According to Patty Tascarella of the Pittsburgh Business Times, US corporate venture investment is at its highest level since 2002.

In the second quarter of 2006, corporate venture capital investment reached its highest level since the first quarter of 2002, according to a new report by PricewaterhouseCoopers and the National Venture Capital Association based on Thomson Financial data.

Corporate venture capital is defined as operating corporations investing directly in portfolio companies, either on a sole basis or alongside traditional, independent venture capital funds. These corporate entities are in some cases referred to as strategic investors.

During the three months ended June 30, 2006, corporate venture capital groups participated in 195 deals or 22.2 percent of all venture capital deals completed. These deals represented $602.5 million or 9.2 percent of all dollars that venture capitalists invested in the quarter.

I wonder how Canadian companies compare. Are our corporate treasuries as healthy and are they willing to take five to seven year risks ?

"The uptick in corporate venture capital activity suggests that large companies are currently in a position to look to the future and take some risks as it relates to new technologies," Mark Heesen, NVCA president, said in a statement. "The overall commitment to venture capital investment by corporations has ebbed and flowed over time. It is always a tug-of-war between short term earnings pressures and long term product vision. For many companies, it is often difficult to stay the course of investment, which could last 7 to 15 years."

Even if Canadian companies are in the position to increase venture investment, from a street perspective local start-ups remain overlooked.

I'm at the Rotman School of Management this morning to hear Dean Roger Martin's talk on the subject of Ontario's prosperity gap. What drives it? Why does intensity vary between Canada and the US? The Institute for Competitiveness and Prosperity today released its report: "Time on the job: Intensity and Ontario's prosperity gap."

The topic may be somewhat dry compared to our usual discussions on Web 2.0 and venture capital but the topic may give our readers some insight into why Canada's VC community is underperforming. I'll be back with an update shortly.

Update 1: Why over the last generation has Ontario underperformed the North American mean in terms of prosperity? That is the driving question behind Martin's work. Our prosperity gap compared to the mean is about $6,000 or 12.6% of median GDP per capita. In real terms for consumers out there, this gap means we have $5,100 less disposable income.

The big difference between the US and Ontario workers isn't with the poor who tend to have only two weeks off a year in both countries. The difference lies with the wealthy who, in the US, take almost 3 weeks off but in Ontario they take 7 weeks off. Union leaders have always known about this (my aside).

Martin, by the way, says never believe anything you read in newspapers or see on T.V. about economics statistics - NEVER!! Why? Because reporters don't have the time to get it right. He says, for example, fewer people are working part-time today in the US than in the past. So much for common sense.

Update 2: The value of an advanced degree in the US is far better than in Ontario. In other words, earnings for holders of advanced degrees in the US are about 25% higher than in Ontario.

It (...read more...)

Roger Martin, Chairman of the Institute for Competitiveness & Prosperity and Dean of the Joseph L. Rotman School of Management, will present the results of their research on Friday, September 8. The event will take place in the Fleck Atrium at the Rotman School (105 St George St, Toronto) Click here for a map. The presentation begins at 8:30 am with a discussion to follow.

Dean Martin will be accompanied by:

Arthur Donner, a leading economist who has led federal and Ontario task forces analyzing the issues of working time

Andrew Heisz, Statistics Canada, who has analyzed hours worked and other labour economics issues

Eleana Rodriguez, a Principal of Mercer Human Resource Consulting, a global leader for HR and related financial advice, products, and services

The event will be complete by 10:30 am. Coffee and light breakfast will be available at 8:00 am.

Space is limited. To register for this presentation, go here.

Robert Young of GigaOm wrote on August 21st that Apple should acquire YouTube and launch itself into one of the Net's top property owners. YouTube is now ranked as the 40th most popular web site and, for strategic reasons, Young feels it would be a perfect match with Apple's iTunes video distribution. Now everyone is joining the fray. Even the New York TImes thinks it's a good idea.

Now, I know I am beginning to sound like a broken record when I say this but the YouTube phenomenon was predictable. I promoted a version of the service beginning some 2 1/2 years ago, about a year and a half before YouTube saw the light of day. But this is Canada and our team (which had some serious manpower behind it) just could not get local investors interested in the project. After all, "where's the revenue model." Rumour has it that YouTube is on the block for one-billion dollars. Is that a good enough return Canada? If our moribund VC industry wants to emulate VCs south of the border, it has to be willing to take risks that are proportionate to the rewards and stop nickel-and-diming every good idea to death.

