Like hundreds of other small companies, 3D Systems in Sylmar has been working on a technological breakthrough.
3D's machine, about the size of a refrigerator, uses lasers, ultraviolet lights and plastics to produce models of parts--for everything from automobiles to jet engines--in hours instead of the weeks required with conventional design materials such as modeling clay, foam, metal and wood.
Next month, General Motors will take delivery of 3D's first model-making machine to be used in computer-aided design.
Is 3D just another small company with a hot idea that is immediately swamped with funding offers from savvy American venture capitalists? Not really.
Last year, 3D Chairman Raymond S. Freed was convinced he had a great idea; what he needed was $5 million to get into production. So he contacted such venture capital firms as Hambrecht & Quist and Robertson, Colman & Stephens in San Francisco.
Volatile Vancouver Listings
But Freed didn't like the terms offered by American venture capitalists. Instead, he went further north, striking a deal with a Canadian venture capital firm that in turn sold a big piece of 3D's stock to the public via one of the most volatile stock markets in the world, the Vancouver Stock Exchange.
Freed couldn't be more delighted. He hadn't even thought of taking 3D public. "I really didn't know how, and two, I was spending 90% of the time working on the (production) process," he said.
For most of its 80-year history, the Vancouver exchange has been known as the favorite market of oil and gas drillers, gold miners and occasional unsavory promoters who used the exchange to peddle penny stocks and other speculative issues that often gyrated in price.
But in recent years the Vancouver exchange has developed a niche as a venture-capital arena, cultivating its reputation as a convenient financing vehicle for young companies that might not qualify for listing on the major U.S. and Canadian markets.
3D's listing exemplifies how the exchange has changed, attracting an increasing number of American high-technology firms. 3D is one of nine California technology companies listed on the Vancouver market.
Natural resource firms still account for about 65% of the 2,080 stocks listed on the Vancouver exchange, but that percentage is down from 95% a decade ago, said Alfred Woo, the exchange's vice president for listings. If that means the VSE remains a risky place for investors, so be it. "That's the nature of our market," Woo said. "If you know what you're getting into, we're not going to decide if it's meritorious."
3D chose the Canadian route after the major U.S. venture-capital firms gave a cold reception to the company's request for $5 million in seed money. The firms were cautious about investing in an unproven technology, Freed said, and some wanted operating control in exchange for what funds they would provide.
Robertson, Colman & Stephens, Freed recalled, was willing to invest in 3D, but only with strict controls. "They'd say, 'We'll put in $250,000, and we'll wait until you get to this milestone and then we'll renegotiate what we think you're going to need,' " Freed said. "This was going to be nickel-and-diming us to death."
At the urging of a friend, last year Freed instead contacted a Vancouver venture capital firm, Lionheart Capital. Within two weeks, the firm agreed to invest $4.8 million in exchange for 70% of 3D's stock, yet left Freed, 60, in charge of 3D's board of directors for four years.
"We saw a substantial product" at 3D, Logan Anderson, a Lionheart director, said. "We put our money up and let them go to it."
It was a savvy move by Lionheart. After creating a holding company called 3D Canada to hold its stake in 3D Systems, Lionheart recouped its investment last month by selling 25% of 3D Canada to the public for $2.35 (Canadian) a share.
Any additional shares Lionheart sells will be pure profit.
True to the Vancouver exchange's history, 3D's stock has been volatile. Shortly after going public, the stock soared to $9 a share. It has since dropped to about $5.50, the equivalent of $4.25 in U.S. money.
But the focus of investor interest is 3D's technique for making plastic forms of new designs.
An auto maker, for instance, even with computer-aided design, also called CAD technology, can spend weeks making several prototypes of, say, a car's side-viewmirrors before settling on the one model that will be used in production. The auto makers "go through fits just making the ducting for the air conditioning" in cars, Freed said. 3D contends its machine can do the same job in a few days or less.
Time is money in the car business.