Financial Post calls Canadian VC's Passive

The Financial Post has an article today on a keynote address from Roger McNamee, co-founder of U. S.-based Elevation Partners at the CVCA conference. What I took as his message from the article was that deals in the next little while may get fewer but bigger and he is calling out CVCA members as being "passive" investors and encouraging them to be more focused on making their current portfolio successful.

Curious, do you have a passive Board? What do you expect from your Board and are they driving you to success? Interested in your comments.

Ivara Elevates Partnership with IBM

Continuing on my theme of the importance of good partners to small software and tech companies Ivara announced today that it has achieved the IBM Advanced Business Partner Status. The elevated partnership level reinforces IBM’s endorsement of EXP Enterprise software as a solution that successfully integrates and delivers value to IBM Maximo Asset Management users. In addition, Ivara receives enhanced levels of marketing, sales and technical resources that fosters further collaboration between Ivara and IBM to improve service and deliver increased value to joint customers.

Link to Press Release

Twitter Financing Update

As everyone knew Twitter was in the process of closing their next round of financing and there are now reports out that the raise is in the final stages of closing at $15M with Spark Capital out of Boston which places approx a $100M valuation on the Company.

I have read that Twitter's service has historically been bad but the last couple weeks have been a disaster and at present they are still not functioning on IM devices (which impacts a predominant percentage of the users).

As I commented last night in Mathew Ingram's post on the Twitter problems I am a relatively new user to Twitter (approx a month). I was almost entirely an IM user of Twitter in my short tenure. In the past week I have found that I have I have adjusted my habits to be able to use Twitter on my laptop (although not as frequently). I credit my subconscious willingness to do these unnatural acts to it being so new to me and wanting to continue to particpate in conversations and connect with my new Twitter friends. I also know I am not yet as emotional as some posters and users are about Twitter based on my newby status. Bottom line for me, I do not believe that I will sustain the modification of my behaviours to fit the available service but will soon modify the tool (change to FriendFeed) to fit the way I want to use it. It is new technology and it is free so I think it is fair to cut them some slack. But there is a lemming aspect to this and once some of the pioneers start moving the rest will move enmasse. Once people leave I think loyalty will build with FriendFeed and unless similiar problems occur there it will be difficult for Twitter to recover. I hope they get it fixed in the next couple days....I am rooting for them but I won't hold out much longer. For now I can be reached at https://twitter.com/cfomarshall.

Partnering and Channels - How To

This is a difficult but important aspect of growth for all small companies. Partnering is defined as "a person who takes part in an undertaking with another or others, especially in a business with shared risks and profits". The principle challenge as a small company is in attracting the attention of a larger company (as almost everyone is in fact larger than you) and then convincing them that the economics of a relationship with you are of a significant enough benefit to get them to engage. I like to think of this in a similiar vein to a sales cycle with a major customer and would encourage you to understand that just like there is a cost of sale associated with every new customer, there is similiarly a cost of sale for every new Partner that needs to be planned and budgeted as part of your growth initiative. As a small company your "investment" in the relationship will probably be very significant up front....plan for it and manage it.