Not every deal has to beat the entrepreneurs down to chump change guys.

YouTube could have been Canadian. Why not? There is nothing to prevent us serving bits from Toronto equally as well as L.A. But, we missed it just like we've missed many other opportunities. Flickr somehow got through the morass. Lucky for them they were in B.C., closer to the U.S. west coast.

By Charles Plant
Q1 Capital

In December 2005, Cyrium Technologies, a Canadian company founded in 2002 whose strategy is to become a leader in the design and production of high efficiency photovoltaic solar cells, raised $3 million (all numbers in Canadian dollars) from BDC and Pangea Ventures. Meanwhile, in the US, Nanosolar Inc., a firm founded in 2001 to develop light-weight, flexible and easily adjustable low-cost solar electricity cells. had completed a second round of $22 million to follow on their first round of $8 million. These two companies, while not competing directly, operate in the same industry with similar objectives and similar development issues. The US firm, however, is able to develop its business with one key advantage: it has ten times the capital of the Canadian firm.

In 2005, Venture Capital companies in the US invested $27 billion in seed, early stage and expansion stage companies. In Canada, the total was $1.8 billion or 7% of the US total. On the surface it would appear that Canada lags the rate of US investment by only 3% based upon population; However, behind these numbers lies another problem. The US VCs invested in just over 3,000 companies whereas in Canada there were 639 companies who received funding or 21% of the US number. The Canadian investment was spread over a much greater number of companies proportionately than in the US.

The result of spreading the investment out over a wide number of companies is that the average Canadian company did not receive the same level of support as the average US firm. In the US, the average investment per firm was $8.9 million whereas the average Canadian investment was $2.8 million. By the time a company has received seed, early stage and expansion funding in the US, it has brought in (...read more...)

Gagglescape's good friend and co-founder of the unstoppable BarCamp (not BaseCamp as David Crow just kindly pointed out) movement, Tara Hunt, was on CBC radio this morning. The CBC's mid-morning radio show did a piece on the "long tail" phenomenon now manifesting itself on the markets of the world. For those of you who have been sleeping for the last two years or so, the long tail is the segment of the market that in traditional mass-markets was overlooked by big retailers.

Suddenly, because of the Internet and now its derivation, Web 2.0, long tail markets are economically viable - hell, even down right profitable.

One example that Tara and company spoke about was the music industry. In the past, the record industry promoted a few top stars whose sales drove the label's bottom-line. Someone like, say, Madonna, enjoyed huge mass market success. The market has fragmented. Long tail channels now allow ten bands to survive where once one got by. That means more choice for consumers.

Coincidentally, Yahoo ran a story today from Business 2.0's September issue. The title is ''The Smartest Companies to Start Now.'' Some are related to the long tail market:

Jim Breyer, partner, Accel Partners

WHAT HE WANTS NOW: Social-networking sites may be sprouting like weeds, but none yet operates as a bona fide marketplace, with members buying and selling their own creations as much as they blog, link, and post. Breyer, who sits on Wal-Mart's board, is interested in backing an international network for indie artists, musicians, filmmakers, authors, designers, and other creative types from dozens of countries. Ideally, the site would have the download and payment features to create what he calls a "micromarket" for members' wares.

WHAT HE'LL INVEST: $10 million.

Here are Time Magazine's 50 top web sites.
Every once in a while Time comes out with this list -- old media meets new. We are not sure if we agree with all the choices but it is good to see Canada's Drawn! at the top of the list.

Entertainment, Arts & Media
Drawn!
Jumpcut
Sundance Splinks
Wolfgang's Vault
Photo Muse
Podcast Pickle
Pandora
The 9
YouTube

Shopping, Lifestyles & Hobbies
Phone Scoop
Delicious Days
Not Martha
Shop Intuition
Kids-In-Mind
Mighty Goods
Zunafish

News & Information
The Morning News
Kevin Sites in the Hot Zone
Charity Navigator
Footnoted
Tailrank
Deadspin
Digg
The Human Clock

Staying Connected
MySpace
Google Spreadsheets
SingShot
Meebo
Dodgeball

Time Wasters
TMZ
Shockwave
Yu-Gi-Oh Groove
Cute Overload
Jackson Pollock by Miltos Manetas
Number Logic

Travel & Real Estate
Zipcar
Farecast
Kayak
Zillow
HopStop
CentralPark
Yelp

Web Search & Service
Accoona
Kosmix
Snap
Pixsy
Argali White & Yellow
Blurb
Seamless Web
McAfee SiteAdvisor

Friedman's The World is Flat, How Companies Cope, Lesson #7

Outsourcing isn't just for Benedict Arnolds. It's also for idealists.

