Investing in start-ups “a challenging, hands-on sport”

Aug09-RossBricker2AVAC Ltd. isn’t exactly a household name but one of the products it helped bring to market certainly is. Cold-fx, might not have made it off the lab bench onto supermarket shelves if it hadn’t been for the early stage investment by AVAC, an Alberta venture capital company.
According to Ross Bricker, president and CEO of AVAC Ltd., “One of our earliest and probably our best known success story in the early days was a company called CV Technologies, now called Afexa, with their Cold-fx product. We were able to participate back in 1997-98 in helping them with their clinical trials to take that nutraceutical or their medical, natural product to market. “
Twelve years later, Cold-fx is distributed around the globe, making millions for its parent company. As for AVAC, it has now invested in 110 promising companies. The portfolio of companies that have made it to market attributes almost $400 million in revenue or commercial sales to AVAC’s investment.
“Our primary job is to help catalyze homegrown business successes in agriculture,” says Bricker as he talks about why this venture capital fund was established in 1997.
“The agriculture minister of the day thought it was important that we start to generate more value from post farmgate activity. The data that had been generated prior to that showed Alberta lagging quite a way behind. We were being known as the hewers of wood and haulers of water. AVAC was created at that time to help catalyze those companies that could value-add commodities.”
The Alberta government put up $35 million and the federal government, through Agriculture and Agri-food Canada, contributed $10 million to get AVAC up and running as a not-for-profit, private venture capital company. In recent years, an additional $79 million from the province has helped AVAC expand its role beyond agribusiness into life sciences, industrial technology, and information and communications technology. This includes the IVAC initiative, spearheaded by Alberta Advanced Education and Technology in 2007.
In the past year, AVAC has also developed partnerships by attracting three other venture capital firms to Alberta: iNovia, Avrio and Yaletown.
Bricker has been with AVAC since 2000. No stranger to the world of agriculture, he grew up on the farm and continues to farm today. His degrees in agriculture and molecular biology, combined with his extensive experience in public policy, corporate finance and strategic planning, give him unique insight into the areas where AVAC is investing and into the obstacles these new ventures face.
According to Bricker, “The reality is that investing in early stage companies is a very challenging and very high risk area. Typically governments get involved in supporting research and innovation… that’s working in universities and through tech transfer areas. But then there’s a void in terms of available resources until you get to a company that’s profitable and generating revenue. Then, you’ll see later stage of venture capital get involved. In the area that we participate, the other investors are angels, the owners themselves… (and) some interested strategic partners who are prepared and interested in supporting early stage companies. But it’s very much a challenging, hands-on sport, so to speak.”
When deciding whether to invest in a startup company, Bricker stresses the number one rule is “people, people, people. If you’ve got the right kind of motivation and the right kind of people involved, then they will make it happen. I know from our experience—and we’ve invested in just over 110 companies over the last 12 years—that almost without exception, if they were good people leading the opportunity, it does well. If we take a risk on some people who aren’t quite where they need to be, then it’s not quite so promising an outcome.”
When early stage companies come to AVAC looking for venture capital, they are usually at the pre-commercial stage. Sometimes, however, AVAC will invest even earlier, supporting research at the university level, helping the venture along from idea through to marketable product.
Says Bricker, “We’re really a patient, hands-on investor. We come alongside and conduct very rigorous due diligence, making sure the investments are sound and appropriate, even though they are super high risk and early stage. We spend a lot of time helping the entrepreneurs, make sure that what they want to do is appropriate and is feasible.”
As for amounts of investment capital, that has ranged from a few thousand dollars to flesh out an idea to over $5 million on a single company with a blockbuster innovation. AVAC’s return on investment comes as a royalty when the companies finally get their products or services to market.
So just where are these AVAC investments? Bricker shoots off examples in rapid fire succession.
“SemBioSys has two blockbuster opportunities that will have a profound impact on healthcare with being able to produce safe insulin at a lower cost from plants that is identical to human insulin for Type 2 diabetics. And their latest product is a small molecule that again is produced in plants that is effective for treatment of blood cholesterol….These have a profound opportunity to mitigate what is going to be a significant healthcare cost in the future.”
On the ICT side, Bricker points to the Internet. “One investment we made this past year was in a social networking company called Tynt, which basically has a system for layering over top of the existing Web 2.0 world some data tracking systems to help monetize for investors and advertisers what they are spending their time and money on.”
Other companies include Under the Roof, a Calgary based company creating consumer products for the home renovating market. Cadillac Coatings of Edmonton has developed a technology to powder coat wood with a super durable, eco friendly finish.
On the health and neutraceutical side, there’s SciMed Technologies which has developed kits that allow producers to test in-house the levels of vitamins A and D in milk and baby formula. Botaneco has commercialized an ingredient for cosmetics called Hydresia. It’s made from safflower seeds and is a better emulsifier than those currently on the market.
And then there’s a lot of activity and interest in biofuels and alternative energy sources. For example, Highmark Renewables markets technology that turns organic waste from feedlots and sewage systems into energy.
These are just a few. A look at AVAC’s annual report indicates an extensive list of a broad range of companies and projects at various stages of development.
“Our primary objective is to see a vibrant, well diversified industry and I’ll emphasize home grown successes here in Alberta,” reiterates Bricker. “For those companies that do succeed, they are going to generate significant economic activity, employment, and quality jobs for Albertans.”
With all this energy and activity, what could grease the wheel even more? Taking another look at AVAC’s royalty model. While it works for the early stages of venture capital investment, Bricker says when companies grow to the point where they need later stage investment from outside sources, other venture capital funds look at AVAC’s royalty as a liability and are hesitant to invest.
Discussions are ongoing with the provincial government about allowing more flexibility in how AVAC can invest. √

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One Comment on “Investing in start-ups “a challenging, hands-on sport””


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