Grow the company, sell the company, cash in some shares and, with any luck, launch the next company.
It’s a widespread practice – or at least a widespread ambition – in Vancouver’s tech startup scene. And just five years ago, it was an objective that was perhaps too prevalent, according to BC Technology Industry Association (BCTIA) president Bill Tam.
According to BCTIA data, 3.7% of West Coast companies in 2009 were mid- to large-size firms – the ones capable of competing globally. By 2012, that figure had grown to 4.3%.
“A healthy ecosystem has a good number of anchor companies as well as a flourishing number of startups and entrepreneurs,” Tam said.
“You need a really good mix of both … and they need each other because the anchor companies are the ones that often spin out startups.”
He said the BCTIA wants mid- to large-size companies to make up 10% of the landscape by 2020.
That would bring the province in line with other jurisdictions, but it could prove to be challenging.
A May PwC report found 70% of CEOs at emerging tech companies in Canada are eyeing an exit strategy – most likely through acquisition – 48% of whom want out within four to six years. Another 40% said they want to get out of the market even sooner.
Just 22% of CEOs surveyed have no plans to exit the market.
“We [Canadians] don’t lack ambition, but we do seem to lose confidence when the time comes to take our businesses to the next level,” the report said.
“Some may feel it’s a challenge to take their venture to a new level – to build a Canadian-based firm that can compete on the international stage.”
But there are a few West Coast tech companies that haven’t shied away from growing into businesses that can compete on that next level.
Over the past year, video surveillance developer Avigilon (TSX:AVO) acquired Massachusetts-based VideoIQ for about $35 million and bought Virginia-based RedCloud Security for $17 million. In March, Sierra Wireless (TSX:SW) spent approximately $23 million to buy fellow B.C.-based tech company In Motion Technology.
Social media manager HootSuite bought out uberVU – also based in Massachusetts – earlier this year and acquired competitor Seesmic in 2012. Terms of those deals were not disclosed.
Tam said this speaks to the leadership at companies that genuinely want to grow in Vancouver and compete globally. But those deals also have very discernible benefits for the buyers.
“Companies will grow to a size where innovation is not as easy,” Tam said.
“They can’t turn on a dime so they rely on startups that can find new pathways for ideas that they couldn’t have otherwise.”
But what of the emerging tech companies in B.C. that appear ripe for the picking in terms of acquisition?
Vancouver’s Allocadia Software Inc. announced in June it had just raised $7 million in venture capital financing. The marketing data aggregation software firm has 30 employees – the same amount as VideoIQ when it was acquired – and plans to double its size over the next year.
CEO Kristine Steuart told Business in Vancouver earlier last month the company has no plans to exit the market, unlike many other startups in the city.
“In Vancouver there’s a really great pool of talent to build great technology companies,” she said, adding the city has the potential to become a legitimate technology hub if local firms are genuinely focused on providing clients with the best products. •
