The Okanagan Never Has Been, And Never Will Be, Silicon Valley: A Lesson From New Zealand

UPDATE: This post from February 21, 2016, is being republished in the light of the announcement that Club Penguin is closing its doors in March. No amount of PR spin, arm waving, or equivocation can make the bitter truth of this post go away.  I note that Lane Merrifeld and Accelerate Okanagan have been conspicuously silent.  Before that, it was Silicon Valley company Packeteer, that morphed into Vineyard Networks when Packeteer pulled the plug and was eventually “parked” with Procera in Silicon Valley, which benefited very few in the Okanagan.  There is a long legacy of this that need not continue.

Kelowna Innovation Centre

British Columbia and New Zealand share many economic similarities, except that New Zealand has way more sheep, is way better at rugby and has much better sailors.  Both economies are focused on natural resource exploitation, tourism, wine, and horticulture. The motion picture industry has been a major factor in both economies, but both are highly vulnerable to foreign exchange fluctuations. Both economies have similar populations though we have more space and are not isolated in the South Pacific.   Both economies have made efforts to diversify into high tech, pouring millions into development of startups. Both economies have had modestly successful companies in high tech, which seemingly have mostly been bought out, moved out and any benefit to the local economy lost.  The crucial difference may be New Zealand’s pragmatism about how to deal with this economic reality.  British Columbia could learn from New Zealand.

Andy Hamilton, the long-time Director of Auckland, New Zealand’s Ice House high-tech incubator shared the following article from New Zealand’s NATIONAL BUSINESS REVIEW.  I first met Andy when I headed up New Zealand’s “Beachhead” incubator facility in Silicon Valley some years ago. The article has significant relevance to our situation in the Okanagan and British Columbia as a whole.  The Okanagan has seen high-profile startups like Club Penguin, Vineyard Networks, and Immersive Media bought by much larger foreign buyers, essentially leaving little benefit to the local economy. The founder of perhaps the most successful startup in BC, Ryan Holmes of Hootsuite, admitted that he did not base the company in the Okanagan (he is from Vernon) because he knew he could not attract the necessary talent here. It is well-known that many if not most UBC Okanagan graduates do not stay here.  While Vancouver has D-Wave and General Fusion, it has also seen Recon Instruments bought by Intel.  New Zealand has dealt with the same reality.  Forget the names of the Kiwi companies in the following editorial piece and substitute any Okanagan or BC startup company you feel is comparable. With Kelowna now tarred with the reputation as the worst job market in Canada, it would serve the local Okanagan establishment to give serious thought to the editorial below.

New Zealand: We’re not, and never will be, Silicon Valley

NATIONAL BUSINESS REVIEW (NEW ZEALAND)

MONDAY FEBRUARY 22, 2016

OPINION

BEN KEPES

New Zealand’s Diligent Corporation chief executive Brian Stafford

John Donne famously wrote that no man is an island entire of itself. The same is true for countries, and especially those countries situated in the middle of nowhere and with a relatively tiny population. At the same time, the old adage of not wanting to throw out the baby with the bathwater springs to mind.

All this mixing of metaphors seems timely given the current debate over Diligent Corporation [NZX: DIL] and its likely sale and exit from New Zealand. People on one side of the debate bemoan foreign sales and suggest this is why we should stick to our primary production knitting. Those on the other side suggest  offshore sales are fine since the money reenters into the economy via the oft-quoted “rinse and repeat” cycle.

To be honest, both sides simplify things with their arguments and I think it’s time for New Zealand to think a bit more deeply about what we want our economy to look like.

We’re not, and never will be, Silicon Valley.

It frustrates me when people glibly suggest that New Zealand should create a mini-Silicon Valley down here in the South Pacific. Silicon Valley only exists in one place and is a unique creation of a number of factors including a university that was founded on the idea of entrepreneurship. Leland Stanford created the university as a memorial to his 15-year-old son who died of typhoid. The university was to be co-educational (a rare thing at that time) and, above all, designed to produce practical members of society. This wasn’t about research for research’s sake, Leland Stanford, a railroad magnate, wanted to produce research which was focused on commercial possibilities.

Add to that a hub of military research, significant funding streams for startups, a cultural focus on technology generally, and entrepreneurship specifically, and you have a unique place. Silicon Valley the product is very much a product of the crucible of Silicon Valley the place. We’d be advised to remember this.

But there are more reasons beyond viability to not want to recreate Silicon Valley in Auckland, Wellington or Christchurch. I’m lucky enough to spend a huge amount of time in “The Valley” and while I’d be the first to suggest that it is an exciting and bustling place, I’d also hate to live there. Unaffordable housing that makes Auckland look easy by comparison, ridiculous traffic issues (don’t even bother trying to drive the 101 on a weekday). A slightly weird culture in which 20-year-old entrepreneurs trying to reinvent laundry services or lawn care are seen as more heroic than doctors, firefighters or teachers.

Silicon Valley has something of a culture of “viva la revolution”. Ride-sharing service Uber’s founder, Travis Kalanick, is almost religious in his fervor for making transportation undergo a rapid revolution. Ultimately, he sees drivers as an impediment to this and is actively investing in driverless car technology in an effort to get rid of the very individuals who are currently making his service viable.

Perhaps this is the very reason that we shouldn’t try and recreate Silicon Valley in New Zealand. We have a society that, to some extent, at least, looks out for everyone. We were the first country in the world to give women the vote. We have a social welfare system that provides a safety net for people. When we’re sick in New Zealand we take it for granted that (hospital waiting lists notwithstanding) we’ll get treatment. The Silicon Valley focus on “automation and efficiency above all” forgoes all of this and, while creating a society where we can get our floors vacuumed by robots, our lawns mown as-a-service and even our meals prepared with synthetic meat by robot chefs, also helps create a dystopian world where anyone who isn’t a computer programmer, a robot engineer or independently wealthy falls by the wayside as an “unfortunate side effect of productivity enhancing tools and technological change.”

A final note on this point. Rod Drury, the chief executive of Xero [NZX: XRO], famously chooses to live in Hawke’s Bay where he can enjoy all that the region has to offer. Rod has seized this idea of balance in his working life and has found a way to build a business while not forgoing all possible quality of life. Indeed, this is a theme that Xero has used often when trying to attract talent. Let’s never forget these aspects in the desire to create GDP growth.

Do these technology exits really feed our economy?

All of this talk of quick technology exits funding lots of $100,000 plus software developer jobs here in New Zealand is a nice sound-bite but it arrogantly sidesteps the questions about what all those people who are left disenfranchised by those technologies are going to do. While TradeMe’s exit certainly helped to create companies like Vend, we need to be thinking, as a nation, about what is going to happen to all of those people who actually do things – tradespeople, manufacturing staff etc – once this ultimate in globalized efficiency is achieved.