The reward and end game of establishing a Partner (especially on the channel side) is access to sell your software/product/technology into a geography or customer base or vertical that you currently don't have access to through direct sales OR that would take significant time and money to develop. As a small company you really must be prepared to give before you get in starting up new Partners and Channels. I won't go into a lot of detail here but one approach that works has the following seven stages: 1. Target Strategic Channel Candidates - It is important to be focused. It is going to cost resources, both human and financial, so strategicly target both the number of partners you are able to support and the two or three that are most strategic based on your predetermined criteria. For most startups and small companies taking on more than one of these at a time is very difficult based on the number of people required to support and drive success. 2. Sign Them Up - sounds easy and is only three words so can't be that complicated right?! This is the Partner sales cycle I discussed earlier and depending on circumstance, size of their business, strategic fit, etc can take anywhere from 3 months to 2 years. Make sure that you clearly establish with them what success will mean to you and what it will mean to them and get alignment. It is critical as the partnership goes live that expectations around support from you (economic or otherwise), and execution/targets for them are agreed to and understood. 3. Train Them - it is critical that you get your partner up to speed with your software, how to implement, how to articulate and sell the value prop, etc. Depending on the amount of services required with your software/product this can be fairly short or fairly long. My warning here is DO NOT UNDERESTIMATE this step. The success of the partnership will hinge on their success so make sure they really "get it". 4. GIVE Them Work - this is mostly tied to channel partners who will be required to provide implementation services. An accelerator in getting them up to speed is to bring them in and get them delivering with your people on an implementation project. You can even split the revenue in some predetermined manner to invest in the partnership. 5. Support Them - sounds fairly straight forward and it is but it is critical to have regular check point with them, understand what is working for them and not working and they are "learning to walk". This may require sending sales reps (and/or services people) out with their people to work on the job. Weekly calls, web conferences, a partner hotline, whatever works for them. 6. Make Them Successful - it will take some hand holding and some time but the absolute most important thing you can do if get early wins. Validate for them why they did this and that they need to do more of this with you. Do everything possible to make them happy (within a reasonable risk apportionment). 7. Set Them Loose and Manage the Channel - Now your child has grown up and is ready to fly the coop. Let them go but manage the relationship in a similiar fashion to what you do with direct sales. Have a regularly scheduled weekly call with the Executive sponsor from your Partner. Do a pipeline review. Always ask where they are stuck and how you can help. Your channel partner is now a valued stakeholder in your business and you need to communicate with them and keep them vested and engaged. Manage to your predetermined targets and drive the channel. Again, it is a big investment for us little guys but the economic rewards in the long term can be significant. When entering any relationship (whether its a Twitter follower or a Partnership) I believe you should be prepared to give more than you receive, especially at the beginning. Good luck securing your home run channel!

Drive Process, Be a Data Gatherer

One of the things I have struggled with at small startups is process and the collection of data to create business intelligence and knowledge. There are certain areas where I think it is important to try to establish process so that a company can gather data, analyze data, build intelligence and then use that to improve internal processes, go to market strategies, product planning, etc. THIS IS IMPORTANT but all my fellow startup and small company members will appreciate that there are oh.......about 500 other competing priorities that seem equally or more important at any given point in any given day! I will use sales process as an example below to try to demostrate why YOU MUST make the time early on to build these processes.

The most important thing to remember about building and implementing process and knowledge is that in a growing company, implementing process will always be easier to do today than it is tomorrow. The bigger you are and the more entrenched you are the harder it is implement so START NOW!!!

Spending the time to build some rudimentary processes to collect data will save you time in the future and will provide you with more than just a gut feel when it comes time to review why something is or isn't working in the future.

Sales process is a good example. Building a sale process and utilizing a simple CRM like Salesforce.com, Maximizer, SugarCRM, (insert your favorite here) will allow you to start to build a better understanding of what works and what doesn't.

From a Sales Ops perspective (a few examples):

-What are the five key questions/pieces of data that you need to get from a prospect on a first call?

-What program or partner is generating the majority of your leads?

-Had the customer heard of us beforehand? If so from where?

-this list is endless and should be customized for your needs

From a CFO perspective:

-how long from first call to to demo and what % get there?

-how long from demo to meeting and what %?

-how long from demo/meeting to formal proposal and what %?

-how long from proposal to draft contract and what %?

-how long to close and how many?

This is neither complete nor perfect and is just an example to make my point that by starting to track data and building a database of this type of info you will have a data driven basis for assessing a pipeline and providing a historical fact based position on what the forecast may look like moving out. This can provide the straw man and starting point for your sales calls, forecasts and budget conversations with sales.

After time you start to link this data to certain verticals, certain geographies, certain partners and look for patterns. Now you are putting the pieces together that will really help the business.

