Friday interview with technology debt pro Mark Usher

To celebrate his first year with our firm, I thought it was timely to turn the tables on our own partner, Mark Usher. With 15 years of experience at The Royal Bank of Canada, Mark left his job as Vice-President of the RBC Ontario Knowledge-Based Industries Group to join our entrepreneurial firm. When he left, RBC had the dominant debt presence in the local tech world, with hundreds of happy customers.

Obviously, working at a shop with 8 people is a trifle different than 60,000, and our balance sheet doesn’t hold a candle to RBC’s. Although it is nice to know that our limited partners, as a group, probably have more assets under management – their financial resources – than the big 5 Canadian banks share capital combined.

Mark just closed his 4th deal in the last five months, so he’s obviously made a successful transition.

Question #1: When you meet with a growing tech firm, what financing tools can you offer them in your new role that are usually a push in a banking environment?

The most frustrating aspect of my role @ the bank was meeting a company with great technology, customers, management, and opportunities, but if they didn’t have each of positive cashflow, asset coverage and a “properly” capitalized balance sheet, I couldn’t really help them in a meaningful way. At Wellington Financial, we’ve figured out that a company with the attributes mentioned above has an inherent value significantly beyond what its balance sheet would otheriwise indicate, so we lend against the attributes/assets not neccesarily recognized on its balance sheet (ie. intellectual property, customer contracts, financial forecasts).

Question #2: What trends have you seen evolving in the tech debt market during your first year?

There is an increasing opportunity for firms like ours as companies that were funded 3-6 years ago have largely weathered the storm and the strong have survived. These companies have opportunities in front of them, but due to a combination of valuation problems, investor fatigue and/or lack of liquidity, and a thinning of the VC heard, these companies can’t raise equity to support these growth opportunities. The irony is that a large part of the technology and market risks inherent with tech startups have been overcome, so the riskiest part of the investment period is over. These companies need true growth capital to achieve the product or sales milestones that would lead to a large valuation bump and managment and investors are turning to venture debt as this source of growth capital.

Question #3: How have the customer prospects responded to your move to an independent firm?

It has been great. I was initially overwhelmed with the enthusiasm and support I received from the marketplace when my news got out that I was leaving RBC. People in the marketplace always told me I was different than any banker they had met before and I always took that as a compliment. I suppose I was in denial for a long time about entrepreneurial itch.

Question #4: Is the shuttering of the Toronto Venture Group, for example, a bad omen about what is going on in the local tech market?

I’m afraid so. My opinion is that there is a significant lag time in the high tech marketplace. The changes and shocks to the marketplace from 2001 took about 5 years to affect the economic viability TVG. My real concern is that blue chip VC firms looking to raise funds right now need to be successful for fear we won’t see another RIM, Open Text, or even the most recent companies that have completed successful IPOs for a long time.

Question #5: Do you find the tech debt industry more competitive than it was a few years ago? Is that helping customers, or are some new entrants not being compensated for the risk they are taking?

Given there is a fair bit of art to the science of the tech debt industry, beauty is in the eye of the beholder. Competition is always good for customers, and as a tech debt provider, one can’t evaluate the quality of their decision for typically two or three years. But yes, having done this for a while, there is risk in this business and one needs to make sure you are properly compensated for it. One’s memory and experience is a very valuable asset in this business.

Question #6: Let’s talk about your favourite subject: golf. What do you learn about people on the course?

I am passionate about golf. Nothing better that hitting one right on the screws and ending up stiff to the hole! But I also love taking people I’m considering doing business with out on the golf course. Unless your Danny King or Richard Scott, a round rarely goes as planned (and even they might disagree). There is adversity lurking around every corner. I love to see how people handle adversity on the golf course because in business, adversity also lurks around every corner. Do they take it on the chin and make the best of it, or do they temporarily forget how to count. I think if you pay attention, there are lots of clues about people to be found on the golf course.

Question #7. What’s on your iPod?

My wife and I were just talking this morning about getting her an iPod for her birthday and loading it up with tunes now for our annual sojourn to Maine with the chitlin in a week. I’m a bit of an 80’s pop freak, so our plan is to fill it with Queen, REM, Blue Rodeo, Tragically Hip, Bon Jovi, Guns & Roses. Oh yah, gotta get that new Fergie tune – love it!

Thanks, Mark. It’s been a great 12 months.
MRM