If we look at the money that has been brought back to New Zealand from the sale of companies like TradeMe, how much has really gone into the economy? Yes, I’m well aware that TradeMe money has gone on to fund Vend, Xero, SLI Systems and a host of other companies. But while these are all interesting companies, doing good things and with (hopefully) a chance of a good outcome, they’re not particularly big employers and hence I’d be keen to see some empirical data about how much the so-called “trickle down effect” from exits like TradeMe actually exists.

True, both Sam Morgan and Rowan Simpson have built big houses that have kept a few tradesmen busy for a while – it would be helpful for some independent economists to really nut out the continuing value from this model. Often this argument is one which is had from a perspective of dogma – we need to really get some clarity as to the economic impacts of the technology industry in New Zealand.

Notwithstanding the economic benefits of these offshore sales, or otherwise, the fact is there is little option for our technology companies. Again, in this respect, Xero remaining, at least to some extent a New Zealand company is very much an outlier.

This talk of the problems caused by companies like Navman, The Hyperfactory, and NextWindow, that have grown, been sold offshore and all the jobs (along with the tax revenue) lost to NZ Inc is simplistic as well. We live in a tiny market, one which makes a domestic focus pretty much impossible for all but the most niche of players. To achieve growth, these companies need to look to customers overseas. In this technology space, the norm is very much to follow a rapid merger and acquisition path.

The very model of the technology industry is for there to exist a myriad of startups, all of whom sprint in order to get ahead of the others. The prize for being at the front of the bunch is generally (with only a handful of exceptions) a quick acquisition by one of the titans of the industry. After which, and other than a general couple of years spent in purgatory working for said vendor, the founders head back and do it all again. Hopefully.

Is there a third way?

Now I’m not suggesting that we shroud ourselves in an isolationist mist. The last person to do that was Robert Muldoon and it was a disaster. But to suggest, as many do, that technology will replace the need for any of our traditional businesses is simplistic. Similarly, the view that it is best to follow these models of building fast-growth software companies to be quickly flicked off to the highest bidder is unhelpful.

So maybe there is a third way. Maybe we can look at what we naturally do well – things like growing grass and turning it into milk and meat, horticulture and agriculture generally, and the technologies that help those industries to be more efficient, ideas that need a unique combination of practicality and DIY-mentality (Gallagher’s fences anyone?) – and apply technology to those things. With the utmost respect to Xero, a company that is a terrific success story for New Zealand, there is nothing about accounting software that we fundamentally have a point of difference with. Xero could have been created out of Bangalore, Silicon Valley or London. The fact that it has been successful out of New Zealand is down to good luck, good timing and some unique factors. Xero is an outlier – a great one – but an outlier nonetheless. It would be a dangerous bet to make to assume that we can create enough Xeros to fund our big, expensive economy.

Ever greater extension of dairy farming isn’t, of course, an option. Our rivers and lakes are already enough of an abomination without more nitrate runoff. But how about celebrating those companies that are attempting to add value to primary production – Lewis Road Creamery is one that springs to mind. But there is a host of exciting new startups in the agricultural technology space as well.

We need a diverse economy, one in which we have small companies making added-value products alongside companies that will grow rapidly and be sold off. If I look at the companies I’m involved with, I certainly invest in the “high-growth and sell offshore” model. Appsecute, a company I was an early backer of, sold a couple of years ago to a Canadian company which, in turn, sold to Hewlett-Packard last year. Companies like MEA mobile, Raygun, ThisData and Wipster will, potentially, follow this model. But other technology companies have a domestic focus or one which favors remaining independent and growing from New Zealand – PropertyPlot, CommonLedger, and Publons are examples. And finally, companies that are involved in real physical products. While it may be totally unsexy to actually make anything in New Zealand anymore, I’m proud to be involved in Cactus Equipment, a company that not only makes awesome products but keeps scores of people employed here in New Zealand – people who are unlikely to become software developers any time soon.

Focus on a diverse NZ Inc

When Sam Morgan suggested that a focus on NZ Inc was unhelpful for companies and would get them killed, he was referring to technology companies specifically. I believe that, as an economy, we should look more broadly at what we do and celebrate both the meteoric risers of the industry, but also the bit players – those who aren’t gunning for a US exit, those who are able to make a living in the traditional economy and those who are trying to add extra value to what we do well.

Christchurch entrepreneur and cloud computing commentator Ben Kepes blogs at Diversity.net.nz.

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Read more from Ben Kepes

Email Ben: ben@diversity.net.nz

Why The Biggest Tech Companies Are Not In Canada

Mayo0615 Reblog from July 22, 2013

It dawned on me that my blog post from July 2013, still has particular relevance to the current situation in Canada. I discuss the longer term structural issues confronting Canadian entrepreneurs and Canadian venture capital. When I first arrived in Canada, I learned quickly that the Vancouver startup ecosystem was nothing like what I knew from Silicon Valley. My personal case study was Mobile Data International, a pioneering company in wireless data, well before WiFi and Bluetooth, that could have led the market and the technology. Instead, the company was taken public much too early.  MDI was bought by Motorola Canada for $39 Million,  in a hostile takeover, and was essentially moved out of Canada and shut down.  Later, in 2012, I had another opportunity to be up close and personal with Canadian innovation, as a participant in the Canada Foundation for Innovation deliberations in Ottawa. These two experiences have played a major role in the development of my views on this topic.

The following reblog raises the tough questions that are holding Canada back.

From July 2013:

In 2013, ContentDJ founder Jerry Tian published a blog post addressing the issue of “Why Canada Has No Big Tech Companies” – Nortel is dead and RIM is quite obviously dying, he points out. Tian, who was himself responding to an interview with Boris Wertz, founder of Vancouver’s Version One Ventures, offers a thought provoking theory and one that applies to a large degree to all up-and-coming startup ecosystems.

The founder questions the commitment and willingness of Canadian investors and entrepreneurs to devote the ten years or more that it may take to build an independent multi-billion dollar company with staying power, rather than flipping that company for an eight, nine, or even ten figure exit – typically to Silicon Valley acquirers – and exporting that future innovation and wealth building. It’s a charge that could be applied equally well to New York, Los Angeles, Chicago, Austin, Boulder, and dozens of would be international startup hubs.

“’Silicon Valley is not a place but a state of mind,” Tian writes, quoting KPCB General Partner John Doerr. “Some of these insights are collaboration, competition, openness to innovation, failures and experimentation. Probably the most important one is the long term commitment behind technology companies.”

Of course, Tian and Doerr are spot on. What emerging startup hubs often miss when trying to “become the next Silicon Valley” – a flawed mission in and of itself – is that the grandaddy startup ecosystem is more than its physical infrastructure of entrepreneurs, engineers, designers, investors, service providers, universities, and the like. Equally important are the systematic irrationality and a feedback loop around the willingness to turn down the quick buck and go for the massive once-in-a-generation success story.

