There’s an interesting new wrinkle in the increasingly desperate quest by investors to find a sensible, recession-proof policy for longterm financial commitments. Called Third Wave investing, this specialized focus is quietly winning converts disillusioned with prospects of the “smokestack” companies, once the stock market’s mainstays.
The idea is a steal from futurist Alvin Toffler’s notion that, while the original agricultural revolution first prompted man to cease being nomadic and the second, industrial revolution produced our mechanized civilization, the third —technological—revolution, now upon us, is altering drastically the way we live. As well as the conquest of space, biological breakthroughs, the mining of ocean beds and exponential growth in computer technology, Toffler identifies specific clusters of related industries (genetic engineering and laser technology, for example) as the basis of his Third Wave theory.
The leading proponent of this new investment philosophy in Canada is probably Graeme Kirkland, the recently appointed manager of corporate finance for Bell Gouinlock, a middle-sized Toronto brokerage house which has never shied away from breaking tradition.
A British-born chartered accountant, Kirkland is a graduate of the Slater Walker empire and later was head of the innovative Jannock Corp. Now back in the investment business, he is a confirmed Third Wave advocate. (Fred Soyka, an associate from Kirkland’s Jannock days, is helping him exploit the idea.) “I have people calling me every day whose companies are doing something exotic,” says Kirkland.“And their businesses are going like wildfire, but they’re on the verge of bankruptcy. The missing factor is adequate financing. The risks are too big to invest in any one high-tech situation by itself. Because it’s very difficult to pinpoint their precise potential, the best approach is to buy a portfolio representing several of the more interesting new ventures now moving into production.”
A typical private share offering is Kirkland’s current $1.5-million issue of Technetronic Inc., a rambunctious hightech manufacturer launched three years ago. The company is the brainchild of John Gray, 35, a New Zealand metallurgical engineer, formerly manager of computing technology evaluation at Bell Northern Research; Brett Martensen, 31, another Bell Northern graduate who holds an M.Sc. in computing sciences from Queen’s University; and Douglas Gibson, 33, an Albertaborn chartered accountant. The trio are taking out salaries that jointly total only $80,000 during the firm’s development stages. Their future is tied up with a machine grandly called the Copernicus 820, which, in the jargon of the trade, is described as “the first color
graphics computer for computer and communication network performance measurement, capacity planning and modelling.” Whatever that means, the trio predicts that its machine has a sales potential of $1 billion—using a modest three-per-cent penetration of the available market over the next five years. So far, Technetronic has sold only two units to M. Loeb, Ltd. in Ottawa and Storage Technology of Canada in Toronto and has commitments from Texaco Canada and Xerox. A year from now Technetronic Inc. could be on the way to becoming a major company—or its stock could be worthless.
Canada is a leader in Third Wave innovations, but firms involved have been held back by lack of money. Since 1979 only nine advanced technology companies have successfully listed their shares on Canadian stock exchanges, with Mitel Corp., Lumonics Inc. and Gandalf Technologies Inc. chalking up the most impressive gains.
Because most of the companies in the field are based on the brain wave of one dominant individual, they are fairly modest operations with initial financing usually handled through private placements. But a growing trend is to organize widely held investment funds with a dozen or so Third Wave prospects in their portfolios. Venturetek International (a consortium of 12 Canadian institutional investors) was early in the field; it was followed by Innocan Investments, which has sunk $48 million into 24 new companies. North American Ventures Fund (financed by 19 Canadian financial and industrial companies, including Inco) and Bytec Management Corp. (which combines the technical knowhow of Mitel’s Michael Cowpland with the financial legerdemain of Conrad Black) are some of the more interesting recent Third Wave entrants.
Canada’s share of this potential bonanza will depend on how fast the 60 or so companies currently on the verge of significant breakthroughs can develop their markets. There is talk of a new generation of computers that will multiply the memory capacity of microchips by a factor of five and increase processing speeds by multiples of 10. (Only a couple of decades ago, computers with capabilities roughly equivalent to the models that shoppers now carry home from local Radio Shacks were so cumbersome they had to be installed in air-conditioned rooms with reinforced floors.)
There seem to be few limits in the size of future markets. Canada’s personal computer sales, for example, have been forecast to grow from $200 million to $3 billion during the next 30 months. “By the end of the 1980s,” Kirkland predicts, “high tech will have reached a worldwide sales volume of between $300 billion and $400 billion, exceeding all other industries except steel, automobiles and chemicals.”
Kirkland has a vision of Canada’s future, and it’s not built around smokestacks.
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