Spring thaw detected in availability of early-stage funding

Pair of recent venture capital deals buoys hopes for B.C. tech firms that angel investment dollars are back

Glenn Drexhage

A pair of tech financings has renewed hope that the market for early-stage funding could be awakening.

Last Tuesday, Yaletown Venture Partners, a venture-capital firm launched last year, revealed its debut deal. And a week earlier, Vancouver's Mobile Operandi Communications Corp. announced it had received a seed round from GrowthWorks Ltd.

The news will be welcomed by B.C.'s technology community, which has long been plagued by funding worries.

Last September, a survey from the British Columbia Technology Industries Association noted that access to capital was the top concern among the province's tech CEOs. Early-stage firms have been no exception to this rule in the past.

Now, however, some feel that the tide is beginning to turn.

"We'll probably see a return to a variety of investors at the early stage," said BCTIA president George Hunter.

Certainly, Yaletown's deal suggests a renewed interest in deals from a crucial contingent of the early-stage financing process: angel investors.

Yaletown led the $2.3-million investment in Redlen Technologies Inc., a Victoria firm that specializes in radiation detection and imaging.

The financing included a host of prominent local angels, including Haig Farris and Don Rix.

Also involved were Irfhan Rajani, president and CEO of Apparent Networks; Jim Fletcher, a retired partner of investment firm Ventures West Management Inc., and Andy Wright, the co-founder of Datum Telegraphic, a Vancouver company sold to PMC-Sierra Inc. in 2000.

"I think [the early-stage market] is definitely starting to open up," said Hans Knapp, a Yaletown partner. "There is now more money available, and we are beginning to see some of that money getting deployed."

Redlen previously raised angel funding between $1 million and $2 million, Knapp said. One of the firm's main shareholders is the Velo Fund, created by Ken Spencer, the co-founder of Burnaby imaging and printing firm Creo Inc.

Redlen, founded in November 1999, is producing a special semiconductor that creates an electrical signal when exposed to radiation. This signal is processed to create a visible image.

Target markets include medical imaging and security applications such as screening for dangerous materials.

President and CEO Glenn Bindley, one of PMC-Sierra's co-founders, said he aims to be in production later this year. That's just the beginning: Bindley said his firm has a plan to hit $100 million in revenues within a five-year period.

He too senses that the funding environment is improving. Indeed, he thinks Redlen will seek a follow-on round either by the end of this year or the beginning of 2005, likely ranging from $2.5 million to $5 million.

"[In 2003], people were starting to poke their head out of the foxhole and seeing a light that they were willing to believe wasn't a train coming at them," he said.

Yet he added that the fundraising bar has also been raised.

Patrick Payne, president and CEO of Vancouver's Mobile Operandi, has a similar view.

"I would say that things are starting to pick up. However, from what I hear out there, it's still very, very tough for early-stage companies to get the deals."

That said, Mobile Operandi's latest round - via the Working Opportunity Fund, which is managed by GrowthWorks - was straightforward.

"It was much easier than I expected, frankly," Payne said, noting that the fundraising process took about three months.

Mobile Operandi creates Web sites for cell phone users that allow them to create, manage and share content, from graphics to games.

It's available via subscriptions that cost about $30 per year. So far, the service is offered at WirelessWave stores in B.C., and Payne said it will soon be available across Canada.

The company recently received $400,000 from Telefilm Canada and has signed a contract for another $400,000 from the federal National Research Council.

It previously received $200,000 in funding from the Advanced Systems Institute of B.C.'s product development fund.