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newsletter - third quarter 2004Ventures West News Ventures West Closes its Eighth Venture Capital Fund We are pleased to announce the closing of Ventures West 8 at $250 million, the largest private venture capital fund ever raised in Canada. The fund attracted all of the largest, most influential pension plans in Canada. Investors in the fund include British Columbia Investment Management Corporation, Business Development Bank of Canada, Caisse de dépôt et placement du Québec, CPP Investment Board, EdgeStone Capital Partners, OMERS, University of Toronto Asset Management Corp., Teachers´ Private Capital, the private equity arm of the Ontario Teachers´ Pension Plan, and several other large institutional investors. “This is a record fund for Ventures West and for the Canadian venture industry,” said Robin Louis, President of Ventures West. “The fact that we raised more money than our previous fund, which was raised at the peak of the technology boom, is testament to the confidence Institutional investors have in Ventures West and in the venture capital industry in this country.” We expect to invest in 6 to 8 new companies each year and commit $5 to $15 million per company, over multiple rounds. New Companies Funded In the third quarter of 2004, Ventures West participated in five financings, both new and follow on, investing a total of $11.85 million. The two new portfolio companies are HR.com and Novadaq Technologies Inc.
Articles and Opinions VOIP - BOOM OR BANE? By Paul Kedrosky, Venture Fellow The US$230-billion voice market is up for grabs. Rapidly-changing technology - in particular, an emerging standard called voice over Internet protocol (VOIP) - is the cause. The trouble is, however, that VOIP is both a bane and boom. Consumers, for example, like VOIP because they think it means lower service costs. Telecom providers, on the other hand, are less convinced that VOIP is worth the trouble. They look at VOIP and see lost customers and lower selling prices, hardly the sort of thing that they want to rush to embrace. But the economics are too compelling to deny, so VOIP is coming quickly. Investing in VOIP directly, however, can seem like chasing ghosts. By changing voice into digital data, it is merely becoming another kind of undifferentiated digital traffic transiting global IP networks. The result is a fundamental change, but it is also one that makes voice simultaneously ubiquitous and invisible.
This shift from analog to digital traffic over IP networks is an inevitable and long-overdue change. Voice communications has been trapped in old technologies and older paradigms. The so-called POTS (short for "plain-old telephone service") that still dominates voice communications is only intermittently digital, and it charges for things that are essentially free (distance) and gives away things that cost money (bandwidth). Digitizing voice and putting it on IP networks - including, in principle, the public Internet - changes all of that. Now there is little purpose in charging for distance - no-one cares how far voice is traveling any more than we care whether an email is being sent across the room or around the world. What matters, instead, is bandwidth: How much space is your traffic taking up, and what kind of assurances do you want that you will always have that space? Because for all the similarities of digital voice traffic with other kinds of traffic on the Internet, there is at least one very important difference. Unlike email, it is very delivery-sensitive. Put another way, we are indifferent as to how an email gets to us: If it takes two seconds or two minutes it is really not a big deal, nor does it matter if the packets arrive out of order so long as they are reassembled correctly at the destination. With voice, however, out-of-order bits and delays in delivery are immediately picked up by the human ear, which is acutely sensitive to any warbles in voice traffic's sound. Tiny delays that wouldn't hurt an email cause us to reject poorly provisioned VOIP, saying that "it sounds funny".
