Angels profit from tech buyout

Leading Lower Mainland technology players cash out after ActiveState sold for US$23 million

Glenn Drexhage

The recent sale of a young Vancouver technology firm for US$23 million marked a lucrative payday for its early investors.

Last week, Sophos Plc announced it had paid cash for ActiveState Corp., a 104-employee company that specializes in anti-spam software.

Since its founding in 1997, the Vancouver firm has raised about US$3.4 million in angel financing.

ActiveState president Steve Munford said the sale, which was negotiated in about three months, represented a win for the angels. "It's a very strong financial return for them."
ActiveState's investors include local tech heavyweights such as:

-- Don Mattrick and Paul Lee, the president and chief operating officer, respectively, of games developer Electronic Arts Worldwide Studios;

-- Greg Aasen, chief operating officer and chief technology officer at Burnaby semiconductor company PMC-Sierra Inc;

-- Amos Michelson, CEO of Burnaby-based imaging firm Creo Inc.;

-- and Haig Farris, co-founder of local venture capital firm Ventures West and president of Vancouver's Fractal Capital Corp.

"Certainly, Haig has been the most active and the biggest supporter for us since day one," Munford said.

"The support from the local tech angels was invaluable," added ActiveState founder Dick Hardt, now involved in another Vancouver startup called Sxip. "There's a number of people that have been very successful and most of them made themselves available to me for questions and support."

Steven Hnatiuk, a founding director at ActiveState and partner at Vancouver's Yaletown Venture Partners, called the deal a fantastic win for the angel investor community.

"I think it's important to recognize that this is a company that took six years to build and is one of the rare examples of a deal that was backed almost exclusively by angel investors," added Hnatiuk.

Munford, 38, said all of ActiveState's employees would be retained. Sophos, headquartered in the U.K., has 520 staffers.

"We're not being swallowed up by a 10,000-person company," Munford said. "We will be a significant part of Sophos."

He noted that Sophos had a strong European reputation but a relatively small North American presence out of Boston. ActiveState will be integrated with Sophos's North American sales and marketing team.

ActiveState will also handle research and development globally for its anti-spam product and for its open-source programming tools.

Munford becomes the global vice-president of messaging and will attend Sophos board meetings, although he will not be a voting member.

Sophos is known for its anti-virus technology. Its latest acquisition allows it to broaden its product offering by integrating PureMessage, ActiveState's anti-spam software.

"It's a good deal for Sophos," said Maxine Holt, senior research analyst with Butler Group Ltd. in the U.K. city of Hull. "Spam is a big problem for organizations around the world at the moment."

Holt acknowledged the companies' locations could be an issue. "There's the actual difference in continents to consider," she said. "But other than that, I don't think that there's a great deal to worry about."

Munford wasn't overly concerned about distance, noting that Active- State's sales and marketing staff along with its developers have a history of working remotely.

Holt said the acquisition could be a taste of more deals to come, as pure-play anti-virus vendors look to broaden their products or end up being bought by bigger players.

Both companies are private and profitable. Sophos's fiscal 2003 revenues increased by 30 per cent to US$63.1 million. Meanwhile, its after-tax profit was US$15.6 million, a 59-per-cent increase over 2002.

ActiveState's revenues for the past 12 months are US$7.7 million, up from fiscal 2002 revenues of US$5.1 million.

ActiveState's success has allowed it to grow from 30 employees to its current staff levels in the past 18 months.

"We did that all through...generating cash from our own operations," Munford said.
The 40-year-old Hardt, who was ActiveState's biggest shareholder leading up to the sale, is now focusing on his latest effort, Sxip.

Pronounced "skip," the company has its official kickoff on October 1 and will focus on identity management for the Internet.

"For me [the recent deal is] a great event, because I'm now going to focus on my new venture and I have the funds to do that," Hardt said, adding that he would invest as much in Sxip from Day 1 as ActiveState raised in total.