Triple convergence, has, as Friedman insists, flattened the world. Information can access regional manpower capabilities in ways never before imagined. From an idealist's perspective, one benefit is the ability to enhance the lives of people in 3rd world nations.

Two ex-McKinsey employees started a digitizing company with typists in Cambodia. Those typists were paid twice the country's minimum wage, worked six hours a day six days a week, and went to school for the rest of their workdays. The company now employs 170 people in three offices.

"Our goal was to break the vicious cycle there of young people having to drop out of school to support families," says founder Jeremy Hockenstein. "We have tried to pioneer socially responsible outsourcing."

Friedman's, "The World is Flat," How Companies Cope, Lesson #6

The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists -- not to save money by firing more people.

Friedman argues that outsourcing is a growth strategy. As noted earlier, anything a company can do to enhance its core competencies will benefit the long-term success of that business. Outsourcing then becomes a way to grow your business. Some CEOs, unfortunately, have taken a narrow view and used outsourcing to generate short-term profits at the expense of long-term corporate health.

That is a systemic problem more than an individual one though. Information technology became a panacea for many corporations. It was relatively easy to save money by investment in I.T. and this strategy became a standard tool to boost profits when, actually, the company was in a downward spiral. The very people a business might depend on for innovation and commitment to corporate well-being were decimated by often indiscriminate mass layoffs. The US auto industry comes to mind as an example.

Toyota and Honda used their much more cohesive employee social structures to reinvent the way cars are built. In response to the early days of the Japanese auto threat, US industries looked for efficiencies in I.T. rather than in understanding how to better compete with the Japanese. The US auto industry's latest dismal performance reflects the sad truth that, among other business performance issues, they never did understand lesson #6.

e-consultancy.com has a story on "Kiko" the Web 2.0 Calendar company that is putting itself up for sale on e-Bay for a reported sum of $50,000. While that in itself is interesting enough, the story gains traction when discussing the forces behind the funding of Kiko. It turns out that the company's funding came from a micro-cap investment by "Y-Combinator," a company that believes in the "Get scale, get business model, and get acquired," approach to building companies. Y-Combinator's web site begins:

Y Combinator is a new kind of venture firm specializing in funding early stage startups. We help startups through what is for many the hardest step, from idea to company.
We invest mostly in software and web services. And because we are ourselves technology people, we prefer groups with a lot of technical depth. We care more about how smart you are than how old you are, and more about the quality of your idea than whether you have a formal business plan.

Turns out that the management behind YC will throw a few dollars at almost any idea just to see what sticks - the shotgun spread approach to Web 2.0 investment. It will be interesting to see how successful the company is. e-consultancy.com writer, Chris Lake, does not think much of the idea:

Last month I threw a little mud at Graham, a notable entrepreneur, respected programmer and essayist, after he made some comments about a) geeks running businesses and b) there being no need to worry about a business model until a website achieves critical mass. I agree with Graham on a lot of things, but this sort of talk is downright dangerous.

I wonder if there are any Canadian VC firms taking this approach.

Friedman's The World Is Flat, How Companies Cope, Lesson #5:

In a flat world, the best companies stay healthy by getting regular chest X-rays and then selling the results to their clients.

Chest X-rays are good but only look at one part of the body. Really, Friedman means to say complete medicals but that metaphor is not as vivid. Whatever the comparsion, the best companies understand their inputs, processes, and outputs. They get this understanding by having very smart people -- internal and external consultants -- review the company on an ongoing basis. Their task is to identify operations that are essential to the growth of the company and separate them from those that can be outsourced to free up cash for reinvestment.

Friedman argues that an average healthy company is doing well if 25% of its activities are core competencies. Think about it for a moment. In a healthy company, 75% of operations can be improved or outsourced. Doing so would improve the company's health. Imagine what unhealthy companies might achieve.

Once a company has identified an inefficiency and improved it, it can then sell that capability to customers.

The example Friedman uses is HPs contract to implement and manage the core banking system of the Bank of India in Mumbai. 750 branches were included in the deal. Why did HP win this contract? Through a process of self-diagnosis, it had reduced eighty-seven different supply chains down to five across 178 different countries. Get this number right: Five supply chains managing $50 Billion in revenue. No wonder the Bank of India thought it could benefit from HP's core competency.

