The wild next wave

Globe Investor Magazine, September 18, 2008

Continued from Page 1

To improve their odds, developers try to piggyback on BlackBerry, Facebook or other popular services. They will also test a prototype online early. The first version doesn't cost a fortune, so it doesn't have to be perfect. On the other hand, unpromising ideas have to be killed fast. "Lemons ripen early," says Varma. "We often have that talk after someone's been working on something for a few days."

That bigger investment by a tradition­al VC firm is still a big hurdle, however. Kevin Talbot is managing director of RBC Venture Partners group, and, at a technology conference in May, he an­­nounced plans for the new BlackBerry Partners Fund, with $150 million pro­vided by RBC, Research In Motion and Thomson Reuters. It will invest in new applications for mobile devices, includ­ing-but not limited to-RIM's Black­Berry. At the eight-week mark, says Tal­bot, the fund had been deluged with almost 1,000 business plans.

The RBC group was already seeing 500 to 600 proposals a year, he says, yet it invests serious money in just a hand­ful-a few million dollars each. To pro­vide anything less to a project would not be economical for many large institu­tions or funds. Talbot draws a distinction between something like a barbecuing-tips website that an individual might start and run, and a large-scale company that in­­cludes all the traditional elements such as marketing, customer relation­ship management, compliance and so on. "Investors have got to figure out if it's a business, as opposed to a feature," Talbot says.

Out in Silicon Valley, the buzz on Sand Hill Road this past spring was that even Web 2.0 sites that had attracted lots of users and one round of VC fund­ing were having trouble getting, say, $3 million or $4 million more.

At some point, a venture has to have real prospects of profits. Yet even Meebo, a Web 2.0 star, has an annual revenue of only about $1 million. Despite all the traffic that social networking sites get, a lot of users simply don't click on tradi­tional online display ads. So, this spring, Meebo started trying to sell ads that users can play with-icons connected to movie trailers or games, for instance.

Still, Meebo's Sternberg isn't worried about the bottom line. "The goal is to get really big," he says, "and to bring live communication to the Web." If you attract enough eyeballs, someone will want to reach them. General Motors, for one, plans to boost its online advertising spend­­­­ing from $197 million (U.S.) last year to $1.5 billion (U.S.) by 2011.

This dash for growth sounds a lot like the strategy of the old-school dot-com developers of the '90s. Some, like Ama­zon.com's Jeff Bezos and Google's Larry Page and Sergey Brin, were proved right—and spectacularly so. Unfortunately, thousands of others were wrong-some­times painfully so.

New technology, old-school strategy

Will the next Big Score come from Canada and make piles of money for some Canadian venture capital investors? The odds look long. Take Dan Latendre, 44, the CEO of Waterloo-based Igloo Inc., which makes software for corporate use-"Facebook for the enterprise," as one company backer describes it. But little besides the actual product is cutting edge.

Latendre is a tech industry veteran. In the 1990s, he rose through several executive positions at Open Text Corp., which became a Canadian software sensation when it raised $54 million in an IPO on Nasdaq in 1996. In 2004, when he "retired," as he puts it, Research In Motion co-CEO Jim Balsillie approached him to spearhead a pet project-creating a global non-profit networking site for scientific researchers.

"LinkedIn and Facebook were just starting to emerge," says Latendre, and he liked the ease of use of those Web 2.0 sites. He wrote a grant proposal for Ontario's Ministry of Research and Innovation, and his site eventually received $15 million. While doing that, Latendre says, the "light bulb thing" went off over his head. Why not commercialize the technology for corporate users? As Latendre says, networking knowledge within companies, and between them and their clients and suppliers, "has been stuck in e-mail."

The scientific site now has ­roughly 250,000 users worldwide. This past May, Igloo secured $4 million in first-round venture capital funding through RBC Venture Partners group. Latendre wants the rest of 2008 to be a building year for Igloo, and he's aiming for major growth in 2009.

Is he happy? Not entirely. He didn't get the funding until he had helped run one of Canada's most successful software companies, secured provincial funding for a new idea, recruited a business heavyweight (Balsillie) as a company director, and won over the biggest bank in the country. "It bothers me that we have no Web 2.0 leaders in Canada," says Latendre. It's a tall order, apparently.

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