This isn’t the case with every company, founder, or investor, but it exists in enough density in the San Francisco Bay Area, and based on results to a lesser extent in Seattle, that these are the only two areas areas in the country that have led to multiple ten billion dollar plus technology and internet companies – the true giants that transcend their local ecosystems and seep into the lives of average consumers.

It is these companies, with their ability to attract talent, make acquisitions, invest in long-term R&D, and create systemic wealth that make ecosystems. And with very rare exception, getting to this scale requires a decade or longer commitment and a willingness on the part of founders and investors to turn down near and mid-term paydays. Similarly, it requires a vision and an ambition  to build something that will be around forever.

Tian writes:

So, why is nobody talking about these acquisitions? I think it’s simply because investors are getting filthy rich off these deals.

And that’s exactly what not to do if you want to create the next Silicon Valley. You cannot sell the hen that lays the golden eggs for a few quick buck [sic]. Technology companies take 10 years to really manifest the value. To really build a billion dollar company, it takes tremendous multi-decade commitment. And that’s the biggest missing piece in Canada.

Like or hate Zynga founder and former CEO Mark Pincus, one has to respect him for saying that he wants to build a “digital skyscraper,” a company that would be around for 100 years. Pincus went further to say that he views serial entrepreneurship as failure and that he wants to run Zynga for the rest of his career. Ironically, he recently replaced himself as CEO, personally recruiting Don Mattrick for the role. But Pincus made the ego-busting move in an effort to return Zynga to its former glory and to get it back on that century-long track.

In his somewhat controversial on-the-ground reporting on the Chicago ecosystem last summer, Trevor Gilbert delved into “the Midwest Mentality” and the impact it has on the types of companies that are built there. Gilbert called Chicagoans “pragmatic.” Lightbank partner Paul Lee offered an example of this pragmatism, saying that Chicago startups typically focus on generating revenue from day one, rather than building a massive, but unprofitable user base, a la Facebook and Twitter pre-monetization. Profit is all well and good, and should be the ultimate goal of any business that wants to be around for the long term, but focus on it too intently early on and it can be impossible to invest in growth. It takes a special kind of vision and fortitude to look past the short term and make the big bets required to create massive companies.

This is not to pick on Chicago. A similar phenomenon seems to exist in LA where companies race out to a low nine-figure valuation and then either stall out in that vicinity or sell for sub-one billion dollars to a larger out of town acquirer. Call it the curse of the big-little deal – maybe everyone here just wants to see their name in lights. In a market that is desperate for success stories and validation, these medium-sized exits are hailed as “wins” – and they are, given the difficulty of building a hundred-million dollar company – but they often rob the ecosystem of potential multi-generational tentpole companies. This is a mentality that appears to have changed in recent years, but that change has not yet bore fruit in the form of LA’s answer to Google, Amazon, or Facebook.

New York has seen its own version of this phenomenon, with the ecosystem’s biggest success stories, DoubleClick and Tumblr, being exits to Google and Yahoo respectively. Local darling MakerBot followed suit, selling for $600 million in June. New York does have Fab, Gilt, and Foursquare all shooting for the moon but these companies and the ecosystem as a whole still must prove that they can sustain this ambition and parlay it into a giant company.

As Tian points out, part of the blame for these exits falls on investors. It’s not that investors aren’t interested in massive outcomes – they most certainly are. But not all non-Silicon Valley investors are equipped for the financial and time commitment it takes to create them. These investors, many of which operate out of first- or second-generation funds, often have smaller pools of capital to invest out of.

Write a $2 million check at a $10 million valuation out of a $100 million fund, and a 50x return looks pretty good, returning 98 percent of your fund. Make that same investment out of a $1 billion fund and the impact on fund economics is decidedly less interesting. This is one of the few arguments in favor of mega-VC funds. But it also benefits firms that are on their fourth, fifth or sixth fund and have less to gain reputation-wise with solid base hits.

Returning to Tian’s piece, he closes by writing, “If you are wondering why Canada doesn’t have the [sic] billion dollar company, it cannot be more obvious than this. Too many people are in it trying to get rich quickly off entrepreneurs. Not enough people have the gut [sic] and commitment to create or help create something truly meaningful.”

Tian paints with a broad brush, yes, which ignores many of the subtle nuances and external factors that contribute toward building massive technology companies. But there’s little arguing that people in Silicon Valley think differently. Armed by decades of case studies and social proof, the ecosystem has developed a healthy disregard for rationality.

Mark Zuckerberg famously did just that when Yahoo came calling. He was just 20 years old and Facebook, at less than two years old, was unprofitable with just $30 million in revenue. Yet Zuckerberg and Facebook’s board, which included Peter Thiel and Jim Breyer, turned down Yahoo’s $1 billion offer. When the elder advisors tried to convince the young founder that his 25 percent of that offer would be a big number he said, “I don’t know what I could do with the money. I’d just start another social networking site. I kind of like the one I already have.”

Israeli social mapping company Waze just made the opposite decision, selling to Google for slightly more than that mythical $1 billion. Sarah Lacy cautioned Israel-bulls to “reconsider too much high-fiving over Waze.” While legendary local angel investor Yossi Vardi likes to compare Israeli startups to tomato seeds which need more experienced farmers to grow properly, Lacy believes that the country has the potential to build and sustain globally dominant Web companies without selling, offering MyHeritage as an example.

None of this is to say Silicon Valley is immune from this syndrome. There are thousands of entrepreneurs in the Bay Area who would rather flip their company than do the long, hard work of building something sustainable. But the sheer density of the ecosystem means that a dozen or so each year choose the road less traveled. Also, given the scale of the Valley ecosystem, building a big company is the only way to move the needle and attract talent and capital. Everyone in line at Philz coffee is working on the next “billion dollar business.”

Finally, Silicon Valley is a magnet for those entrepreneurs around the globe who want to build great technology companies, and the ecosystem surely benefits from this imported talent. This was actually Wertz’s central point in the original interview and is one that Tian touches on briefly. It’s a difficult problem to solve, given the power of knowing someone (or several someones) who has summited the mountain before and who can show you that it can be done. In each of these other markets, someone will have to be the first.

In many cases, it is highly irrational to turn down a nine- or ten-figure acquisition offer. There are real benefits to gaining access to the financial and personnel resources of a larger acquirer, ones that can often make or break the success of a still fledgling company. But, if there’s anything in Silicon Valley that Canada, LA, New York, and other startup ecosystems should aspire to it’s this willingness to roll the dice. Sometimes the shooter rolls a “7.”

