It is sad news that Nortel Networks, a national icon, has disintegrated into many smaller fragments that have already been swallowed by foreign high-tech companies. Nortel’s demise was almost predictable given the unethical behaviour shown by many of its past executives.
Nortel’s death was not the only one though. It just got a lot of publicity because of its size and its iconic significance. While few high-tech start-ups succeeded (one can for example cite the example of DragonWave) many more start-ups have failed for sometimes the same reasons that killed Nortel. The question is: why is this happening? While there can be a multitude of reasons, I believe some venture capital firms share the blame as they have been promoting a culture of laziness when it comes to do a proper due diligence on the companies they fund. I witnessed this first hand when I worked for a wireless start-up back in the late 90’s. It was extremely easy for the CEO’s, the CTO’s, the CFO’s to convince investors that they were going to meet their deadlines even though all the engineers working on the project said otherwise. End result: $40M spent while sales were extremely negligible. Of course the company vanished few years later. I was fortunate to have left the company very early.
The problem very much lies at the core of how some venture capitalists choose the companies they fund: they seem to blindly favour more business people over technical people (I am by no means demeaning business people here). It also seems that personal connections make a huge difference to the point where these VCs overlook their own established funding procedures. By doing so they have ended up creating a culture where failure is rewarded as these same failed executives end up being funded by the same VCs again and again!. I can cite many more explicit examples (it is my habit not to mention names unless it is absolutely necessary).
Knowing the above, along with another experience I had with some VCs in 2001 (I will talk about this story in a follow-up post), I decided not to pursue venture money in 2007. While working on my Ph. D. I invented an energy-efficient parallel MIMO (a hot technology nowadays) algorithm that can send and receive wireless signals. This algorithm can be efficiently implemented on multi-core processors. I instead decided to sell the rights to my invention to Wilan, a respectable intellectual property company.
The question is how can we fix this. If we assume that we cannot fix how VCs operate (an enormous task indeed) then I believe wannabe entrepreneurs have to start getting used to the idea of bootstrapping their companies. While this may not be possible for hardware start-ups, it is very feasible for a lot of software-based ideas (one can for example think of web and mobile applications). My favourite example is a US-based web company called 37signals . The company has always been profitable since day one. Fortunately, we have recently been witnessing this bootstrapping trend in Canada (Freshbooks and Shopify are two good examples). I believe we have to nurture and encourage this trend as our high-tech future very much depends on smaller companies who can innovate and adapt quickly to change.