size and nature of any given entrepreneurial company,
- Requirements to re-invest fixed amounts within a certain period of time
- Investors are forced to make investments in inferior companies,
- Only 3 LSVCC have earned a positive rate of return,
- Managment expense ratios are more than 4%,
- Fund managers must manage more companies per manager,
- Tax Subsidies are expensive to the province.

Coming soon the Blogmatic LSIF response to todays “The Bad and The Ugly”. Can’t you just hear the haunting melodies from Sergio Leone’s “A Fist Full of Dollars”. Actually with the cancellation of the LSIF program there are alot fewer dollars. Here is a bit of dialog from the Blogmatic LSIF western “Lost treasure of the Ontario Entrepreneur”.

Our scene opens with an Entrepreneur baricaded behind a fortification fighting for his life. A band of Ontario Provincallies (Banditos) have the entrepreneur cornered. They want him to throw down his weapon.

Ontario Provincally - Hey there Entrepreneur we are Provincallies, you know the innovation police.

Entrepreneur - If you are the innovation police show me your LSIF.

Ontario Provincally - LSIF, … LSIF, we don’t need no stinkin LSIF.

Cheers,
Ian Graham

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The IRAP-CMC team building event is intended as a fun, friendly and informal way of introducing the start-up community to IRAP (Industrial Research Assistance Program) and the joint IRAP-CMC management advisory service. The event is built around a number of hands on and highly interactive team building exercises designed to create that friendly spirit of competition. This is an opportunity to meet with Ottawa and Gatineau area ITA (Industrial Technology Advisors) and CMC members in a relaxed and informal atmosphere.

If you are a Start-up and think that you may qualify for the IRAP program you are welcome to attend. Event details below:

Date: 28-Feb-2008
Location: bitHeads (East side of Westgate Mall)
Time: 6pm to 9pm
Cost: Free on the condition that you Pre-Register
Pre-registration is required contact ian.graham3@gmail.com to confirm your spot.

Agenda
6:00 – 6:15 Networking
6:15 – 6:30 Opening remarks
6:30 – 8:15 Team Building Exercises
8:15 – 8:30 closing remarks
8:30 – 9:00 Networking

The CMC (Canadian Management Consultants) is sponsoring the event.

Ian

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An LSIF invests in privately held companies that are not listed, typically high growth early stage companies in the technology sector. The LSIF must be sponsored by a labour union (not quite sure I understand why). In 2005 there were 125 LSIF in Canada and 67 in Ontario.

The LSIF is managed by an investment firm and contributions come from retail investors in $5K or more chunks. This is essentially a way of aggregating funds for early stage businesses, sounds like a good idea. Investors are subject to an 8 year lock in period. In other words when you invest in an LSIF your contribution must stay in the fund for a minimum of 8 years. Investors are rewarded for taking risk and investing in the fund in the form of a tax credit.

LSIF are also bound by a number of constraints as listed below:
- Limits on geographic area of investment,
- Size and nature of the investment have limitations,
- Management company must continue to reinvest in their portfolio,
- Constraints are subject to change based on legislation.

In my opinion all of the constraints on the LSIF are good. This is a way of essentially creating a pool of risk capital that is regionally based and that is a good thing. The fact that the investment company must continue to reinvest in the company is also a good thing and provides for pre-seed, seed and later rounds. The more I learn about the LSIF the more I like the concept.

When you consider that Quebec will likely overtake Ontario in terms of fund raising and investments in the next year or two it speaks to the value of the LSIF. Quebec has a strong LSVCC program and Ontario does not.

Cheers,
Ian Graham

Notes: the terms LSIF and LSVCC are used essentially the same.

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