Over time you can build a significant amount of internal knowledge (that is not just gut feel) that will help qualify prospects, pipelines, etc. When modelling revenue growth you can link the growth back directly to the volume of activities (demo's, meetings, first calls) that are required to drive that level of growth and ensure that you are modelling a cost base that will support the level of activity required to drive the required growth.

Summary Building process and collecting data for analysis allows us to create a learning organization. A learning organization is critical to us in our startup world because we have neither the resources nor the time to repeat our mistakes. We as CFO's need to support our organizations and drive improvement through learning from what works and what doesn't work. This can be applied in almost every functional areas our business. Start tomorrow, don't wait it will only get harder.

Ivara Expands Partner Network

I will write a blog on Channels and Partners and their importance and critical role in growth soon. At Ivara we have just added another Implementation Partner named RMB that will continue to drive our growth efforts.

Canadian Entrepreneurs and Canadian VC's

This is a good topic that is getting much airplay lately with the crux of the debate centred (notice the Canadian spelling eh!) around where, how and why Canadian entrepreneurs who are looking to raise money are getting less of it from Canadian VC's. If you use the recent PWC Report on Emerging Software Companies as a data element it is suggesting that the amount of funds raised by VC's and available for investment has shrunk from $2.2B in 2005 to $1.6B in 2006 and further to $1.2B during 2007, a 45% decline in 3 years which is quite significant. When you overlay that against the actual performance of the VC funds (a 1% return over the past 3 years) it is not hard to understand why the number have dropped so significantly. This decline will have more of a longer term effect on the market than a short term effect as the money from 2005 through 2007 is not all spent with some VC's still having open, active funds. These open funds have facilitated the actual Canadian VC investment (money out to Entrepreneurs) to increase in 2007 to $2.0B out up from $1.7B in 2006. I think it is safe to say with money coming in to Canadian VC's going down coupled with performance in the single digits it is only a matter of time before the $1.0B drop in fund raising will hit the street. The Entrepreneurs have already started to either intuitively plan for this or coincidentally align themselves with other sources of capital. This gets us to the heart of the debate. There are two great blogs (both are among my favorite bloggers) out there with positions on this. Suzie Dingwall Williams made The Case for Canadian Venture Capital and believes that the reputation of the Canadian VC has been sullied and the relationship between Canadian VC's and Canadian Entrepreneurs needs to be repaired and collectively we need to partner to help each other and better understand each other. Gary Will has a great piece (somewhat of a rebuttal to Suzie) where Gary takes the position that Canadian Entrepreneurs should get money from where ever best suits them and not feel compelled to partner or align themselves with the Canadian VC community unless that meets their business needs. I think that both make good points and are actually not far each others opinions. I would, in a somewhat mediatory fashion, bring their points together and my position would be as follows. Entrepreneurs will and must (for the viability of their businesses) get funds from the place that makes the most sense for their business and where the economics make the most sense. The more interaction and sharing that occurs between Canadian VC's and Canadian Entrepreneurs the better positioned our homegrown VC's are to be able to meet the rapidly evolving needs of the growing and robust entrepreneurial community in Canada thereby making them one of the best places for Canadian Entrepreneurs to get funded. [btw...the legendary blogger Rick Segal as most of you have read has done a great job starting to bridge this gap through his recent roadshow across Canada to better understand entrepreneur needs and wants from a VC and what the opinion is today]. With the drop in new funds coming into the Canadian VC coffers Entrepreneurs, in the short term, will need to get access to funds through Angels and US VC's to bridge the gap between funds required and funds available. As Entrepreneurs the onus is then on us to perform. When you look at the low return of VC funds in Canada over the last ten years if we as Entrepreneurs cannot drive business performance and get beyond 1%-3% rates of return the drop in new funds we see on the VC side will rapidly leak into Angels and the US VC's and money will dry up. Are the low VC returns because they picked the wrong investments?? We all know the rule of 1 or 2 in 10 for the VC's but my call to action is to all of us Entrepreneurs. Better business performance will drive increased fundraising within VCs (Canadian or US), Angels and others and more access to capital to grow our businesses and to fund new entrepreneurs expanding the base of Canadian innovation.