Many people see these gains in efficiency coming on the backs of lost jobs. In fact, what happens is that good companies use the free cash to grow their operational competencies. (...read more...)

The Google Campus in Mountain View

Turns out that information does want to be free. Thanks to Stuart Brand for the quote and to Google for making the decision to push the free information ideal to extremes. Yesterday, the Internet colossus rolled out its first free WiFi system in the community of Mountain View, California. The next stop is San Francisco. What does this mean for the ISP industry?

Telephone and VoIP companies may have cause for concern as well. There are already reports that VoIP calls were easily made over Google's WiFi service. Though Google still maintains that it will not expand its WiFi offerings to the entire nation, telephone, VoIP, and cable companies will clearly see Google as a very real threat. At the very least, Google stands to take away some business from these companies in the Bay Area.

How will this act play against recent moves on the part of ISPs to restrict user access to certain sites? Is this a strategic, game theory move on Google's part to say to the industry, hey, if you want to limit access to us or make us pay you to carry our search engine and other offerings, well, we just might put you out of business. And they can do it too.

Interesting move.

Friedman's The World Is Flat, How Companies Cope, Lesson #4:

The best companies are the best collaborators. In the flat world, more and more business will be done through collaborations within and between companies, for a very simple reason" The next layers of value creation -- whether in technology, marketing, biomedicine, or manufacturing -- are becoming so complex that no single firm or department is going to be able to master them alone.

The world -- especially the world of technology -- is so complex and specialized that no one company can dominate their market landscape: not even GE. What can smaller companies do to make sure they remain competitive in this environment? Collaborate, collaborate, collaborate says Friedman. There are millions of opportunities out there for companies who can put complex pieces together in new ways. Think of world flattening as a kind systematized version of what Buckminster Fuller use to describe as the Creative Generalist. These generalists, so it goes, are people who are highly skilled but who have chosen not to put blinkers over their eyes by narrowing their world-view through specialization. Fuller maintained that it is these people who piece together things that were formerly unassociated and thus create new wealth.

Friedman calls this the connection of knowledge pools through world-flattening and declares it a paradigm shift. I'm not sure that's what Thomas Kune had in mind when he developed the phrase but it is a shift in how we organize strategic information. Companies that are able to dip into these pools through the process of collaboration will have an advantage over their competitors as a result.

Rolls-Royce is an example of a large company that does collaboration well. Back in the 80s it decided to become more international in focus. They had long since divested themselves of (...read more...)

Image Of Game Player Types By David Drell
Microsoft's announcement that it will release a free toolkit for video game developers shows that the lumbering digital industry giant does have a division or two who understand the power of open networks. Called XNA Game Studio Express, the toolkit will be available for free and is to debut by the end of this month.

Everyone knows that the digital gaming business needs some new ideas. Nintendo's successful "Brain Age" games illustrate there are markets for more than just first-person shooters out there. Scott Henson, director of platform strategy for Microsoft's game-developer group, says:

"Some of the stuff we're going to do will help spark more excitement," he said. "You don't see a lot of fresh, new ideas. There aren't enough of those."

Henson also goes on to say that Microsoft wants to host a community-powered arcade that features homegrown games. By making development tools more broadly available to gamers, Microsoft hopes to improve the number and quality of games available - and that is a good thing.

The digital gaming industry has developed simulation tools that far exceed anything the military or construction industries might have come up with. It is time to start applying those new tools to other fields.

The CBC's Dragon's Den -- you remember, the entrepreneurship reality show competiton -- is in the news again. This time the Toronto Star has a good story about the people who will take their own money and invest it in the winning proposals. Here are the judges:

Kevin O'Leary, co-founder of The Learning Company, an educational software firm that was sold to The Mattel Co. in 1999 for $3.2 billion.
Laurence Lewin, co-founder and president of national women's lingerie chain La Senza Corp.
Jim Treliving, the former cop who founded casual dining restaurant chain Boston Pizza.
Jennifer Wood, a bush pilot, Alberta cattle rancher and businesswoman.
Robert Herjavec, a pioneer in computer networking and security, and head of The Herjavec Group.

Stay tuned. The show begins in October.

Friend of Gagglkescape.com, Sean Wise, has the last word in the story.

On the other hand, any one of the many applicants who will be rejected by the Dragons over the next four days may go on to be very successful in their business, said Lewin.
After all, as Wise points out: "Everyone told George Lucas that Star Wars wasn't a good idea."