The Okanagan Never Has Been, And Never Will Be, Silicon Valley: A Lesson From New Zealand

Kelowna Innovation Centre

British Columbia and New Zealand share many economic similarities, except that New Zealand has way more sheep, is way better at rugby and has much better sailors.  Both economies are focused on natural resource exploitation, tourism, wine, and horticulture.  The motion picture industry has been a major factor in both economies, but both are highly vulnerable to foreign exchange fluctuations. Both economies have similar populations though we have more space and are not isolated in the South Pacific.  Both economies have made efforts to diversify into high tech, pouring millions into development of startups. Both economies have had modestly successful companies in high tech, which seemingly have mostly been bought out, moved out and any benefit to the local economy lost.  The crucial difference may be New Zealand’s pragmatism about how to deal with this economic reality.  British Columbia could learn from New Zealand.

Andy Hamilton, the long-time Director of Auckland, New Zealand’s Ice House high-tech incubator shared the following article from New Zealand’s NATIONAL BUSINESS REVIEW.  I first met Andy when I headed up New Zealand’s “Beachhead” incubator facility in Silicon Valley some years ago. The article has significant relevance to our situation in the Okanagan and British Columbia as a whole.  The Okanagan has seen high-profile startups like Club Penguin, Vineyard Networks, and Immersive Media bought by much larger foreign buyers, essentially leaving little benefit to the local economy. The founder of perhaps the most successful startup in BC, Ryan Holmes of Hootsuite, admitted that he did not base the company in the Okanagan (he is from Vernon) because he knew he could not attract the necessary talent here. It is well-known that many if not most UBC Okanagan graduates do not stay here.  While Vancouver has D-Wave and General Fusion, it has also seen Recon Instruments bought by Intel.  New Zealand has dealt with the same reality.  Forget the names of the Kiwi companies in the following editorial piece and substitute any Okanagan or BC startup company you feel is comparable. With Kelowna now tarred with the reputation as the worst job market in Canada, it would serve the local Okanagan establishment to give serious thought to the editorial below.

New Zealand: We’re not, and never will be, Silicon Valley

NATIONAL BUSINESS REVIEW (NEW ZEALAND)

MONDAY FEBRUARY 22, 2016

OPINION

BEN KEPES

New Zealand’s Diligent Corporation chief executive Brian Stafford

John Donne famously wrote that no man is an island entire of itself. The same is true for countries, and especially those countries situated in the middle of nowhere and with a relatively tiny population. At the same time, the old adage of not wanting to throw out the baby with the bathwater springs to mind.

All this mixing of metaphors seems timely given the current debate over Diligent Corporation [NZX: DIL] and its likely sale and exit from New Zealand. People on one side of the debate bemoan foreign sales and suggest this is why we should stick to our primary production knitting. Those on the other side suggest  offshore sales are fine since the money reenters into the economy via the oft-quoted “rinse and repeat” cycle.

To be honest, both sides simplify things with their arguments and I think it’s time for New Zealand to think a bit more deeply about what we want our economy to look like.

We’re not, and never will be, Silicon Valley.

It frustrates me when people glibly suggest that New Zealand should create a mini-Silicon Valley down here in the South Pacific. Silicon Valley only exists in one place and is a unique creation of a number of factors including a university that was founded on the idea of entrepreneurship. Leland Stanford created the university as a memorial to his 15-year-old son who died of typhoid. The university was to be co-educational (a rare thing at that time) and, above all, designed to produce practical members of society. This wasn’t about research for research’s sake, Leland Stanford, a railroad magnate, wanted to produce research which was focused on commercial possibilities.

Add to that a hub of military research, significant funding streams for startups, a cultural focus on technology generally, and entrepreneurship specifically, and you have a unique place. Silicon Valley the product is very much a product of the crucible of Silicon Valley the place. We’d be advised to remember this.

But there are more reasons beyond viability to not want to recreate Silicon Valley in Auckland, Wellington or Christchurch. I’m lucky enough to spend a huge amount of time in “The Valley” and while I’d be the first to suggest that it is an exciting and bustling place, I’d also hate to live there. Unaffordable housing that makes Auckland look easy by comparison, ridiculous traffic issues (don’t even bother trying to drive the 101 on a weekday). A slightly weird culture in which 20-year-old entrepreneurs trying to reinvent laundry services or lawn care are seen as more heroic than doctors, firefighters or teachers.

Silicon Valley has something of a culture of “viva la revolution”. Ride-sharing service Uber’s founder, Travis Kalanick, is almost religious in his fervor for making transportation undergo a rapid revolution. Ultimately, he sees drivers as an impediment to this and is actively investing in driverless car technology in an effort to get rid of the very individuals who are currently making his service viable.

Perhaps this is the very reason that we shouldn’t try and recreate Silicon Valley in New Zealand. We have a society that, to some extent, at least, looks out for everyone. We were the first country in the world to give women the vote. We have a social welfare system that provides a safety net for people. When we’re sick in New Zealand we take it for granted that (hospital waiting lists notwithstanding) we’ll get treatment. The Silicon Valley focus on “automation and efficiency above all” forgoes all of this and, while creating a society where we can get our floors vacuumed by robots, our lawns mown as-a-service and even our meals prepared with synthetic meat by robot chefs, also helps create a dystopian world where anyone who isn’t a computer programmer, a robot engineer or independently wealthy falls by the wayside as an “unfortunate side effect of productivity enhancing tools and technological change.”

A final note on this point. Rod Drury, the chief executive of Xero [NZX: XRO], famously chooses to live in Hawke’s Bay where he can enjoy all that the region has to offer. Rod has seized this idea of balance in his working life and has found a way to build a business while not forgoing all possible quality of life. Indeed, this is a theme that Xero has used often when trying to attract talent. Let’s never forget these aspects in the desire to create GDP growth.

Do these technology exits really feed our economy?

All of this talk of quick technology exits funding lots of $100,000 plus software developer jobs here in New Zealand is a nice sound-bite but it arrogantly sidesteps the questions about what all those people who are left disenfranchised by those technologies are going to do. While TradeMe’s exit certainly helped to create companies like Vend, we need to be thinking, as a nation, about what is going to happen to all of those people who actually do things – tradespeople, manufacturing staff etc – once this ultimate in globalized efficiency is achieved.

If we look at the money that has been brought back to New Zealand from the sale of companies like TradeMe, how much has really gone into the economy? Yes, I’m well aware that TradeMe money has gone on to fund Vend, Xero, SLI Systems and a host of other companies. But while these are all interesting companies, doing good things and with (hopefully) a chance of a good outcome, they’re not particularly big employers and hence I’d be keen to see some empirical data about how much the so-called “trickle down effect” from exits like TradeMe actually exists.

True, both Sam Morgan and Rowan Simpson have built big houses that have kept a few tradesmen busy for a while – it would be helpful for some independent economists to really nut out the continuing value from this model. Often this argument is one which is had from a perspective of dogma – we need to really get some clarity as to the economic impacts of the technology industry in New Zealand.

Notwithstanding the economic benefits of these offshore sales, or otherwise, the fact is there is little option for our technology companies. Again, in this respect, Xero remaining, at least to some extent a New Zealand company is very much an outlier.