Doing Business in Russia, what I've learned so far...

One great way to start (and perhaps stay long term) in a new geographic market is through your channel parteners. We have several really good ones that assisted us in our journey into Russia. here is what I've learned so far........

When you think about selling software and then you think about Russia as a market, we finance types probably tend to screw our faces up and take a step backwards as we dread the amount of work and headaches that we will be toiling through in the upcoming months and years to deal with this strategic imperative.

What about the VAT implications, the customs problems, the withholding taxes, the FX risk, the IP risk and so on and so on. The thing is it's really not that bad if you focus on the details and ensure you set things up properly. To detail the steps and conversations of this would be more like a feature articles than a blog so I will summarize and you contact me if you want to discuss further or find out more but here are some of the highlights.

IP Aspects

There are certain civil codes and rules that must be followed when executing a "valid" license contract in Russia. I am told that taking shortcuts or omitting some, any or all of these points can cause significant problems and not wanting to test that hypothesis I (and I suggest you) complied. I won't list them all but they include things like:

• including a detailed scope of the rights being licensed
• identifying the software in more detail than we usually do
• the term of use (and perpetual doesn't work it has to be tied to something or it will be deemed to be 5 years so you have to get creative here)
• the type of license (ie non-exclusive, non-transferable, etc)
• the territory (if applicable)
• any reporting requirements of the agreement

Under the law registration of your software with the Russian patent office is NOT mandatory however, fighting infringement cases without it is near impossible without it I'm made to understand.

The governing law of your license agreement can be anywhere in the world that you would normally use. The caveat is that where there is difference between the governing law of that country, province, state and that of Russian law, Russian law will prevail. This principally applies to some of the specific items listed above and I would still recommend you use a governing law outside of Russia.

VAT, Withholding Tax, Customs

In Canada we have a double taxation treaty with Russia which means that assuming you provide your custome with proof of your company's residency when you sign the contract there will be no withholding tax requirements (otherwise it is 20%) associated with the License, Maintenance and Support and Services revenues/billings.

License fees are exempt from VAT tax but training, installation and support services are not. All are subject to an 18% reverse charge VAT assuming your company is not a resident of Russia. It is really important that you agree and document with your customer that you are going to "gross-up" your invoices for these VAT eligible services. They will then be responsible for self collecting and remitting the VAT to the Russian agency and you then receive the same payment you otherwise would have net of taxes. This also prevents you from having to setup and be a VAT filer in Russia.

Support is a little tricky and you must be careful that new versions of your product that the Russian customer would receive while on Maintenance and Support do not contain any "new software product" or and plug in type releases that can be run seperately from the software originally purchased. Enhancements are fine but there is a grey area that you should review depending on your software, release cycles, etc. If you are deemed offside on this it will result in a number of tax risks that I won't detail here.

Customs is not really an issue unless you physically ship your software to your customers. If you are like us this is not really an issue as most software can be delivered electronically through FTP download or other means.

There are a myriad of other tax issues for your Russian customer on the other side of these comments that I haven't detailed but suffice is to say it can be very punitive to their books if they intentionally or accidentally misstep along the way.

Call to Action:

The Russian market is a huge opportunity for us and we are continuing to expand into that space carefully learning and asking for help each step of the way. I would encourage you to spend some time researching and understanding what is happening with your target vertical market in Russia and scoping out the opportunity, weighing the risks and evaluating the use of your limited resources in this market. There are plenty of well known established North American businesses operating resident in Russia who would probably be interested in partnering with you. Once you make Russia successful this may open up your relationship with them in other areas of the world as well which will help drive significant growth in your business.......good luck and let me know if I can help!

