EDITORIAL – Take a stake in success

Editorial – Telegraph Journal | link to original

The rapid rise and profitable sale of Fredericton technology firm Radian6 has been hailed as the greatest Canadian venture capital success story in five years.

This home-grown company proved that New Brunswick businesses can be leaders in the high-tech world of information and communications technology. It also demonstrated the benefits of taking an equity stake in emerging businesses, in return for public or industry funding.

Radian6 built its brand on an increasingly important service: monitoring social media sites. One of the firm's early financial backers was the New Brunswick Innovation Foundation, a non-profit organization dedicated to fostering the development of dynamic new businesses. In 2006, the foundation supplied the Fredericton-based company with $50,000 through a seed equity investment; in 2008, it offered Radian6 $276,973 more in venture capital.

The average taxpayer does not distinguish between equity investing, such as this, and the grants and forgivable loans that governments hand out to many businesses. But there is a critical difference: equity financing truly is an investment – one that tends to encourage good decision-making while discouraging parochial funding announcements.

By supplying Radian6 with equity funding and venture capital, the N.B. Innovation Foundation became a shareholder in the company's business. The foundation's efforts to grow the value of the company paid off in March, when Radian6 was sold to Salesforce.com for $276 million in cash and $50 million in stock.

Thanks to this far-sighted investment in talented New Brunswickers, the foundation has gained $9.25 million to invest in local economic development. That's approximately 28 times the value of the capital that it originally supplied.

This is the largest return on investment that the foundation has achieved. By investing shrewdly, it actually received a more rewarding outcome than professional investors at Summerhill Venture Partners, Brightspark Ventures and BDC Venture Capital did.

This is a lesson that provincial economic development officers should absorb.

If a not-for-profit Crown corporation such as the foundation can successfully apply private-sector business development strategies, helping new businesses to enter the market and turning a profit, why can't other elements of the provincial government do so?

Invest New Brunswick has set a goal of creating 3,050 jobs in three years. Perhaps development officers there and at Business New Brunswick should also engage in equity investment, making the province a partner in innovation rather than a banker of last resort.