This talk of the problems caused by companies like Navman, The Hyperfactory, and NextWindow, that have grown, been sold offshore and all the jobs (along with the tax revenue) lost to NZ Inc is simplistic as well. We live in a tiny market, one which makes a domestic focus pretty much impossible for all but the most niche of players. To achieve growth, these companies need to look to customers overseas. In this technology space, the norm is very much to follow a rapid merger and acquisition path.

The very model of the technology industry is for there to exist a myriad of startups, all of whom sprint in order to get ahead of the others. The prize for being at the front of the bunch is generally (with only a handful of exceptions) a quick acquisition by one of the titans of the industry. After which, and other than a general couple of years spent in purgatory working for said vendor, the founders head back and do it all again. Hopefully.

Is there a third way?

Now I’m not suggesting that we shroud ourselves in an isolationist mist. The last person to do that was Robert Muldoon and it was a disaster. But to suggest, as many do, that technology will replace the need for any of our traditional businesses is simplistic. Similarly, the view that it is best to follow these models of building fast-growth software companies to be quickly flicked off to the highest bidder is unhelpful.

So maybe there is a third way. Maybe we can look at what we naturally do well – things like growing grass and turning it into milk and meat, horticulture and agriculture generally, and the technologies that help those industries to be more efficient, ideas that need a unique combination of practicality and DIY-mentality (Gallagher’s fences anyone?) – and apply technology to those things. With the utmost respect to Xero, a company that is a terrific success story for New Zealand, there is nothing about accounting software that we fundamentally have a point of difference with. Xero could have been created out of Bangalore, Silicon Valley or London. The fact that it has been successful out of New Zealand is down to good luck, good timing and some unique factors. Xero is an outlier – a great one – but an outlier nonetheless. It would be a dangerous bet to make to assume that we can create enough Xeros to fund our big, expensive economy.

Ever greater extension of dairy farming isn’t, of course, an option. Our rivers and lakes are already enough of an abomination without more nitrate runoff. But how about celebrating those companies that are attempting to add value to primary production – Lewis Road Creamery is one that springs to mind. But there is a host of exciting new startups in the agricultural technology space as well.

We need a diverse economy, one in which we have small companies making added-value products alongside companies that will grow rapidly and be sold off. If I look at the companies I’m involved with, I certainly invest in the “high-growth and sell offshore” model. Appsecute, a company I was an early backer of, sold a couple of years ago to a Canadian company which, in turn, sold to Hewlett-Packard last year. Companies like MEA mobile, Raygun, ThisData and Wipster will, potentially, follow this model. But other technology companies have a domestic focus or one which favors remaining independent and growing from New Zealand – PropertyPlot, CommonLedger, and Publons are examples. And finally, companies that are involved in real physical products. While it may be totally unsexy to actually make anything in New Zealand anymore, I’m proud to be involved in Cactus Equipment, a company that not only makes awesome products but keeps scores of people employed here in New Zealand – people who are unlikely to become software developers any time soon.

Focus on a diverse NZ Inc

When Sam Morgan suggested that a focus on NZ Inc was unhelpful for companies and would get them killed, he was referring to technology companies specifically. I believe that, as an economy, we should look more broadly at what we do and celebrate both the meteoric risers of the industry, but also the bit players – those who aren’t gunning for a US exit, those who are able to make a living in the traditional economy and those who are trying to add extra value to what we do well.

Christchurch entrepreneur and cloud computing commentator Ben Kepes blogs at Diversity.net.nz.

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Read more from Ben Kepes

Email Ben: ben@diversity.net.nz

Are Venture Capitalists And Big Ideas Converging Again?

My biggest complaint with venture capital and the current entrepreneurial landscape is the lack of Big Ideas— the superficiality of the technology sector. “We were promised flying cars and we got 140 characters” –Peter Thiel. We also got corporate greed masquerading as “the sharing economy.”

Many other well-known observers of this industry share my complaint. Some argue that these Big Ideas are too big for private investment, and can only be funded by governments with the resources and vision to accomplish such large long term projects. I disagree. The semiconductor industry, on the bleeding edge of quantum mechanics, was funded almost exclusively by private venture investors.  Another example may be nuclear fusion.  Large-scale projects, like ITER, funded by the European Union at the Cadarache facility in southern France, and the National Ignition Facility in Livermore California, funded by the U.S. Department of Energy are being seriously challenged by Canadian and U.S. startups funded by private venture capital, and seeking to beat the large projects to the goal of renewable solar energy.

Tim Draper of Draper Ventures at General Fusion

Start-Ups Take On Challenge of Nuclear Fusion

REBLOGGED FROM THE NEW YORK TIMES

By DINO GRANDONIOCT. 25, 2015

Michl Binderbauer of Tri Alpha Energy, a fusion start-up.

A group of start-ups is promising a new and virtually unlimited source of power, one that produces none of the gases scientists say contribute to global warming.

The only problem? A way to harness the energy source, nuclear fusion — the reaction that gives birth to sunlight — still needs to be invented.

Such an achievement has long evaded government scientists and university researchers, despite decades of work and billions of dollars in research. But backed by hundreds of millions in venture capital and some of the wealthiest people in the technology industry, a handful of young companies say they can succeed where government has fallen short.

Nuclear fusion is one of many areas of science and energy now getting the backing of venture capitalists. The investor dollars coming into fusion start-ups, like those in many areas of science, still pale in comparison with the money spent by governments. But signs of progress, including some results that have eclipsed government projects, have generated hope among some scientists that the companies could help develop a fusion reactor within their lifetimes.

Photo

The C-2U machine at Tri Alpha Energy

At the very least, they talk a confident game — even though the history of fusion science is littered with frustration and false starts. Some fusion scientists, unable to evaluate the start-ups’ unpublished scientific results, doubt the companies’ chances.

“The fusion era is here and coming,” said William D. Lese, a managing partner at Braemar Energy Ventures, a venture capital firm with a stake in General Fusion, one of the leading start-ups in the field. “The increase in activity in this space is perhaps a sign of that.”

Nuclear fusion occurs when two atoms are squeezed together so tightly that they merge. That single, larger atom releases a tremendous amount of energy.

This happens naturally at the center of the sun, where gravity easily crushes hydrogen into helium, spewing forth the sunlight that reachesEarth. But on Earth, making hydrogen hot and dense enough to sustain a controlled fusion reaction — one that does not detonate like a thermonuclear bomb — has been a challenge.

The potential upsides of the power, though, provide a huge incentive. Fusion reactions release no carbon dioxide. Their fuel, derived from water, is abundant. Compared with contemporary nuclear reactors, which produce energy by splitting atoms apart, a fusion plant would produce little radioactive waste.