You don't know EVERYTHING about EVERYTHING

So let's be honest...we don't know everything about everything and we don't have to. What we do have a responsibility to do though, is be able to figure things out for our CEO. As our businesses grow and change and the competitive landscape changes dynamically on a day to day basis we need to have the ability to leverage the knowledge and experience of our peers and trusted advisors. Here is the model I follow when conqueringa new task:

1. Identify the business issue - make sure you clearly understand and can articulate as intelligently as possible what is is that you are trying to accomplish so that people can assist you and you are not wasting their valuable time
2. Research the issue and find someone who has done what you are trying to do - god bless google! Get on the net and research the issue as much as possible specifically looking for companies that have gone through what you are trying to do and have successfully come out the other end. Despite how you may feel at the time, most often you ARE trying to reinvent the wheel and you don't have to. Get a list of 3-5 people who have had success in your target area
3. Reach out to your Network and solicit assistance getting in touch with the people on your target list - ok you're halfway there. You know who can help you all you need to do is find a way to get to them. Now hit your network through LinkedIn or Plaxo or phone or email or carrier pigeon or whatever you use (I will post later on Networking and some of my thoughts).
4. Contact your subject matter expert - almost all people will be willing and happy to help but I should warn you that it is possible you will get shut down by one of your SME's. If you are just move on to the next one on your list. Make sure you have prepped your list of questions and info that you want to get and be organized so that you are in no way wasting your SME's time.
5. Build a better mousetrap - Now take what you have learned and make it better! Just doing what has been done before will not accelerate your business. Now that you have a framework build it out, customize it and figure out how best to apply it in your business.
6. Always, always circle back with your SME - call or visit in person (not email) to express your thanks and let them know what you did and what the results were. Tell them what you did the same and what you did different and why.
7. You have now expanded your network, learned a new skill or process and impressed your boss.....yet again!

CALL TO ACTION

There is much more detail in all these points but hopefully you get the idea. What is on your plate today that you are struggling with??? Reach out, learn, expand your network and pay it forward!

Ivara Commercial...stay tuned for your regularly scheduled program

Just to provide you with more background on what I do and where I work now I thought I would blog a little information on my company, Ivara. I am the VP Finance and Admin at Ivara Corp (parent company of Aladon LLC).

Ivara is an asset reliability software company located in Burlington, Ontario just outside of Toronto. Our target market is large fixed plant, continuous manufacting facilities principally in the metals and mining, pulp & paper, power generation and utilities and CPG verticals.

Our value proposition is that our software coupled with our implementation and maintenance methodology improve business performance by preventing industrial equipment failure while increasing production and lowering costs. Ivara was started in 1996 and is backed by two VC's (Almasa and Propulsion Ventures based in Montreal, Quebec).

As in any growing business our customer's success is directly correlated to our success. Success means different things for our customer depending on their strategic and competitive position in their market. In some cases we have worked with customers to reduce maintenance expenses as they try to make adjustments in their cost structure. In some cases we work with customers to drive more throughput with the same asset base through improved uptime and productivity of their assets. In all cases we strive to reduce the maintenance cost per unit of production whether they can sell as much as they can produce or they are slowing down production.

By analyzing why, where and how a customer's equipment fails, Ivara's software drives the right work at the right time.

Ivara has a proven solution and I am thrilled to be part of what we all see as a huge opportunity in an expanding and still underserviced space in the software landscape.

If anyone would like more info on what we do check out the website, contact me directly and I would be happy to set up a time to discuss more in a one on one setting or with a larger group at your organization.

I now return you to your regularly scheduled business and finance updates.....

Novell to Acquire Data Center Management Leader PlateSpin

Just wanted to send out (late) congratulations to a couple of friends and a really successful company.

Platespin (http://www.platespin.com/) based in Toronto is a 5 year old virtualization play that was sold to Novell for $205M recently. Success story's and especially those that involve really good people and friends are always great to hear and to share. While at Open Text (http://www.opentext.com/) I worked with Efrem Ainsley, CFO of Platespin and Dan Budlovsky, Director of Finance at Platespin and it is no surprise to me that both these guys helped drive huge success at Platespin. Great guys who work hard and are really smart.

