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Wednesday, 4 September 2013
STEM 7 shaking trees to stir up innovation around the world
Emerging markets and their entrepreneurs have put a twist into the old get-rich anthem "Go West," as companies like STEM 7 Capital (CVE:CI) attempt to mine wealth in growth regions to fund on-the-cusp companies in developed and emerging nations.
STEM 7 sees an opportunity to not only help companies in Silicon Valley, San Jose, Toronto and the like expand into new parts of the world by co-investing with established investors in emerging and aspirational markets, but also to foster the growth and migration of innovation into and between knowledge-centric hubs in places like China, India, Singapore and the countries of the Gulf Cooperation Council, including the UAE and Saudi Arabia.
"Our model is to facilitate, advise and invest in entrepreneurs and companies seeking to migrate into, from and between emerging markets,” says Tom Sweeney, STEM 7's executive chairman and managing director. “We do this by co-investing with the local funds, angels and famly offices, including in deals where these investors have already taken the initial risks to source and invest in great teams.”
From the Canadian perspective, the novelty of STEM 7's approach is juxtaposed against a backdrop of a perpetual financing drought in Canada, where many high-potential ideas go belly-up or get sold too early because access to capital is limited.
"There is a huge amount of invention and innovation in Canada,” Sweeney told Proactive Investors. “The problem is we don’t have the contiguous capital to support it across multiple technology sectors in our major cities. The guys that get funded typically have a great story. But the moment they sense that there’s any kind of financial stress many of them try to go to the U.S. They actually have other choices,” says Sweeney.
Part of Canada's challenge, Sweeney explains, is that “we have a natural bias to look south for capital and markets in a national, knowledge based economy that is trying to grow on the back of the limited funds that we have." Indeed, early-stage venture capital firms like Pinetree Capital (TSE:PNP) or Difference Capital (CVE:DCF) can only save the day so many times.
As natural as it seems, lumping STEM 7 into the same category as Pinetree or Difference doesn't accurately portray what the company will become once it passes all the regulatory flag posts, on track to happen by the end of November. Its shares have been on a regulatory pause since May as it undergoes the transition from its previous incarnation as cash-starved junior miner, Canada Gold Corp., to an investment firm.
"We're public, but we're not a public VC fund," Sweeney says. A better way to describe STEM 7 which, incidentally plans to list on NASDAQ Dubai next year, is as a global investment bank. "It's basically a rainbow investment play where the colours represent multiple technologies (ICT, TMT, life science, cleantech, energy, materials, food & water security, etc) and the end points are located in two markets, typically separated by an ocean or a continent.
“We don't compete for investments with local investors. We co-invest with them and give our own investors access to deals they would never otherwise see, in and from some of the world’s most exciting emerging markets."
The bigger opportunity, beyond growing into and out of emerging markets, is moving from one emerging market to another. The opportunity exists, Sweeney says, because there are rapidly growing companies in China and India, for example, that are seeking access to other emerging markets. “Very few venture capital funds in any market, including the United States, have the relationships or the interest to take their companies into these places, including Saudi Arabia or Shanghai. We help them do this.”
The company will eventually take shape as an exempt market dealer. In the meantime, it is drumming up interest in the U.S., China, India and Nigeria as it aims to raise $800,000 in "walk-around" capital. The money will come in the form of a private placement, consisting of 16 million units at a price of five cents a unit. Each unit will consist of one common share plus one warrant worth 10 cents each.
With a comfortable amount of capital under its belt, STEM 7 will follow its model of generating cash by means of co-investing in technology companies, royalties through joint ventures and fees charged to orchestrate matches between investors and entrepreneurs moving into, from and between hotbeds of innovation and economies that are diversifying from their core industrial bases.
Sweeney, who currently is on the investment committee of Sustainable Development Technology Canada and holds investment advisory positions in Europe and the Middle East, has an extensive background in emerging technologies with a focus on international markets. His team includes Sunil Sharma as a managing director.
Sharma is co-founder of Extreme Startups, the creation of five Canadian venture capital funds that specializes in cultivating the next generation of disruptive technologies.