The possibilities have attracted Jeffrey P. Bezos, founder of Amazon.com. He has invested in General Fusion, a start-up in British Columbia, throughBezos Expeditions, the firm that manages his venture capital investments. Paul Allen, a co-founder of Microsoft, is betting on another fusion company, Tri Alpha Energy, based in Foothill Ranch, Calif., an hour south of Los Angeles, through his venture arm, Vulcan Capital.

Peter Thiel — the co-founder of PayPal, who once lamented the superficiality of the technology sector by saying, “We were promised flying cars and we got 140 characters” — has invested in a third fusion start-up,Helion Energy, based near Seattle, through Mithril Capital Management.

Government money fueled a surge in fusion research in the 1970s, but the fusion budget was cut nearly in half over the next decade. Federal research narrowed on what scientists saw as the most promising prototype — a machine called a tokamak, which uses magnets to contain and fuse a spinning, doughnut-shape cloud of hydrogen.

Today’s start-ups are trying to perfect some of the ideas that the government left by the wayside.

After earning his doctorate from the University of California, Irvine, in the mid-1990s, Michl Binderbauer had trouble securing federal funds to research an alternative approach to fusion that the American government briefly explored — one that adds the element boron into the hydrogen fuel. The advantage of the mixture is that the reaction does not fling off neutrons that, like shrapnel, can wear down machine parts and make them radioactive.

Mr. Binderbauer, along with his Ph.D. adviser, Norman Rostoker, founded Tri Alpha Energy, eventually raising money from the venture capital arms of Mr. Allen and the Rockefeller family. The company has raised over $200 million.

“We basically said, “What would an ideal reactor look like?’ ” said Mr. Binderbauer, who is now the company’s chief technology officer. Mr. Rostoker died late last year.

General Fusion is pursuing an approach that uses pistons to generate shock waves through the hydrogen gas. Compressed hard enough, the hydrogen atoms will begin to fuse. General Fusion has raised about $74 million from private investors and another $20 million from the Canadian government.

Its reactor concept, like that of Tri Alpha Energy, would yield power plants much smaller than a commercially viable tokamak, which would need to be larger than many stadiums are in order to work. General Fusion’s idea to compress a ball of hydrogen, too, is borrowed from a government project aborted decades ago. The company’s innovation on that approach is to use cannon-size pistons for the compression.

Critics in the nuclear physics field say it is unlikely start-ups will succeed with these alternative approaches.

“They just keep pounding on the same dead horse,” said Edward C. Morse, a nuclear physicist at the University of California, Berkeley. “What happens in fusion is that the same ideas pop up every two decades. It’s like a game of whack-a-mole.”

In addition, private funds cannot match those of the most ambitious government fusion energy project, the International Thermonuclear Experimental Reactor, or ITER, a stadium-size tokamak being built in France by the European Union, along with the United States and five other nations, for about $14 billion. The United States is committed to funding about 9 percent of the project.

Still, the Energy Department is also hedging its bet, granting $30 million to alternative fusion projects, including Helion Energy, which received $4 million.

“In all of our selections, it’s not about a start-up versus something else,” said Eric A. Rohlfing, deputy director for technology of the Advanced Research Projects Agency-Energy, the government agency that made the grants. “It’s about the quality of the idea.”

The start-ups counter critics by saying that they can be more efficient than government projects.

When Tri Alpha Energy’s panel of outside advisers visited the construction site of the company’s lab in 2007, the concrete was still being poured. Some advisers doubted the company would be conducting experiments within a year, as Mr. Binderbauer said they would.

But by the following year, the machine was ready. “When I walked these guys out there to see that, their jaws dropped,” Mr. Binderbauer said.

“I do recall being surprised by how fast they said they would get the facility ready,” said Burton Richter, a professor emeritus at Stanford and Nobel laureate in physics who advised Tri Alpha Energy.

This past June, Tri Alpha reached a new milestone: Its machine superheated a ball of hydrogen to 10 million degrees Celsius and held it for five milliseconds — much longer than government projects achieved using the same method.

“You may ask: ‘Five milliseconds? That’s nothing.’ Certainly, that’s the blink of an eye to a layperson,” Mr. Binderbauer said. “But in our field, that’s half an eternity.” His next goal is to increase that temperature tenfold.

Other fusion efforts have set even more ambitious goals. When Lockheed Martin announced its own fusion project last year, the company said it expected to build a prototype within five years.

But history would suggest that struggles lie ahead. For example, the American government’s other major approach to fusion, used by a California lab that fires 192 giant lasers at a container holding hydrogen to compress and fuse it, missed a 2012 deadline for producing more energy than the lasers put in.

That checkered past is not stopping the start-ups.

“We’re moving very quickly,” said Michael Delage, vice president for strategy at General Fusion. “Is it two years away? Three years away? Four years away? Maybe. We’ll let you know when we get there.”

New Zealand’s Icehouse Startups Achieve Impressive Results

 

250 Startups, $425 Million in revenue, and 880 jobs!

 

 Andy Hamilton, Director of Auckland’s Icehouse

New Zealand is a small isolated country on two islands deep in the South Pacific.  New Zealand has a population and economy roughly similar to British Columbia.  Australia, its bigger neighbor is 1200 kilometers away. Kiwi’s have therefore always valued self-reliance and resourcefulness.  So it was with some amazement that I read of the stunning results achieved by Andy Hamilton and the Icehouse incubator in Auckland.  I have had the good fortune to know and work with Andy, visiting the Icehouse as the Director of New Zealand Trade & Enterprise’s Silicon Valley incubator in Redwood City.  Andy routinely asked me to stop by when I was in town to deliver a “tough love” talk to the resident companies. 

Andy’s results contrast sharply with the results being achieved in other incubators, particularly here in BC. Much is being written and debated here about an incubator glut, massive waste of government money, and most importantly poor quantitative results from incubator companies.  For example, when asked how many companies they have helped succeed a local BC accelerator employee could only say: “You really have to define success. I mean for most of these guys our success is just about getting them to realize their ideas are bad.”  Really?

Icehouse startups make an impact

Read more: The Icehouse, Auckland, New Zealand

By The Icehouse

250 startups, $425million in revenue and 880 jobs!

These are the highlights of the impact statistics released by Auckland based business growth hub and startup incubator, The Icehouse, this week.

Since starting in 2001, The Icehouse has worked with over 250 startups to help them accelerate their growth. The alumni pool includes some of NZ’s most successful startups such as M-com, PowerbyProxi, eBus as well as many emerging businesses and brands such as DirtyMan, Tomette, LiveLink Connect and Biomatters.

Since 2006, Icehouse startup alumni have generated over $425 million in revenue of which, $302 million has been export income. They have also created over 800 full time equivalent jobs. Over the same period, Icehouse startups have raised over $170million in funding, which includes government grants and seed and angel funding. A staggering $55m of that has come from angel investor network, ICE Angels.

