Montreal International StartUp Festival 2011 & Bubble Talk

The first edition of Montreal’s International StartUp Festival came to an end last Friday. The agenda of the festival was quite packed with an interesting mix of insightful speeches and networking events. It was a good opportunity to listen to numerous reputable keynote speakers and to meet promising entrepreneurs. For a first edition, the organizers did quite a remarkable job to attract a diverse audience. About half the 1,000+ participants came from the province of Quebec, 25% from the rest of Canada and the remainder came mainly from the USA.

There was plenty of discussion about lean product development, guerrilla marketing tactics, emerging business models, exit trends, and intellectual property management strategies. However, the subject that appears to have generated the most discussion and traction with the audience is whether we are in the midst of a new bubble. The debate is arguably only starting and unlikely going to abate soon.

It will be different this time?

Valuations of new technology IPOs such as LinkedIn are sky high, but the bulls argue that this time around companies are (1) making revenues (yes!), (2) profitable (some!) and pointing to the ever increasing adoption rate for new communication technologies by consumers on a global basis. Stephan Ouaknine of Inerjys Ventures addressed in his keynote the accelerating pace of technology uptake: “fixed telephony took 87 years to reach 150 million users, TV 37, Mobile phones 14 and Facebook… 5 years!” (fast forward 3 years later, Facebook is now at 750 million+ active users).

How to play the trend?

For the average investor, I generally advise to be cautious about these new issues. LinkedIn, Pandora, Groupon, etc. offer truly amazing services to users, but that alone doesn’t necessarily translate into good investments.  At a valuation of 25x to 60x revenues, it will take many years for these companies to grow into their aggressive valuation ASSUMING they match expectations. This more cautious view increasingly echoes that of other sell-side analysts such as J.P. Morgan (see stance on LinkedIn) and Gilford Securities (see stance on Pandora). As a value and growth at reasonable price investor, I am more comfortable recommending to most people to invest in relatively more “mature” technology stocks (Google, Apple, Cisco for instance) given a much more attractive relative valuation and a stronger competitive position. Whether the sector is in a bubble or not, the aggressive valuations remain somewhat limited to consumer internet, social communication and cloud computing plays. The froth building in these segments hasn’t spilled over to the rest of the market, yet (remember the day when Nortel represented ~30% of the TSX value). At the moment, few segments outside web 2.0 and emerging market stocks are offering compelling growth stories. Hence, as Paul Kedrosky rightly debated at the Festival and on Bloomberg last week, investors in the public markets are hungry for organic growth stories and are currently paying a handsome premium for companies displaying strong growth potential. It is difficult to time market swings, but we may be at the beginning of a bull phase for these stocks. Enjoy the ride, if you have the stomach! At least, if/when it pops the impact on the health of the market is likely to be more limited than in 2000. Despite all the talk, the sectors mentioned above represent a relatively small percentage of the overall market. There are other ways to position your portfolio to benefit from the rising tide, but unfortunately most alternatives are not within reach for the general public as there are few public issues available at the moment. The best investment opportunities are probably in the private equity market. The venture capital industry is recovering from a very challenging decade and I expect that it will post a strong performance over the next few years.

My appreciation of the StartUp Festival

Overall, I believe the festival was a success. I enjoyed taking part in this great event and I hope that it was the beginning of a long tradition. It puts Montreal on the radar screen for investors, highlights the dynamism of entrepreneurs in the city and it stimulates the entire entrepreneurial ecosystem.

I tip my hat off to the amazing organizing committee: Phil Telio, David Chabot, Rebecca Croll, Alistair Croll, Gloria, etc.

Some of my favourite speakers (no particular order)

Why NOT do a Startup – Dave McClure

Super Angels, Super Stars, and the Super-Sized Startup Myth – Chris Shipley

How to Raise Investment Capital – Jeff Clavier

Why IPOs Don’t Matter, the Art of Giving Yourself an Exit – Paul Kedrosky

It’s all About Shareholder Value – Stephan Ouaknine


Some of my favourite startup pitches (no particular order)

Morgan Solar

Fabric Engine




Vivek Wadhwa and Paul Kedrosky talk the tech bubble on Bloomberg 

About Ludovic Dumas

Ludovic transforms innovative companies into world-class organizations. He is an investment professional at an investment firm representing the interests of one of the most successful families in Canadian business. Before joining the private equity world, Ludovic was an investment banker at CIBC and with ING Group’s investment banking team in Frankfurt, Germany. Mr. Dumas was also a management consultant with Deloitte where he worked on corporate strategy, restructuring, market analysis, due diligence, and economic development mandates. Specialties Mergers & acquisitions, capital raise, corporate strategy, entrepreneurship.
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