All of this becomes even more important as voice-over IP becomes voice over both wired and wireless IP. Right now, of course, most people planning for and implementing VOIP are satisfied if they get reasonable performance over wired networks, where bandwidth and performance are more assured. But it is inevitable that we will rapidly move to wireless networks, both in the corporate campus and in the metropolitan region, using carried technologies like WiFi, Wimax, and others. The vagaries and uncertainties of wireless networks are an order of magnitude more challenging than over wired networks, so handling voice becomes more difficult yet. All of this begins to point to some strategies for investing in VOIP. For example, one path is through considering companies that create and sell platform technologies that manage this new kind of data traffic and integrate it into the other streams of data being sent around telecom networks. This, in essence, is the strategy being taken by Convedia, a Ventures West portfolio company. It has created carrier-class media servers for telecommunications service providers - tools for managing voice traffic. Another Ventures West portfolio company, Chantry Networks, has created a wireless routing technology that enables mobility for wireless applications such as wireless VOIP. Why not come at VOIP from the other end, from the perspective of a telecommunications service provider? After all, as should be abundantly clear, this technology change will radically reduce the price at which voice traffic is costed out and sold. The result will almost certainly be a radical disruption to the business model of incumbent telecommunications service providers. Why not, by that logic, fund startups, like Vonage or Skype, and try to enter the fast-growing VOIP market directly? It is seductive logic, but becoming a service provider is dangerous stuff indeed. The capital costs alone can be daunting, and the marketing costs can sometimes be larger yet. Rather than simply being a vendor of technology to a nicely-identified list of service provider customers with budgets, you are faced with selling into large and expensive-to-reach retail and commercial markets. As many investors learned to their chagrin when creating global IP network providers in the late 1990s, it is risky business indeed at the frontlines of a service war. Better, therefore, to be an arms provider. Rather than participating directly in the battle over the future of telecommunications from the front lines, it is smarter to sell the tools that allow others to fight it out. To that way of thinking, communications equipment that seamlessly integrates voice IP traffic into broader networks is crucial, as is, for example, test equipment that will demonstrate adequate service levels. Looking forward, hardware and software that integrates voice traffic over wireless data networks with voice traffic over wired and cellular networks will rapidly rise to the fore. People justifiably want to be able to use VOIP wherever it is available, handing off cleanly to cellular, WiFi, and telecom as those networks come within reach of their mobile device. This is all happening in a hurry. Consider this: Last year, for the first time ever, sales of telecommunications servers that supported IP exceeded sales of those that did not. And Gartner forecasts that within three years sales of traditional, non-IP PBXs will be a round-off error. Gone. How is that for market disruption? Portfolio Companies' Financings, Acquisitions and Awards
Spotlight - Marc Wickham Each quarter, the newsletter will feature a member of the Ventures West investment team.
Prior to joining Ventures West, Marc gained venture investment experience with the Venture Capital division of the Business Development Bank of Canada in Ottawa. Prior to that, Marc worked in the telecommunications industry for more than ten years in a variety of roles including product line management, marketing, operations, finance, and engineering with Nortel Networks and Teleglobe Canada. Marc has served on the board of directors of several private high technology companies and industry organizations. He currently serves as an observer to the board of Peleton Photonic Systems (formerly Tellamon Photonic Newtorks Inc), Intelligent Photonics Control Corp. and NUVO Network Management Inc. Marc earned Bachelor of Electrical Engineering and MBA degrees from McGill University. Location: Ottawa, ON Ventures West Offices
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Novadaq Technologies Inc. develops medical devices that utilize the chemical properties of indocyanine green dye (ICG), to facilitate diagnosis and treatment of age related macular degeneration (AMD) and to visualize the results of coronary artery bypass grafting (CABG) surgeries. 
HR.com provides Human Resources professionals with the information, tools and resources they need to successfully manage the people side of their business. 
August, 2004 - NUVO Network Management Inc., (TSX Venture Exchange: NNM), a leader in the remote management and protection of IT infrastructures, announced that the company has agreed to acquire Network Performance Services Inc., a privately held US-based managed services provider (MSP). The purchase price for Network Performance Services is approximately $5.9 million by way of approximately $2.5 million in NUVO common shares, $2.1 million subordinated debt and $1.3 million cash. For more information, 
August, 2004 - PolyFuel, Inc., the world leader in membrane technology for portable fuel cells, announced it has closed an $18.4 million, third round of funding, bringing total investment in the 5-year-old startup to approximately $40 million. This round, led by CDP Capital - Private Equity includes existing investors Mayfield, Ventures West, Technology Partners, Intel Capital, and Chrysalix Energy as well as new investors Conduit Ventures Limited, KTB Ventures, Hotung Venture Partners, Yasuda Enterprise Development, and BiNEXT, a part of the Daesung Group. To read the full press release 
September, 2004 - Xenon Pharmaceuticals Inc. announced that it has entered into an agreement with Novartis Pharma AG to research, develop and commercialize compounds from Xenon’s Stearoyl-CoA Desaturase-1 (SCD1) drug development program. Precommercial payments to Xenon under this transaction total up to US$157 million. Xenon will also receive royalties on products developed from this collaboration. To read the press release 
Marc Wickham joined Ventures West in 2000, establishing the Ventures West office in Ottawa. He is responsible for identifying and evaluating IT, telecommunications and semiconductor investment opportunities in the Ottawa area.