Additionally, Icehouse startup alumni are more than returning the money the government invests in them through The Icehouse. Over the last eight years, they have generated $72 in revenue for every dollar of government funding The Icehouse has received to run its startup programmes. This has more than tripled since 2006 showing the increased contribution startups are having on the NZ economy.

Ken Erskine, Director, Startups The Icehouse & ICE Angels, says these impact statistics are a very positive sign for The Icehouse and its startup alumni as well as NZ startups in general. “It’s exciting to see our startups continue to succeed and contribute to the growth of the NZ economy.”

Erskine believes that the entrepreneurs behind the startups are the key to their success, “In many cases they were just people with ideas when we started working with them. Their drive, skills and passion is what enabled them to turn these ideas into successful businesses that create jobs and add value to our economy.

We are also delighted that we are producing an excellent return for the Government’s investment even without measuring GST, payroll or taxes paid. The original vision of this investment was to create a world-class startup ecosystem and The Icehouse and ICE Angels have been leaders in the development of this.”

A good example of this is Parrot Analytics, a Tech startup that recently graduated from The Icehouse incubator. Having raised over $1million in funding in 2013, lead by ICE Angels and syndicated with Stephen Tindall’s K1W1 and industry partners from the USA, the startup is considered to be one to watch as it moves into international markets. Founder and CEO, Wared Segar, understands very well what level of commitment and drive, as well as support, is required to start a business: “The Icehouse was beyond instrumental in helping Parrot Analytics secure its seed funding round from ICE Angels, which was one of the largest seed rounds raised by any Kiwi startup. The support from the team extended from capital raising advice to hands-on management support, connections and wider introductions to both local and international stakeholders as well as investing themselves. The team was and remains there for us to tap into to help achieve our common goal of building a successful Kiwi technology company.”

Sean Simpson, Board member of The Icehouse and Co-founder of LanzaTech, says that it is important to have committed and skilled entrepreneurs to drive startups. “Every startup has potential, however the transformation from startup to commercial success is never smooth. The drive, enthusiasm, and determination required to overcome obstacles to commercial success is what the entrepreneur brings. Great entrepreneurs are not constrained by the limitations of today, they drive to make success and grow their vision in spite of barriers that stand in the way of others. We have learnt and are focused on helping these entrepreneurs be the best they could possibly be.”

The Icehouse & ICE Angels are looking forward to working with more highly committed entrepreneurs in the future. Erskine says, “We have a number of really promising startups in The Icehouse at the moment. Seven of them are closing rounds with investors right now. And of course our alumni are continuing to grow so we’re expecting more success stories from them as well.”

A key aspect of the startup success has been the funding partnerships which they have created, with ICE Angels and more recently the Global from Day One Seed Fund.

Brian Casey, Chair of ICE Angels commented, “We are delighted to see the progression of The Icehouse in producing promising and fast growing startups. At the ICE Angels we are excited to get alongside fantastic entrepreneurs and their teams, invest in them, help them and be a sounding board for them as they start on their journey into global markets – not only to get a return but to see the benefit to the economy and our country. It is a great time to be a startup entrepreneur.”

For more information about The Icehouse’s Startup Programmes see www.theicehouse.co.nz/startup.

Key Icehouse startup facts

Over the past 8 years The Icehouse has received $5.875m from NZTE, which has been used to fund The Icehouse incubator. Over this period, The Icehouse has helped their startups to:

• raise over $172m in total private sector funding (excluding grants), growing 40% year on year
• create 888 jobs
• realise $425m in aggregated total revenue (growing 32% year on year) of which 71% or $301.51m are export revenues (growing 136% year on year)

For every dollar of government funding The Icehouse receives, the value add to the incubated startups enables them to:

• generate $72 of revenue from the startups. This amount has almost tripled (2.98x) since 2006. Of this, $51 are export revenues, this amount has increased 12.25x since 2006; and
• raise $40 of private sector funding for the startups. This amount has almost tripled (2.89x) since 2006.

Quantum tech is more than just crazy science: It’s good business from mobile payments to fighting the NSA,

Management students may ask why the title of this post claims that quantum technology is good business. So let me try to explain, and then read on to the PandoDaily post by David Holmes. The bottom line is that some basic understanding of quantum mechanics is going to be a valuable management skill going forward. Why? Read on

Yesterday, National Public Radio in the United States (which can be heard online) broadcast a fascinating discussion about Monday’s announcement of the long awaited breakthrough of proving the existence of gravitational waves which include the fingerprint of the original Big Bang.  Featuring legendary astrophysicist Leonard Susskind of Stanford and a number of other leading physicists, the discussion inevitably drifted to quantum mechanics, and the original Big Bang itself, which Stanford Physics Professor. Chao-Lin Kuo, described as “mind scrambling.”  Quantum entanglement is another area that defies common sense: particles that mimic each other and change faster than the speed of light, which should be impossible.  Einstein’s famous quote, “God does not play dice,” was his reaction to the non-deterministic nature of quantum events and theory, which also violate his general theory of relativity. It turns out the random nature of quantum mechanics provides a superior solution for hideously complex problems, finding the best “probabilistic” solutions. Quantum mechanics is also providing a potential way forward in encryption and privacy.

Read and listen on NPR: Scientists Announce Big Bang Breakthrough

However, all of this “mind scrambling” pure science is rapidly becoming applied science: science becoming useful technological innovation and applied to economic activity.  Some of my students may recall our discussions of Moore’s Law in semiconductor design. As  Moore’s Law reaches it finite limit, quantum “technology” is creating one path forward, and providing new solutions to Internet security and supercomputing.  David Holme’s PandoDaily article today attempts to explain in greater detail why this is important for business. 

Vern Brownell, CEO of D-Wave Systems has written an excellent explanation in layman’s terms, of the importance of quantum computing, and how it differs from “deterministic” computing.

Read more:  Solving the unsolvable: a quantum boost for supercomputing

Best of all there is an excellent book for those willing to devote the time and grey matter to quantum physics, “Quantum physics, a beginners’ guide,” by Alistair Rae, available in paperback on Amazon or Kindle e-book.

e@UBC spins ideas of researchers and students into the real-world

READ MORE: e@UBC spins ideas of researchers and students into real-world.

Konrad Walus’s business sounds almost too futuristic — three-dimensional printing of human tissues for use in research or therapeutics.

Since last fall, however, Walus and his partners have run Aspect Biosystems Ltd. through the Entrepreneurship at UBC program, taking an idea from their research labs to incorporation, formation of a viable business plan and on to discussions with a potential first customer.

“Aspect Biosystems could not have started in a garage,” Walus said. The scientists behind it needed the testing equipment and imaging machines that go along with the infrastructure of a major research university like the University of B.C.

And, with a new focus on innovation, UBC has a strong interest in spinning the ideas of its researchers and students (Walus is an associate professor in UBC’s electrical and engineering department) out into real-world applications.