Congratulation to everyone involved at Platespin including VC's Insight (from NewYork), Covington, Skylon and Four Quarters, well done.

Press Release http://http//www.platespin.com/corporate/newsdetails.aspx?id=269

External Relationships - Banking

Your banker is among the many key relationships you must build and develop as the CFO. It is important to understand and treat your and your Company's relationship with your bank as a Partnership. While you clearly have needs that you are approaching the bank for assistance with, they have needs as well. For smaller companies who have on-demand LOC's collateralized with everything under the sun as well as personal guarantees, it is more important to build the relationship and look to shed some of the restriction that the bank has on you. This can happen over time. Business performance, consistency where possible (tongue planted firmly in cheek) and communication are the keys to building and evolving your relationship with the bank. Communicate, communicate, communicate. At least quarterly you should be meeting with your bank to review the statements for the past quarter and provide them with color (see earlier post on why it is important to know your business and its drivers) on what has happened and what you see happening over the next quarter. It is really important that you not surprise your banker. Most good bank relationship managers especially on the tech side have seen pretty much every situation that your Balance Sheet is going to go through and can help you navigate the bank's sore points and keep you on side. The biggest problems with the bank always happen when you have presented them with a glass half full picture of the business and then disappont with no warning. Be open, honest, realistic and treat the relationship and the person with respect and they will go a long way to assist you through your turbulent times. They also have a lot of contacts that you can leverage to help resolve a miriad of different business issues. Some good folks I have had the pleasure of dealing with on the tech side who really understand the space and will go to bat to help you and your business are Jerry Tsao at RBC in the KW Knowledge Based Industry group (www.rbc.com). RBC has been around the tech space in Canada for quite a while and stayed the course several years ago when many of the big banks bailed on the tech sector. As a result of their commitment to the space they are probably the largest player for funded tech companies. More recently I have met with Rob Rosen at Comerica Bank (www.comerica.com) in their Technology and Life Sciences Division. Comerica seems to be very aggressive in the Canadian market right now and despite their legacy in the auto industry they have expanded into many different verticals through acquisition and aggressiveness in the market. If you would like an introduction to both or either please drop me a note. The important message to note is that honest communication with your banker can help you manage many challenges you will face. Your banker wants you to be successful and you are on the same team. Let them help where they can, provide guidance where appropriate and treat them respectfully. This won't necessarily keep your Company out of hot water but it will provide you with a respected business partner who will help make your life easier.

Cash is King

It seems simple enough to understand but the amount of time and effort spent managing cash in a business can be quite astonding. More than sales and pipelines and forecasts CASH is the most important thing to plan and intimately know in your business as a CFO. Knowing in detail what is coming in and what is going out on a daily, weekly, monthly basis is absolutely critical to you, your founder/CEO and your VC's. There is no such thing as the micromanagement of cash. Raising cash is never easy and in today's market even more so which means being aware of your burn rate and the length of your lifeline is imperative. But how??? This is the fun part! As CFO's we MUST get out of the office and really truly understand the business. In order to plan and manage the cash we need to have a fairly intimate understanding of every functional area in our business. We need to be our CEO's right arm and his/her business partner. The more we engage and know about the business the more we can leverage all our other skills in bringing value added feedback, thoughts and direction to our organizations. Try to do a walkabout at least twice a day and interact with your peers to understand the business through their eyes so you can improve the focus of your eyes!

Welcome!

Welcome to my blog on all things finance and business related in SME's. I specifically live in the software world but many of the topics and comments are relevant in any industry. Early stage companies have a whole host of day to day issues that must be dealt with, avoided, managed and planned that are unique from those of some of our larger friends. I have many years (and scars) invested in attempting to navigate the landmines and pitfalls along the way. As many of you will know, heading up Finance in a small or medium sized company is a role that requires flexibility, creativity and the ability to wear many hats. In the upcoming posts I will blog on (hopefully) areas of interest and relevance to others in this space. I hope you enjoy my thoughts and insights please send comments, argue my positions, call me out, debate and we will all learn from each other.