This is where Entrepreneurship at UBC, which uses the hip acronym e@UBC, comes in.

e@UBC and $550-million worth of ideas

“The whole goal is to get all of this knowledge, both with individuals and with science, out to build great companies in B.C. and out to change the world,” said Andy Talbot, e@UBC’s executive director.

UBC revamped and relaunched the two-year-old program in September, capitalizing on a $200,000 injection from the B.C. Innovation Council that is being used to support e@UBC’s mentorship program.

The process starts with a meeting where the student or researcher with the idea and staff at e@UBC figure out what they need.

Talbot said if the proponent just needs a bit of one-one-one coaching to help with an idea, e@UBC will match them with a mentor. If the idea is still “just for fun,” their staff might direct them to one of the regular workshops or “start-up weekend” events that the program regularly hosts.

“If they have an idea that’s useful for an accelerator program, we put them into an accelerator program” and on the path to creating a new company, Talbot said.

And with some $550 million worth of research going on at UBC in a given year, Talbot said, the university has a lot of raw material to work with to form new companies.

“Our goal is that there is another Google, there is another Apple out there and they’re coming from the scientists and technology (at UBC),” he added.

Enter the accelerator

Talbot said 100 ideas — brought in by individuals or groups — have entered the e@UBC process since it re-launch in September, and so far 10 have made it through the accelerator, a sort of entrepreneurial boot-camp, to incorporate as a new company. Aspect Biosystems is one of them.

“It’s an eight-week program where we try to get people from an idea to a validated business model,” he said.

Primarily, that means getting researchers out of their labs and into the market to meet as many potential customers as possible.

Validation of a business plan determines that “yes, someone cares about (the idea) and would buy it. Then we can form a company from that,” Talbot said.

Walus credits the accelerator with steering Aspect away from the wrong direction and putting them on a more viable path.

“When we thought about commercializing, we thought about making a (3D) printing system, adding a whole bunch of features to it and hoping someone would buy it,” Walus said. “The program changed our thinking about it.”

Aspect Biosystems’ process is to engineer biological tissues that mimic human cellular structures, and print them out using 3D printing technology.

In going to potential buyers to ask them what they wanted, Walus said they “worked from the customer back to the technology,” rather than the other way around. “That’s been extremely valuable.”

Beyond boot camp

After completing the boot camp, Walus said, Aspect’s founders have continued using mentoring from Talbot to nurture their business.

Once a business is off the ground, UBC’s Industry Liaison Office can step in to help if it needs to acquire intellectual property rights, or e@UBC can find them space and support services.

The organization even has benefactors who can invest seed funding, $150,000 to $200,000, which a new business can leverage to earn grant funding or to attract other angel investors.

The reality

Walus said the initial application for Aspect’s technology will be in drug discovery, creating computer-programmed human tissues that are better models for testing new therapeutics than traditional early testing methods.

“It’s quite possible, stemming from this, there will be whole classes of new therapeutics,” he added, noting that they are in late-stage discussions with their first customer, a big pharmaceutical firm.

Down the road, Walus said, the goal is to create tissues that could be used as patches in wound healing. Eventually, the technology could be used to print organs for transplant, but Walus said there are a lot of challenges between now and then.

“It’s a 15-20 year vision before we’d have, let’s say, ‘off the shelf organs,’” he said.

Read more: http://www.vancouversun.com/business/technology/Entrepreneurship+spins+ideas+researchers+students/9490766/story.html#ixzz2t3naIs1F

Vancouver D-Wave’s Groundbreaking Quantum Computer Sale to Lockheed Martin Aerospace

D-Wave‘s Very Strange New Computing Technology Promises Great Speed and Capacity 

This is a very Big Deal, which also increases the likelihood that Big Data will be a very Big Deal.

While the Canadian economy is expected to languish in the doldrums for the foreseeable future, D-Wave, a Vancouver quantum computing  company, with e@UBC funding, is making big waves (pun intended).  Only last month I sat with Todd Farrell, UBC’s venture fund manager and we discussed D-Wave. How could an advanced technology like this thrive in Vancouver, and not need to be in Silicon Valley?  Todd argued convincingly that Vancouver was a perfect location for D-Wave, and that there was no longer any need for companies to trudge south.  So now, seemingly out of the blue we have three Vancouver-based high tech companies that may be showing Canada the way out of its “natural resource curse:”  D-Wave, General Fusion, and potentially also Hootsuite.

Read more about Canada’s “natural resource curse:” http://mayo615.com/2013/03/11/alberta-bitumen-bubble-and-the-canadian-economy-industry-analysis-case-study/

I will try to explain this in layman’s terms. QUANTUM effects are vital to modern electronics. They can also be a damnable nuisance. Make a transistor too small, for example, and electrons within it can simply vanish from one place and reappear in another because their location is quantumly indeterminate. Currents thus leak away, and signals are degraded.

Other people, like D-Wave’s founders, Geordie Rose and Vern Brownell, though, saw opportunity instead. Some of the weird things that go on at the quantum scale afford the possibility of doing computing in a new and faster way, and of sending messages that—in theory at least—cannot be intercepted. Several groups of such enthusiasts have been working to build quantum computers capable of solving some of the problems which stump today’s machines, such as finding prime factors of numbers with hundreds of digits or trawling through large databases.  As recently as 2012, The Economist was reporting that quantum computing was in its infancy and years from commercial realization.  At that time, I had also discussed quantum computing with our resident local expert on advanced semiconductors, Andrew Labun, who shared the view of The Economist. It now appears that D-Wave is at the forefront of this technology, having succeeded in selling one of its computers to Lockheed Martin Aerospace, for hideously complex applications in space, bleeding edge radar technology, and aerospace finite element analysis or FEA.  FEA simulates the performance of airframes  in high stress and high speed environments. This has been done for years at facilities like NASA Ames Research Center in Mountain View, CA, home of the largest wind tunnel in the World.  However, the complexity of the analysis required hours of supercomputer number crunching to show results. Silicon Graphics, which sat directly next door to NASA Ames, tried to sell its 3D visualization supercomputers to NASA with some limited success, but the technology at that time was not up to the task. Silicon Graphics is no longer in business.  D-Wave’s sale to Lockheed Martin, which also sits on the NASA Ames site, suggests that D-Wave’s technology is ready for prime time. This is a potentially huge leap forward, and a strong message on what is needed to lift the Canadian economy: technological innovation and basic research and development funding.

Read more about D-Wave in the New York Times: http://www.nytimes.com/2013/03/22/technology/testing-a-new-class-of-speedy-computer.html?pagewanted=all&_r=0

Read more about D-Wave in the Vancouver Sun: Metro Vancouver firm’s groundbreaking quantum computer wins confidence of U.S. aerospace giant.

Read more on quantum computing in The Economist: http://www.economist.com/node/21548151